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As announced on June 24, Fission Uranium (FCU.CN, FCUUF) entered into a definitive plan of arrangement with Paladin Energy (PDN.AU), pursuant to which Paladin will acquire 100% of the issued & outstanding shares of Fission. Specifically, Fission shareholders are to receive 0.1076 shares of Paladin for each Fission share held at the closing date of the transaction, estimated to be in September 2024. The offer represents an implied value of C$1.30 per Fission share, equating to an implied equity value of C$1.14B. The offer is at a 28.5% premium to Fission's closing price of C$1.03 on June 21, 2024 and represents a 30.0% premium to the 20 day VWAP. Once the transaction closes, Fission shareholders will own 24.0% of Paladin which will have a pro-forma market capitalization of ~$3.50B. We see the offer as fair, as it represents our current valuation for the stand-alone PLS Project (Triple R deposit), when using the current spot uranium price of $85.0/lb. We don't foresee any additional bidder for the company. We change our price objective for the company, going from C$1.90 per share ($120.0/lb LT at a 0.85x NAV8%) to Tender at the stated C$1.30 per share implied offer. We don't foresee the emergence of any other competitive offer.
Positioning to be one of the premier, global uranium companies, Paladin's bid for Fission marks its entrance into the Athabasca Basin. No stranger to Canada however, Paladin already is active in the country as it is currently developing the wholly-owned Michelin uranium deposit (six deposits totaling 127.7M lbs), located in Labrador. Paladin's rationale for the bid is simply to diversify and add to its production pipeline. Seeing as the 17 year LOM Langer Heinrich Mine (Namibia) was recently placed back into commercial production, an estimated 2029 start of Patterson Lake South (Triple R deposit) production fits well in the pipeline. This adds a much nearer term project to Paladin's pipeline since the PEA level Michelin Project will likely require another decade before an estimated ~2035 for production start.
Should this transaction close, on a pro-forma basis, Paladin would have the third largest mineral resource amounting to 544M lbs attributable (Patterson Lake South being 130.3M lbs alone). This would rank the company just behind Kazatomprom (KAP.LN) at 1.323M lbs and Cameco (CCO.CN, CCJ) at 1.047M lbs. Not to mention that on a pro forma basis, the market cap would increase to $3.50B, placing the company in fourth place behind the two aforementioned companies and NexGen Energy (NXE). We also note that Paladin has applied to list its shares on the Toronto Stock Exchange, concurrent to the completion of the transaction. Though we previously mentioned that the implied C$1.30 per share bid equates approximately to our valuation of Triple R when using the current $85/lb spot uranium price, we note that Paladin's offer also represents a decade+ high when it comes to $/lb valuations in the Athabasca Basin.
Extending the $/lb M&A analysis to the more significant, global transactions, as can be seen from the graph below, Paladin's offer also represents a decade+ high and ranks near the top for any transaction consummated in the post-Fukushima period. For reference, note that the average transaction (ex- the current Paladin/Fission offer) amounts to $3.71/lb.
As per development schedule for PLS, Provincial level environmental approval is expected to be received come September. Detailed engineering is still required while the need for capital becomes a 2027-2028 event. Federal approval by the Canadian Nuclear Safety Commission (CNSC) required for construction, is expected in the next ~3 years.
As is customary, voting on the proposed transaction will require 66.67% of the votes cast by Fission shareholders. A termination fee of C$40M will be payable by Fission to Paladin if the agreement is terminated in certain circumstances. Ultimately, the transaction is expected to close in September 2024.
Given the news, we change our price objective for the company, going from C$1.90 per share ($120.0/lb LT at a 0.85x NAV8%) to Tender at the stated C$1.30 per share implied offer. We don't foresee the emergence of any other competitive offer.
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