DBRS Comments on Rio Tinto’s Offer for Hathor Exploration

DBRS notes today that Rio Tinto Plc & Rio Tinto Ltd. (collectively, Rio Tinto or the Company, rated A (low) with a Stable trend) has announced that it will make an all-cash offer for all the common shares of uranium explorer Hathor Exploration Limited (Hathor), which would represent a cash consideration of approximately $578 million if completed successfully. Rio Tinto’s announcement indicates that Hathor’s board unanimously recommends that shareholders accept the Rio Tinto offer. The Rio Tinto offer comes on the heels of an unsolicited offer made for Hathor by Cameco Corporation (Cameco or the Company, rated A (low) and R-1 (low) with a Stable trend) initially announced on August 26, 2011 (see DBRS press release, “DBRS Comments on Cameco $520 Million Offer for Hathor Exploration” dated August 26, 2011). Cameco’s bid is still outstanding.

DBRS believes that from a Rio Tinto perspective, the offer to acquire Hathor is consistent with its existing business profile, which includes uranium mining operations outside of Canada. In addition, the scale of a potential Hathor transaction as currently proposed is small for Rio Tinto and unlikely to affect the Company’s financial profile or credit rating.

DBRS views Cameco’s offer for Hathor as consistent with its existing uranium mining operations in Saskatchewan and affordable given Cameco’s strong balance sheet and solid liquidity, with $1.2 billion in cash and short-term investments on hand at June 30, 2011. In August, DBRS also indicated that in view of the fact that Cameco’s offer for Hathor was being made on an unsolicited basis, the final terms of the offer were uncertain. The Rio Tinto bid heightens that uncertainty and, at this stage, Cameco’s reaction to the offer has not been made public.

Accordingly, DBRS intends to monitor the events around any potential Hathor transaction until the outcome is more certain for either Rio Tinto or Cameco.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Mining Industry, which can be found on our website under Methodologies.