TORONTO (Reuters) - Cameco Corp (CCO.TO) said on Monday it is backing out of a bidding war for Hathor HAT.TO, after Anglo-Australian miner Rio Tinto (RIO.AX) sweetened its bid for the Canadian uranium explorer to C$654 million.
“After careful consideration we cannot justify increasing the price beyond our current offer and accordingly, we will let our offer lapse,” said Tim Gitzel, chief executive of Cameco, Canada’s largest uranium miner.
Cameco and Rio have been locked in a battle to acquire Hathor, which controls the large exploration-stage Roughrider project in the uranium-rich Athabasca region of Saskatchewan in Western Canada. Both companies see demand for uranium growing despite the pressure on the nuclear industry in the aftermath of the Fukushima disaster in Japan.
Allowing the bid to lapse will not set back Cameco’s plan to double annual uranium production to 40 million pounds by 2018, Gitzel said in the statement.
Even so, investors may worry that missing out on Hathor will make it more difficult for Cameco to reach that goal, BMO Capital Market analyst Edward Sterck said.
Cameco has struggled with delays at its Cigar Lake project in Saskatchewan and with permitting issues at its U.S. assets.
“While acquiring Hathor was not essential for Cameco to meet guidance on BMO Research’s forecasts, the acquisition would likely have provided the company with production flexibility,” said Sterck.
The Roughrider project is located just 25 km (15 miles) southeast of Cameco’s Rabbit Lake mill and has the potential to produce at least 5 million pounds of uranium a year.
Cameco made a hostile C$520 million bid for Hathor in August, after talks aimed at a friendly deal fell apart over price. Rio emerged as Hathor’s white knight in October with a C$578 million bid.
Earlier this month, Cameco raised its bid to C$625 million, but Rio was quick to counter with a C$4.70 a share bid worth C$654 million, leading many analysts to speculate that Cameco would back-out of the race, as the price was already more than 25 percent higher than its original bid.
Analysts said Cameco might have justified a higher bid on strategic grounds in terms of keeping Rio out of the Athabasca Basin. That said, paying more for Hathor would have diluted for Cameco results on most metrics.
Investors though were betting that the bidding war would escalate, and shares of Hathor closed well above Rio’s offer price at C$5.05 a share on Friday.
By backing away, Cameco has conveyed a strong message to the market, said Dundee Securities analyst David Talbot in a note to clients.
“Most importantly, it can’t be pushed into doing something it doesn’t feel comfortable doing,” he wrote. “The company remained disciplined, sticking to its corporate culture.”
Cameco said that it is focused on developing its existing assets and that it will explore other growth opportunities where there is a clear benefit to shareholders.
($1= $1.03 Canadian)
Reporting by Euan Rocha and Julie Gordon; Editing by Frank McGurty