Fission Uranium May Go Hostile with Alpha Minerals

August 30, 2013

Excerpt from Vol 12, No 534 published on 29 Aug 13:

Canadian miner Fission Uranium Corp. (TSX:FCU) is considering a hostile
bid for Alpha Minerals Inc. (TSX:AMW), its 50% joint venture in the Patterson
Lake South uranium exploration project, after Alpha asked for more than 48
hours to consider Fission’s C$171 million buyout offer.

“If Alpha continues to refuse to engage with Fission on the proposal, Fission
will consider making a formal offer directly to Alpha’s shareholders,” Fission
said on Monday.

Last Friday, Aug. 23, Fission extended an offer to Alpha’s board of directors to
acquire all issued and outstanding shares via a share transaction.

Under the offer each AMW shareholder would have received 5.3 commons
shares of FCU, or C$7.26 per AMW share, a 6% premium to AMW’s Aug. 23
closing price. But Alpha was given a little over two days, from 4:00pm Aug. 23
to 5:00pm Aug. 25, to make a decision.

In Monday’s announcement on the offer, Fission said that Alpha Minerals had
not “engaged in any meaningful discussions.”

Alpha, meanwhile, said in an Aug. 26 statement that it sent Fission a written
response before the deadline, asking for more time to consider the proposal
and expressing concern about its timing, considering “the on-going active and
very material drill program” at Patterson Lake South.

“In light of these considerations, Alpha requested additional time from Fission
beyond the expiry time to consider the proposal and its implications to the
Alpha shareholders,” Alpha explained.

Poison Pill Without Consolidation

For its part, Fission said that the current JV is “sub-optimal from both a
development and value maximizing perspective” and “represents a built in
‘poison pill’ on PLS.

“However, we believe it has outlived its usefulness,” said Fission.
“Given the strength of the results, (the JV) actually leaves both
parties exposed to not trading with the proper premium, given
that neither company has control of PLS.”

The poison pill argument is one institutional investors are
concerned with. “

As is,” wrote Cantor Fitzgerald’s Rob Chang in an Aug. 26 update,
“AMW and FCU are a poison pill for each other.”

Chang echoed some of Fission’s arguments for a merger,
adding that “a larger public float given the combination of both
companies…will lead to increased liquidity.”

Dundee Capital Markets concurred. “The inherent ‘poison-pill’
has gone from benefitting shareholders to probably negatively
impacting both,” wrote Dundee’s David Talbot on Aug. 26.
“As it stands potential suitors would be required to purchase both
companies to control 100% of the project,” he continued. “The
current 50:50 structure makes that a much more challenging
and expensive process as both FCW and AMW would have to
be purchased.

“A combined entity presents a tighter package and more appealing
take-over target. For that reason we don’t see any other logical
buyer for just Alpha itself, although it remains a possibility,”
Talbot concluded.

Investors More Confident in Fission Team

But it isn’t as though the two companies haven’t already been
weighing a tie-up.

In its Aug. 26 statement, Alpha said it and Fission have been in
talks about consolidating their operations “over the past several
months,” given their 50-50 joint venture and the consistently
spectacular exploration and assay results from the deposit, which
is located in Saskatchewan’s Athabasca Basin.

Fission Uranium itself was only recently established, the result
of Denison and Fission Energy’s property swap and spin out of
the Patterson Lake South asset under the ownership of Fission

With respect to the timing of Fission’s move, Cantor’s Rob Chang
offered some insight, noting that AMW is scheduled to take over
project management next April when the biannual operatorship
changeover occurs.

“We have more faith in the execution and ability of the FCU
management team than the AMW management team,” Chang
wrote. FCU “is responsible for all of the developments since
April 2012—which is ostensibly all of it.”

Based on the share prices of each company in the two weeks
leading up to the offer, it would appear that investors are also
more confident in the Fission team.

Both Cantor and Dundee noted that Alpha has traded at a
discount to Fission at an average of some 6% during the period.
A Dundee analysis showed that trading volumes for Fission
averaged 5.53 million shares between Aug. 12-23, at an average
dollar volume of C$7.1 million.

By contrast, just 280,000 AMW shares were traded during the
same period, at an average dollar volume of C$1.83.

Still, Cantor Fitzgerald believes it is “a little too early” for PLS
to be consolidated because Cameco, Denison or even Rio Tinto
could “swoop in and offer a (theoretical) 50% premium and steal
the project before it develops further.”

Drilling at the 31,039 hectare Patterson Lake South project
has discovered significant high-grade and shallow uranium
mineralization in 4 on-strike zones along a 1.05 kilometer trend.
A C$6.95 million, 44 hole, 11,000 meter drill program and ground
geophysics surveys is currently in progress at the deposit. •

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