News of major M&A activity signifies that some of the biggest players in the industry think the bottom is nigh

One of the world’s largest uranium producers – Canada’s Cameco (TSX: T.CCO) – has launched a C$520-million hostile takeover bid for Hathor Exploration (TSX: T.HAT) in order to get its hands on Hathor’s high-grade Roughrider deposit in Saskatchewan’s prolific Athabasca Basin.

The offer of C$3.75 a share represents a 40% premium to Hathor’s closing price of C$2.67 on Thursday August 25, and it sent the company’s share price more than 46% higher on Friday. Cameco made the offer after talks with Hathor’s board failed. Hathor has not responded publicly to the news. The bid implies an enterprise value of US$8.70 per pound of contained uranium.

The Roughrider deposit is an exciting, high-grade discovery that sits just 25 km northwest of Cameco’s Rabbit Lake mill. Since first hitting strong mineralization there in 2008, Hathor has delineated almost 58 million pounds of uranium at the site.

In announcing the offer, Cameco CEO Tim Gitzel noted the “exceptional job Hathor has done with the Roughrider deposit.” He also pointed out that Cameco’s financial strength, development expertise, and existing infrastructure and experience in the Athabasca region put his company in a unique position to turn the exploration project into a mine.

This is a move the Casey energy team has been awaiting for some time now. We first recommended Hathor to our subscribers in 2006, before the Roughrider discovery, when it was trading at C$0.69. In 2008 and early 2009 we gradually told our subscribers to recoup their initial investments and hold on to the remaining shares, to maintain risk-free exposure to the remaining upside. Later in 2009, Hathor’s share price fell back down to our bid; we bought in again and then took profits for a second time in 2010. And we have repeatedly described the company as a prime takeover target – in our last Casey Energy Report (released one day before Cameco announced its offer) we told investors who didn’t own Hathor to pick up some shares of this “acquisition candidate.”

Cameco’s offer for Hathor might have another important ramification, aside from validating our prediction: It might convince investors that we’ve reached the uranium bottom and thereby help to kick-start a recovery. The uranium market has been in the dumps since the Fukushima disaster in March, which reignited global anxiety over the safety of nuclear energy and prompted some countries, notably Germany, to back away from nuclear power. Since the earthquake-tsunami combo slammed the Fukushima nuclear plant, the price of a pound of U3O8 has essentially slid from US$70 to its current hover just below US$50.

One positive aspect of slumping commodity prices, however, is that company valuations fall in concert, and those cheaper valuations catalyze merger and acquisition activity. Companies on the hunt for acquisitions always seek the best price, which means they try to time their takeovers with the bottom of the market. As such, news of major M&A activity signifies that some of the biggest players in the industry think the bottom is nigh, and that information can help start a rally.

Uranium is certainly primed for a rally. It matters not that Germany is phasing out nuclear power, nor that Italy and Switzerland cancelled plans to build new reactors, because the industrialized world is pretty unimportant when it comes to uranium demand growth. That growth is coming from the developing world, with China leading the charge. There are 26 reactors under construction in China, with another 52 planned and a further 102 proposed. China suspended approvals of new plants in the wake of Fukushima, but at the beginning of August the China Nuclear Energy Association completed a nationwide safety inspection and observers expect the Chinese to resume new approvals shortly.

China is not alone in developing significant new nuclear power capacity. India has six nuclear plants under construction and 57 planned or proposed, while in Russia there are 10 reactors being built and another 44 planned or proposed. In fact, there are now a total of 558 reactors under construction around the world, up from 540 at the start of the year.

Overall, demand is absolutely set to outstrip supply in the coming years. That means the price of uranium is set to climb. This is something we have spoken and written about at length since Fukushima thrust nuclear power into the spotlight and sent uranium prices on their inexorable downhill slide.

Several uranium analysts are starting to think the slide is over. Fukushima and the global economy have wrought their havoc on the price of uranium, and now the beaten-down, disaster-inflicted sector may have reached the point of maximum pessimism. As such, analysts are starting to recommend that value hunters with a long-term view should do well.

Hopefully, this bid from Cameco can act as the positive catalyst that many have been waiting for to reignite interest in uranium and reward those long-term value hunters for their investments.