Article following an interview with Matt Keevil of Northern Miner

Fission Uranium CEO dishes on Alpha deal

Merger puts 100% of PLS uranium deposit into Fission’s hands

Soon after Fission Uranium (TSXV: FCU) clinched a merger with Alpha Minerals (TSXV: AMW), its 50% partner at the Patterson Lake North (PLN) uranium project in Saskatchewan’s Athabasca basin, Northern Miner staff writer Matthew Keevil spoke with Fission chairman and CEO Dev Randhawa about the deal. The interview follows an initial conversation the two had in August, just before Fission announced its initial offer for Alpha. (The two companies eventually agreed on a $185-million deal that would see Alpha receive 5.725 Fission shares for each Alpha share, and would spin out Alpha’s non-uranium assets into a separate company.)

Coming close on the heels of Denison Mines’ (TSX: DML, NYSE-MKT: DNN) takeover of Fission predecessor Fission Energy, primarily for its 60% stake in the Waterbury Lake project in the Athabasca, this will be the second M&A deal Fission has been involved with this year.

In this interview in September, Randhawa talks about the details of the merger, and the prospects of a third deal.

Matthew Keevil: I think a lot of us might be wondering about the timing of the deal: Just how long had it been in the works?

Dev Randhawa: I think once we sold the assets to Denison Mines it was obviously just a question of “when are these companies coming together?” I remember an investor saying that whichever company ended up with the higher premium following that deal would end up in charge, and that’s the way it should be. But that was a concern for us. We did not want to be acquired because we feel we were the people who should be running this deal based on the results that Ross (McElroy, president and chief operating officer) and Ray (Ashley, vice-president exploration) have been coming up with at PLS.

We were aware of the necessity to have Patterson Lake South (PLS) under one umbrella. I mean as long as there were those two companies you have that built-in “poison pill.” You know when you’re trying to acquire an asset and it’s like chasing two barn cats; you try to buy one and it’s almost inevitable the other party ends up holding out. We wanted to make the acquisition opportunity that much more attractive.

MK: And what would you say led to Fission having a higher premium relative to Alpha Minerals?

DR: I like to think it was a function of two things. Firstly, we do have some strong projects in the company that have demonstrated pretty good results, basically as good as any prospects in the entire Athabasca Basin.

Our Northshore asset has a large, promising outcrop on it, and we’ve seen showings up at Beaver Creek that run around 3.5% U₃O₈. More importantly, we’ll be holding onto our patented boulder-finding technology, so that’s basically a way to “prospect by playing.”

MK: So just to clarify, Alpha will not have access to Fission’s boulder-finding patents?

DR: We had discussed potentially putting a value on that technology and including it in the deal, but that didn’t work out, so we maintain exclusive rights under our patent. You have this entire edge of the Athabasca Basin, and I guess technically it is currently outside that boundary, but you can take this technology and do prospecting you would normally have to do by hand, by air.

I think that’s a pretty significant advantage going forward when it comes to project generation. I’ll admit I was surprised when we came to the table with the idea of putting a value on that technology, and Alpha basically told us it was zero.

MK: Was there something specifically that kick-started the negotiation process and led to the eventual deal?

DR: It was actually Alpha shareholders that approached us about making it happen. I think we had around 30% of the Alpha share base come to us one by one. We had one major shareholder start the process, but eventually we had this large portion of investors saying, “Well how about now?”

I wasn’t sure because I didn’t know if Alpha would be interested in selling to us at this time, but those shareholders told us it didn’t matter because they were tired of trading at a discount to Fission and wanted our liquidity. I mean even after the announcement I think we traded around $3 million in equity and I think Alpha traded around $700,000 worth, so that’s basically four times their value on our end.

MK: It seems like the deal went through a couple iterations before you came to the current structure, can we get a little colour on that process?

DR: I want to make it very clear that every decision we made was not made in a vacuum. We spoke with a number of shareholders to figure out exactly what was fair when it came to that compensation. Our banker knows a lot of these shareholders personally, and we felt fairly confident we had that 30% locked down going into a bid. Originally, we offered to take them out completely at that 5.3 per share premium, but then we came together on the idea to go ahead with the spin-out companies. Again, basically everything we designed here was heavily influenced by those Alpha shareholders.

MK: Since the initial offer didn’t get things done, was there a plan to go hostile?

DR: We were totally ready to go hostile. We had hired Kingsdale Shareholder Services, and basically what we were hearing from the investors on Alpha’s side was that if management didn’t want to go with Fission that was fine, but the shareholders wanted to go with us. I suspect we would have had the votes anyway, but I’m quite glad it ended up amiably. It’s funny, you look at it and some people might comment on the dilution we’ll be seeing as a result, but the fact is, it’s a lot of the same shareholders, and we’re comfortable with the hands those shares will be going into.

MK: Just turning to your spinout company for a moment, I gather pretty much every non-monetary asset outside of PLS will be in your new vehicle?

DR: Yes, we’re basically spinning out all of our property assets outside of PLS, though as mentioned, we’ll be keeping that patented technology in the current Fission vehicle. We put our investment banking hats on, and thought of it from a new IPO angle.

We’ll likely be drilling at Northshore in the future, as how could we resist punching a hole there? I think people are realizing that’s a pretty good asset to start a new company with. At Clearwater, we’ll look at doing a joint venture with someone, as it is not a crucial asset for us. Plus, we’d like to help out some of the local companies who might be having some trouble raising capital.

MK: And how is your cash position looking assuming this deal closes?

Between Fission and Alpha we have gross around US$33 million at the moment, but I’m going to be aggressive and say that the transaction will cost us around $8 million. I mean you have to pay for both sets of advisors, legal bills, and I can see a few other things adding up there. Then you have US$3 million going into each spinout, so the math is there. We’ll be fine for cash in regards to Fission Uranium and PLS going forward though.

We’ll need to do another raise on our new company, but I don’t foresee that coming until January.

MK: When last we spoke, you mentioned you did not foresee PLS getting to the resource stage prior to a larger takeover. Has anything changed?

DR: No, I still don’t really foresee us getting that far with the project before someone takes us out. I mean this summer drill program is one of the largest seen in the Athabasca Basin by anyone in quite some time, and we’ll be going right through the winter. So assuming we sell in the spring, I don’t see that resource happening. I mean everyone has their models, and they tend to range from 38 million to 54 million lbs. of uranium.

One thing people don’t have is the density, but I think it’s reasonable to make an educated guess there. I can tell you that both AREVA and Cameco (TSX: CCO, NYSE: CCJ) have their models done on the deposit. What makes PLS so simple is that it’s high grade and it’s shallow. That gives a degree of flexibility in development and production that is attractive to potential bidders.