Australian Financial Review PRINT EDITION: 25 Mar 2011 Angela Macdonald-Smith
Extract Resources chief executive Jonathan Leslie is confident about uranium demand growth in China and sees little risk of China Guangdong Nuclear Power backing away from its $1.2 billion move on Extract's biggest shareholder.
The nuclear crisis in Japan may well slow reactor building plans in Europe but China, the main growth market, would probably still rely heavily on nuclear power, Mr Leslie told The Australian Financial Review .
That meant Extract's huge Husab uranium deposit in Namibia was as strategically important as ever, he said. "I would be very surprised if nuclear was not a large part of China's energy mix going forward, which translates into the need for a huge amount of uranium."
China Guangdong's bid for Kalahari Minerals, which owns 42.8 per cent of Extract, was "very hard evidence" of the attractiveness of the Husab deposit, he said.
Mr Leslie's comments came amid speculation that China Guangdong would use the Japanese nuclear crisis to cut the price of its proposed offer for Kalahari, just as Russia's ARMZ this week shaved at least 12 per cent off its takeover bid for fellow African uranium explorer Mantra Resources.
Both Kalahari's and Extract's shares have crashed since the Japan quake, although Perth-based Extract has recovered almost half its lost ground, closing yesterday at $8.23.
But Extract's shares are well short of the circa $10.75 see-through value from China Guangdong's 290 pence ($4.65) per share proposed offer for London-listed Kalahari.
But Mr Leslie said he did not see many parallels between the ARMZ bid to China's move on Kalahari.
"This is a strategic move, it's not a trading opportunity," he said, noting that the cut in the price for Mantra was in any case a "pretty modest reduction", far from the "armageddon event" some had depicted.
Prior to the Chinese approach to Kalahari, Extract had been negotiating with another of its major shareholders, Rio Tinto, on the joint development of Husab, using Rio's adjacent Rossing mine in Namibia.
Rio is keen to get access to Husab, a deposit formerly known as Rossing South, and any backing away by China Guangdong from its proposed bid runs the risk of Rio elbowing out the Chinese.
"I would think it would be a dangerous move for the Chinese to try to renegotiate because it just opens the door for Rio to come in," said Warwick Grigor at BGF Equities.
"People are chasing quality assets just as they were before and Rossing South is one of those assets," he said.
China Guangdong is understood to be focusing on securing regulatory clearances for its bid so it can proceed with a firm offer for Kalahari. That would then most likely be followed up with a bid for Extract.
Meanwhile, Extract is proceeding "full steam" on its feasibility study for a stand-alone development of Husab, due to be released by the end of the month, Mr Leslie said.
He acknowledged that the drop in Extract's share price could make the stand-alone option more difficult for Husab, which some analysts estimate will cost more than $1.5 billion.
But the talks with Rio, the Chinese bid for Kalahari and the presence of Japan's Itochu as a shareholder in both Kalahari and Extract mean Extract has a range of other options for financing the mine, he said.
"We're lucky because we have more options than most," Mr Leslie said. "It goes back to the strategic importance of the project."
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