DBRS Comments on Cameco $625 Million Offer for Hathor Exploration

DBRS notes today that Cameco Corporation (Cameco or the Company, rated A (low) and R-1 (low) with a Stable trend) has announced that it intends to increase its unsolicited offer to acquire all of the outstanding shares of uranium explorer Hathor Exploration Limited (Hathor) for cash consideration of approximately $625 million, a $105 million increase over Cameco’s initial offer for Hathor of $520 million, made in August 2011. Cameco’s increased offer for Hathor follows the October 19, 2011, announcement by Rio Tinto Plc & Rio Tinto Ltd. (Rio Tinto, rated A (low) with a Stable trend) that it would make an approximately $578 million all-cash offer for Hathor, which was unanimously recommended by Hathor’s board.

Cameco has a strong balance sheet and solid liquidity, with $1.2 billion in cash and short-term investments on hand at September 30, 2011. DBRS continues to believe that the acquisition of Hathor would align well with Cameco’s existing uranium business, would be affordable for the Company and, accordingly, would not be expected to result in a change in the Company’s ratings if completed as currently proposed and at a cost of approximately $625 million. Nevertheless, the outcome of the competition between Cameco and Rio Tinto to acquire Hathor is not yet clear and we intend to continue to monitor the contest as it evolves.

Cameco has reported third-quarter 2011 operating results since its initial offer for Hathor was made in August 2011 and although progress has been made compared with the first half of the year, with operating earnings for Q3 2011 ($102 million) exceeding both the first and second quarters of the year, further improvement is expected, with Cameco projecting more than one-third of its 2011 uranium deliveries to occur in the fourth quarter.

Cameco has indicated that its increased offer will expire on November 29, 2011, unless extended or withdrawn. Rio Tinto’s bid for Hathor currently expires November 30, 2011.

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.