Mining giant Rio Tinto plc (NYSE: RIO) has gotten itself into another bidding war. This time the playing field favors Rio over Canadian uranium miner Cameco Corp. (NYSE: CCJ) mostly due to its size advantage. When BHP Billiton (NYSE: BHP) made a bid for Rio a few years ago, Rio was able to fight it off, but junior uranium miner Hathor Exploration Ltd. (OTC: HTHXF) appears willing to be acquired by Rio even as Cameco battles with its far larger rival.

As is typical in a bidding war, competitor companies are also garnering some interest from the back-and-forth between Rio and Cameco as investors figure that the value of all uranium miners might rise. Uranium miners Denison Mines Corp. (AMEX: DNN), Uranerz Energy Corp. (AMEX: URZ), and Uranium Resources Inc. (NASDAQ: URRE) have all gotten a boost from the bidding, but perhaps not as much as might be expected.

Cameco originally offered C$3.75/share in cash for Hathor only to see Rio come in a few weeks later with an all-cash offer of C$4.15/share. Cameco raised its offer to C$.4.50 earlier this week, and now Rio has come back with an offer of C$4.59.

Denison, Uranerz, and Uranium Resources all saw share prices fall from the time of Cameco’s original offer on September 1st, bottoming out in early October. The shares got a bit of a boost when Rio’s offer was announced in mid-October, but shares of all three are still trading down from their levels of September 1st.

Uranium prices hit a peak of more than $70/pound in February, and have since fallen to around $55/pound. The disaster at Japan’s Fukushima Daiichi nuclear plant following the earthquake and tsunami in March and the subsequent decision by Germany to retire all its nuclear power plants has weighed on both nuclear plant builders and uranium miners.

Cameco, the world’s largest uranium miner, has experienced a near -50% drop in its share price since early March, largely as fallout from the immediate closure of 14 nuclear generation plants in Japan and Germany. Mining costs are also rising, putting even more pressure on profits.

The outlook for uranium demand is not very strong either. While it’s true that there are many new plants under construction, delays due to more regulatory reviews are being anticipated, even in China and India where construction has been growing.

The other impact of the current low price for uranium is that it stalls new mining projects. If demand picks up over the next several years, supply is likely to be weak due to cancellation of new projects.

That’s largely the reason that Hathor is worth the fight. The company is sitting on reserves that are estimated to be able to produce up to 5 million pounds of uranium annually. And regardless of a possible slowdown in production, uranium miners expect China’s nuclear building program to proceed as planned. Chinese demand is expected to grow, as is India’s, and Hathor’s uranium is already being produced and there’s plenty more to dig out.

There’s no doubt that Rio has deeper pockets than Cameco, and Rio’s latest offer totals about C$654 million. But Cameco has about $1.2 billion in cash and short-term investments in its war chest, so the battle may not be over quite yet.

Paul Ausick

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