Monday, September 18, 2006

Sep 18 Uranium Stocks Update: International Uranium Corporation (TSE:IUC)





With today's merger announcement between IUC and Denison Mines (TSE:DEN), a new $1 billion market cap uranium mid-tier powerhouse emerges with the ability to produce 5.5 million lbs of uranium by 2010. Let's take a look at the details taken from various news sources, along with some of my thoughts.

The deal values Denison at about $518 million and its shares at $17.02 based on share prices Monday. IUC has a market capitalization of about $523 million.

The combined company, named Denison Mines Ltd., will have cash and short-term investments of $127 million and no long-term debt. Existing IUC and Denison shareholders will each own approximately 50 per cent of the new company, which will have about 176 million common shares outstanding after the merger.

The CEO of Denison, Peter Farmer, with be the CEO of the combined company while the CEO of IUC Ron Hochstein will be President and COO. The Infamous IUC Lukas Lundin will be chairman of the combined company.

Each company is expected hold a special shareholder meeting in November to vote on the transaction. The deal is expected to close by the middle of December.

Analysis

While I was slightly disappointed that there was very little premium on IUC, I am at the same time hopeful for the future of this compnay. Denison and IUC made much more sense than a merger between Denison and SXR, for example, partially because of SXR's potential financial constraints secondary to their recent purchases in the past few months.

The Denison-IUC merger allows the Canadian uranium assets of Denison to be melded with the American assets of IUC. The McLean Lake mill, of which Denison owns a stake in, combined with the White Mesa mill of IUC, affords the combined company plenty of milling capacity for their U3O8 production.

Management is also strengthened by the merger, with even more experience and influence concentrated together. Many companies would kill to have the management qualifications of either company, let alone in one. And as always, it's nice to have a Lundin getting your back..

Combined together, Denison-IUC slots nicely in front of SXR and just behind Urasia Energy (UUU.V) in terms of market capitalization, making it the the fourth biggest uranium company listed in Canada, lagging only behemoth Cameco (CCO.TO), Paladin (PDN.TO), and Urasia.

I'm looking for continued M&A activity in the uranium sector, and several uranium juniors including one of my recommendations, Ur-Energy (URE.TO), seem to be prime candidates for a takeover
 

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