Extract Studies Alternatives as $2.3 Billion Guangdong Nuclear Offer Looms
By Jesse Riseborough - Dec 9, 2011 6:57 AM GMT+1300
Extract Resources Ltd. (EXT), owner of the fourth-largest uranium deposit, is studying alternatives to a bid made for its biggest shareholder that may make Extract the subject of a A$2.2 billion ($2.3 billion) offer.
China Guangdong Nuclear Power Group Co. yesterday offered 632 million pounds ($988 million) for Kalahari Minerals Plc, which owns 43 percent of Perth-based Extract. Australian regulators have ruled that China’s second-largest reactor builder must offer A$8.65 a share for Extract, owner of the Husab deposit in Namibia, should it win more than 50 percent of Kalahari, a statement detailing the transaction shows.
Extract’s independent directors “are working carefully to assess the details of the proposed offer and will consider all available alternatives for maximizing shareholder value,” Jonathan Leslie, chief executive officer, said in an e-mailed statement. The bid “clearly demonstrates the strategic nature of Husab as a tier-1 asset as well as confidence in the long- term fundamentals of the uranium industry.”
China is pursuing new sources of the fuel to feed rising demand for atomic power. Rio Tinto Group, the world’s third- biggest mining company and owner of the Rossing mine adjacent to Extract’s Husab, is unlikely to make a rival bid, BMO Capital Markets said.
“It’s difficult to see anyone else coming in to counter bid for Kalahari given the friendly nature of the offer and the relatively tightly held shareholder base of Extract and Kalahari combined,” Edward Sterck, a London-based analyst at BMO who has a ‘market perform’ rating on Extract, said by phone. Rio Tinto
“Rio Tinto is unlikely to come in with a direct counter bid to Guangdong Nuclear because they may be expecting to be part of development plans anyway,” he said. Rio owns 14 percent of Extract and 11.5 percent of Kalahari. “Kalahari shareholders will probably view the offer favorably given broader market conditions.”
Kalahari advanced (KAH) 3.2 percent to 242 pence by the close of trading in London yesterday. Guangdong Nuclear offered 243.55 pence a share for London-based Kalahari in a deal recommended by the target’s directors, according to the statement. APAC Resources Ltd., with a 14 percent stake, and Itochu Corp., with 13 percent, are Kalahari’s biggest shareholders.
Extract closed at A$8.09 in Sydney on Dec. 7 and was halted from trading yesterday. The Kalahari offer is conditional on Guangdong Nuclear getting acceptances of more than 50 percent. The offer is at a 16 percent premium to the average price for six months prior to March 4, the last day prior to the first announcement by China Guangdong on a possible offer for Kalahari, it said. Kalahari Directors
Kalahari directors, who hold about 2.2 percent of the stock, are to recommend the deal, and Guangdong Nuclear has secured non-binding letters of intent for a further 3.9 percent stake.
Rio’s Rossing mine is the third-biggest producer of uranium, accounting for about six percent of global supply, according to World Nuclear Association figures. Husab is about 7 kilometers (4.4 miles) from Rossing and 30 kilometers from Paladin Energy Ltd. (PDN)’s Langer Heinrich project.
Extract in February said it was in talks with London-based Rio about merging the companies’ uranium projects in the African nation. Extract also said at the time it was talking to Kalahari “to explore various options that might simplify the Extract/Kalahari shareholding structure.”
Extract shareholders should take no action and await further guidance from the company’s independent directors, CEO Leslie said. The company is seeking to develop Husab at a cost of about $1.7 billion with a mine that may last for more than 20 years. Takeovers Panel
Extract raised its estimate of reserves at the project in August by 37 percent to 320 million pounds of uranium oxide.
The offer price for Kalahari compares with an initial March proposal by Guangdong Nuclear of 290 pence and a reduced May offer of 270 pence that was barred by the U.K. Takeovers Panel. Kalahari said Nov. 10 that the companies were in talks for an offer of 243.55 pence.
The acquisition would be the second-biggest Chinese takeover of a foreign mining company, according to data compiled by Bloomberg. The nation began its first commercial nuclear plant in 1994 and now has the highest number of atomic facilities being built, figures from the World Nuclear Association show.
China, the world’s biggest energy user, has 13 generators in commercial operation and 28 under construction, according to the Ministry of Environmental Protection. China may have more than 100 atomic reactors by 2020, it said in June.
EXT Price at posting:
$8.09 Sentiment: Hold Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)