I agree with your analysis and comments about the significant Notice Form which clearly needs to be revised as its inaccurate with the regard to the proportionate interest CGNPC/Taurus has so far acquired via Kalahari in Extract. The Chinese knew that if they did a deal with Epangelo the rest would follow. Of course Epangelo itself did nothing to justify its 10% equity interest since the ML was issued virtually the next day after it had pledged to assist Extract gain a ML! Its not even paying for this either as CGNPC is lending it the money to buy the stake.
For the record this version of events was already clear from the information contained in the CGNPC-Taurus offer document as posted to Kalahari shareholders.
Here's an article posted in the Washington DC-based electronic newsletter Fuel Cycle Week published on 12 January 2012. See the final section Epangelo will get 10% of Husab. Its not even paying for this either as CGNPC is lending it the money to buy the stake!
Kalahari/Extract: A Tense Waiting Game AFRICAN PROJECTS By Roger Murray, Special Correspondent Its going to be at least another month—and possibly longer— before the outcome of the £2.44 ($3.74) per share recommended all-cash offer for Kalahari Minerals tabled by China Guangdong Nuclear Power Co. (CGNPC) on Dec. 8 is known. The offer values Kalahari’s fully-diluted share capital at £632 million ($969 million).
On Jan. 5, CGNPC’s Hong Kong-based acquisition vehicle Taurus Mineral sent out its 88-page offer document to Kalahari shareholders. Taurus is a subsidiary of Miraculum Mineral which is 60% owned by CGNPC and 40% owned by China-Africa Development Fund (CAD Fund). Kalahari shareholders now have until Feb. 2 to accept the offer. But the offer period may have to be extended if acceptances do not reach the 50% threshold which would automatically trigger a downstream bid for the remaining 57% shareholding in Extract,CGNPC’s ultimate target. Kalahari owns a 43% stake in Extract, which in turn owns 100% of Namibia’s Husab yellowcake megaproject.
The 50% Acceptance Threshold But will CGNPC/Taurus actually succeed in gaining 50% acceptances by the end of the current offer period? The offer document stated that as of Jan. 5, “irrevocable undertakings” or letters of intent to accept had been received, representing 14.3 million Kalahari shares, just 5.7% of the issued ordinary share capital. This comprises 5.5 million shares (2.2%) held by Kalahari directors or related parties and 8.8 million shares (3.5%) held by Henderson, a U.K. funds group.
So far the main institutional shareholders have given no indication which way they will go. They comprise China’s APAC Resources Capital (14.5%), Japan’s Itochu Corp. (13.5%), and Rio Tinto (11.3%), along with M&G Investment Management and J P Morgan Asset Management with a 17% between them. If all decide to accept the offer CGNPC will emerge victorious, as their combined shareholding is 56%. In that case it will be irrelevant whether Kalahari’s army of small shareholders accept the offer or not.
But individual shareholders would become vital if one or more of the large institutional shareholders do not accept the offer. Market speculation continues to focus on the intentions of Rio Tinto, which some believe might prefer to remain invested in both Kalahari and Extract so as to strike some sort of joint development deal for Husab, since CGNPC and its allied firms lack any expertise in uranium mining operations.
Alternatively, if CGNPC fails to get 50% by Feb. 2, “Rio could decide to pitch in with a higher bid as it did for Canada’s Hathor exploration,” one London analyst told FCW. Despite the enthusiastic backing for Guangdong’s bid from Kalahari chairman Mark Hohnen and his board of directors, small shareholders may be unimpressed by the 16% share premium the offer represents. Extract shareholders posting on the Australian forum Hot Copper remain lukewarm by the bid, believing it to seriously undervalue the Husab asset, especially given forthcoming upside from a further mining reserve update and Extract’s ongoing mine optimization and resource extension program. Will the Offer Go Unconditional? Here’s where it gets complex. If the offer becomes wholly unconditional, but Taurus does not receive acceptances greater than 75% of Kalahari shares, it will not be able to pass unilaterally the requisite resolution to cancel the trading of Kalahari shares on London Alternative Investment Market (AIM) as a prelude to re-registering it as a private firm. Further, if Taurus does not get 90% acceptances then it will not be able to compulsorily acquire the remaining 10% of shares. Taurus confirmed it won’t cancel Kalahari’s AIM listing for six months after the offer goes unconditional; it appears to believe this may not be achievable since the Chinese firm said it “is prepared for the eventuality that Kalahari shares will remain traded on AIM” beyond six months. To ramp up the pressure, the offer document warns that cancellation of Kalahari’s admission to trading on AIM “would significantly reduce the liquidity and marketability” of any shares in respect of which acceptances of the offer are not received.
All this suggests the bid will go right up to the wire and if CGNPC/Taurus fail to get more than 50% acceptances by the early February deadline, the offer period will be extended, or potentially the offer price will be raised.
Over to Extract For its part, Extract is continuing to keep its distance from the fray until it becomes clear whether CGNPC has reached the 50% threshold. In a Jan. 6 update, Extract noted that Taurus had been granted relief by the Australian Securities and Investments Commission (ASIC) to acquire more than 20% of Extract’s shares without being in breach of the Australian Corporations Act. This is conditional on the Chinese firm tabling a downstream bid for Extract, with offer documentation having to be dispatched to its shareholders within four weeks of it gaining the 50% acceptances.
The offer document confirms that a downstream bid will be priced at A$8.65 ($8.90) per Extract share, meaning that CGNPC will pay some A$2.2 billion ($2.3 billion) to acquire the Perthbased firm. That will bring the total Husab acquisition cost to a hefty $3.3 billion; this is actually more than AREVA paid for Uramin Inc (Trekkopje, Bakouma and Ryst Kuil projects) at the height of the 2007 uranium boom.
Of course, Husab is a far superior asset with both a (far) larger yellowcake resource and superior grades to Trekkopje. But it means that the total cost to the Chinese of bringing Husab into production (current estimated capex of $1.7 billion) could be as much as $5 billion.
Epangelo Will Get 10% of Husab Irrespective of the outcome of the CGNPC bid for Kalahari and potentially Extract, Namibia’s state-owned Epangelo Mining is virtually guaranteed to get the minority stake in Husab that it has long coveted. The Taurus document disclosed that an “inprinciple agreement” has been entered into between CGNPC and Epangelo in respect of the latter’s “possible subscription” for a 10% equity interest in the enlarged capital of Swakop Uranium(the Husab license holder and currently Extract’s wholly-owned local project vehicle).
Significantly, Epangelo will not itself have to pay for the equity stake, as CGNPC has pledged the state-owned firm will be “lent and advanced the funding necessary to finance the subscription consideration.” The position contrasts with Extract’s negotiating position over Epangelo’s participation, as the Australian firm insisted that an equity stake would have to be paid for upfront by Epangelo.
EXT Price at posting:
$8.57 Sentiment: None Disclosure: Not Held
(20min delay)