Fission Energy receives increased price target from Versant Partners

Based on the latest white knight $578 million offer by Rio Tinto (NYSE:RTP) for uranium company Hathor Exploration (TSE:HAT), peer Fission Energy (CVE:FIS) received Thursday an increased price target from equity research firm Versant Partners.

Versant said that it has raised its target for Fission, whose Waterbury Lake joint venture property is located adjacent to Hathor's Roughrider deposit in Saskatchewan, to $1.60 from $1.50, with a maintained "buy" recommendation.

Yesterday, Rio Tinto threw its hat into the ring for Hahor, offering 4.15 per share in cash for a total value of $578 million, an 11 percent improvement over Cameco’s (TSE:CCO) August hostile bid of $3.75 per share and a 55 percent premium to Hathor's closing price prior to Cameco’s proposal. Hathor's board unanimously recommended Rio Tinto's offer, with senior managment already entering lock-up agreements in support of the deal.

"Rio Tinto’s offer for Hathor represents a market capitalization per pound valuation of $9.97/share on a fully diluted basis. We believe that in light of the fact that at least two suitors exist for Hathor and combined with the likelihood that the eventual winner will want to consolidate the land package directly west of Roughrider, a bid of at least $11.00/lb on a Mkt Cap/Lb for Fission’s Waterbury project is warranted," Versant said in its research note.

Versant noted that while the Rio Tinto deal is not subject to any financing conditions, Canada’s Non-Resident Ownership Policy limits foreign ownership in mines producing uranium to 49 percent.

"While Hathor’s assets are still in the exploration phase, the mining law will need to be changed or Rio Tinto will need to find a Canadian partner if it ends up winning the battle for Roughrider. This would not be the first time a foreign entity acquired a majority interest in a Canadian uranium property as Australia-based Paladin Energy (PDN-TSX) purchased Aurora Energy Resources and its Labrador-based Michelin deposit from Fronteer Gold
in February of this year," Versant said.

So far, Hathor's share price has traded above the $4.15 per share Rio Tinto offer, suggesting the market believes a superior offer is on the way, with Versant noting that Cameco has ammunition to increase its bid due to its dominant position in Saskatchwan's Athabasca Basin. This can only mean good news for Hathor's neighbour, Fission.

Versant explained: "Due to the bidding war between Cameco and Rio Tinto for Hathor Exploration, we believe Fission Energy could be the next in-line to be acquired due to the proximity of J-Zone and J-Zone East to Hathor’s Roughrider zone as well as because of the quality of the deposits themselves."

Based on current drilling results, Versant estimates that the J-Zone currently contains about 17.9 million lbs of uranium.  Meanwhile, J-Zone East is located right at the Fission/Hathor border and is likely the shallower, western extension of Hathor’s Roughrider deposit. It is located 30 metres east of the J-Zone and is Fission’s eastern-most zone along the Discovery Bay Corridor.

Immediately to the east of J-Zone East lies Hathor’s Roughrider deposit that contains 57.9 million pounds of uranium in three distinct “pearls” that continue along the Discovery Bay Corridor.

Fission's management expects the first NI 43-101 complaint resource estimate for J-Zone  to be completed before the end of the year, which Versant currently anticipates to come in at around 17.98 million pounds of uranium at a grade of 2.1%.

Indeed, Fission shares have increased 46 percent following Cameco's bid for Hathor. Yesterday, Fission's shares popped 16 percent after Rio Tinto's offer, and rose another four percent today, to close at 78 cents.