The uranium industry has been dogged in recent years by disappointing prices, abundant supply and uncertain demand.
A surprising revolt by retail investors is sending ripples through Canada's uranium-exploration sector.
On Tuesday, Fission Uranium Corp. and Denison Mines Corp. announced that a proposal to merge the two businesses had fallen short of winning the necessary level of support among shareholders.
On Wednesday, mining magnate Lukas Lundin, who had previously served on Denison's board, stepped up to become the company's executive chairman. Observers say it's a move intended to underline Mr. Lundin's commitment to the uranium sector, an industry that has been dogged in recent years by disappointing prices, abundant supply and uncertain demand.
Small investors in the downtrodden sector believe in its potential for big payoffs when – and if – the market for uranium improves. Their defeat of the Fission-Denison marriage, which had been backed by the management of both companies, was an unusual case of little guys asserting their viewpoint against the wishes of institutional investors.
It also highlights the alluring potential of Saskatchewan's Athabasca Basin, an area where both Fission and Denison have found uranium deposits.
Fission's Patterson Lake South project, in particular, is regarded as an unusually rich and accessible find – "the uranium sector's crown jewel of exploration and development," in the words of Fission chief executive officer Dev Randhawa in a blog post this summer. He also called it the "world's best undeveloped uranium asset."
Fission's dissident shareholders objected to what they saw as a bargain-basement price for that deposit in the merger agreement unveiled in July. Fission shareholders would have received 1.26 Denison shares for each of their Fission shares plus a fraction of a penny.
At the prices prevailing at the time, the offer worked out to about $1.11 a share. It was a premium to Fission's share price, which was then just below a dollar. However, it fell far short of what many Fission investors believed the company was worth, based on management's enthusiasm and analysts' targets.
"Everybody thought, and was led to believe, that we were on the way to a $3 or $4 [a share] valuation based on what we knew about this monster deposit," said Jim Gifford, a dissident shareholder. "For the company to suggest it was willing to sell itself for under $2 [a share] … was a case of, what are you guys talking about?"
Mr. Gifford, a semi-retired entrepreneur, connected with other skeptics on an investing bulletin board and formed FCU Oversight to push for rejection of the merger. They were successful: While more than half of Fission shareholders voted in favour of the deal, the total fell short of the required two-thirds majority.
"Nothing changes" as a result of the vote, asserted Mr. Randhawa, the Fission CEO.
In an interview, he said the company has continued drilling the Patterson Lake South site through the summer and intends to keep on working to assess the full size of the deposit.
He said the failed merger deal would have offered an excellent chance for Fission shareholders to acquire an interest in Denison's assets at attractive prices. He does not believe Denison will make a new offer.
"Our retail base is very passionate about this project," he said. "I'm not sure if a higher price would have made them happier."
Mr. Gifford, the dissident shareholder, believes that the company is worth $3 a share and said it would have taken an all-cash bid of that size to satisfy investors. He hopes that FCU Oversight can become a unified voice for shareholders who are dissatisfied with the company's direction.
If so, the company's next annual general meeting, which has to take place before the end of the year, could yield more drama. Mr. Randhawa said he sees no point in sitting down with the dissidents before then.
"If you don't like management, don't own the stock," he said. He added: "I'm not here to give hugs. I'm here to grow a deposit."