Niger Uranium: NWT calls another EGM 21 January 2010
Niger Uraniums (URU) largest shareholder has requisitioned an EGM to gain control of the board and to requisition a meeting of Kalahari Minerals (AIM: KAH) to distribute 90% of Kalaharis holding in Extract Resources (ASX: EXT) to the Kalahari shareholders. As Nigers total stake in Kalahari is worth 50m, the see-through value of its holding in Extract is 58.4m, whereas Nigers own market cap is only 40.2m, there is a financial benefit in holding the Extract shares directly. However, as Niger only holds 13.48% of Kalahari, the company would need the support of other Kalahari shareholders both to request an EGM and get the proposal approved.
Some holders, such as Rio Tinto, may be keen to hold the Extract shares directly but the proposal would require the approval of other shareholders. Niger has stated that it will issue additional information in due course and we await an announcement before considering the impact on our valuation. In the mean time, due to the recent appreciation in Nigers share price, we are changing our recommendation to a HOLD with a target price of 35p.
EGM called Niger Uraniums largest shareholder, NWT Uranium, has requested an EGM under Section 82 of the BVI Companies Act, 2004. NWT also confirmed that it now has a direct and indirect interest of 35.13% in URU - well above the 30% required to request an EGM.
The proposed resolutions of the EGM are: 1. For URU Chairman, David de Jongh Weill, to be removed as a director of URU 2. For Wayne Isaacs to be elected as a director of URU 3. For the board of URU to requisition a general meeting of Kalahari to pass a resolution to distribute at least 90% of Kalaharis holding in Extract Resources to the shareholders in Kalahari
Board changes NWT has requested EGMs in the past to make changes to the board and block a fundraising that would have led to a dilution in its holding in Niger. We view the first two resolutions as an attempt for NWT to gain greater control over the URU board. Of the five current URU directors, John Lynch and Raphael Danon are also on the NWT board. Removing David de Jongh Weill and replacing him with Wayne Isaacs would give NWT control of the board.
In November, the Niger board proposed distributing the majority of its holding in Kalahari Minerals to shareholders but this was blocked at the shareholder meeting by shareholders, including, we believe, NWT.
In a statement released yesterday, NWT said that notwithstanding this rejection, Mr. Weill continues to propose that Niger dispose of its interest in Kalahari, this time in tranches, so as not to require shareholder approval. He has also indicated in his recent Chairman's statement that he intends to re-submit the special dividend proposal to shareholders at the forthcoming AGM.
NWT withdrew its previous EGM requisition last January when David de Jongh Weill was appointed to the board but as a director of Kalahari and chairman of URU shareholder of AfNat Resources, NWT now believes that there is a conflict of interest.
Proposed requisition of Kalahari Minerals to distribute Extract Resources shares
Niger currently holds 27.68m or 13.24% in the outstanding shares of Kalahari. In turn, Kalahari currently holds 98m or 40.43% of Extract Resources. If the proposed distribution of Extract shares proceeds, Niger would receive 11.68m shares in Extract (90% of 12.98m), which would be worth A$93.55m or 52.57m at current prices.
It has not been revealed whether the Extract shares would be distributed to Niger shareholders in the same way as the proposed Kalahari share distribution. Nigers total stake in Kalahari is worth 50m, the see-through value of its inferred holding in Extract is 58.4m. However, as Nigers own market cap is only 40.19m, there is a financial benefit in holding the Extract shares directly.
This may not be in the best interests of all Kalahari shareholders and as Niger has control of only 13.24% of the Kalahari, it appears unlikely that it would be accepted without their support. We do not believe this is likely given a distribution of Extract shares would push Rio over the 20% threshold that requires an automatic takeover offer for the A$2bn company.
Valuation
Before the proposed special dividend was announced, Niger traded at a 20% discount to the value of its holding in Kalahari. However, when Niger announced that it planned to pay a special dividend of the majority of its holding in Kalahari to its share holders, the discount was removed before returning when the proposal was rejected. At the time that the proposal was rejected, we issued a Sell note with a target price of 32.5p reflecting the earlier discount.
Until we have more detail regarding the proposed EGM, we will not re-evaluate the discount to our valuation. However, as the both the Niger share price has fallen in line with our expectations and the Kalahari share price has increased, we are changing our recommendation from a SELL to a HOLD with a target price of 35p reflecting a 20% discount to the value of the companys Kalahari holding.
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INVESTMENT ANALYST CERTIFICATION In my role as Research Analyst for Westhouse Securities Limited, I hereby certify that the views about the companies and their securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
RATINGS SYSTEM Westhouse Securities Limited uses BUY, HOLD and SELL as its stock rating system to describe its recommendations. Investors should carefully read the definitions of all ratings used in each research report. In addition, since the research report contains more complete information concerning the analysts views, investors should carefully read the entire research report and not infer its contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investors decision to buy or sell a stock should depend on individual circumstances (such as the investors existing holdings) and other considerations.
Ratings are explained as follows: BUY: We expect that over the next twelve months the share price will outperform the market by more than 15%. The market is defined as the FTSE All Share Index
HOLD: We expect that over the next twelve months, the share price will perform between +15% and -15% of the market defined as the FTSE All Share Index
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Distribution of Westhouse Securities research recommendations: BUY: 73% HOLD: 21% SELL: 6%
EXT Price at posting:
$8.01 Sentiment: Hold Disclosure: Held
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