UPDATE 2-Rio outdraws Cameco in bid for Canada uranium firm

Wed Oct 19, 2011 12:46pm EDT

* Rio Tinto offers C$4.15 a share in cash

* Bid is 11 percent higher than Cameco's

* Hathor shrs up 9.7 percent at C$4.42 on TSX

By Julie Gordon

TORONTO, Oct 19 (Reuters) - Global miner Rio Tinto entered the battle for Canadian uranium explorer Hathor Exploration on Wednesday with a C$578 million ($572 million) friendly takeover offer that topped a hostile bid by Cameco Corp , one of the world's biggest uranium producers.

The attraction of Hathor for both miners is its large exploration-stage Roughrider project in the uranium-rich Athabasca region of Saskatchewan in Western Canada.

Roughrider is close to an existing Cameco mine and mill, and Anglo-Australian giant Rio Tinto said the Hathor acquisition fits its strategy of investing in the primary uranium producing regions of the world.

Canada produces some 20 percent of global uranium supply from the Athabasca region.

Hathor's board recommended that shareholders accept Rio Tinto's all cash offer of C$4.15 a share, which is 11 percent higher than Cameco's cash bid of C$3.75.

Hathor's shares jumped 9.68 percent to C$4.42 on the Toronto Stock Exchange after Rio's bid was announced on speculation of a bidding war.

Analysts have suggested that Cameco can afford to pay more for Hathor.

Roughrider, which has the potential to produce at least 5 million pounds of uranium a year, is located just 25 kilometers (15 miles) southeast of Cameco's Rabbit Lake uranium mine and mill. Cameco has a goal of boosting its uranium output to 40 million pounds a year by 2018.

The Saskatoon, Saskatchewan-based company first floated its C$520 million hostile bid for Hathor in August, after initial talks on a friendly deal failed.

A Cameco representative would not comment on the Rio bid, but said the company would issue a statement.

Uranium is a strategic resource in Canada, which limits a foreign entity's ability to buy fully developed assets. Before a uranium project can go into production in Canada, a domestic company must hold a controlling stake.

Because Roughrider is still exploration stage, Rio can buy Hathor outright, but will likely have to find a joint-venture partner to bring the project to production.

Rio's acquisition of Hathor would have to be reviewed by the Canadian government. Last year, the government shot down BHP Billiton's $39 billion hostile bid for Potash Corp , the world's largest fertilizer producer.

Hathor said its directors and senior management have entered into lock-up agreements with Rio to tender their shares to the offer, amounting to about 4.6 percent of the company.

Rio said its affiliates already own 5.7 percent of Hathor. The offer comes with a break fee of C$20 million and gives Rio the right to match any superior offer.

Hathor's shares have risen more than 65 percent since Aug. 25, the day before Cameco's bid was made public. Shares of Cameco dropped 4 percent to C$20.64 on Wednesday on the Toronto Stock Exchange.