The Australian Financial Review PRINT EDITION: 2 May 2011 Angela Macdonald-Smith
China's $1.2 billion grab for control of one of the world's largest uranium deposits has run into trouble, with tomorrow's deadline for securing regulatory clearances looking highly unlikely to be met.
China Guangdong Nuclear Power in March announced a proposed takeover offer for London-listed Kalahari Minerals, which has as its primary asset a 42.8 per cent share in Australia's Extract Resources. Extract owns the huge Husab uranium deposit in Namibia, which is set to count among the biggest producers of the metal worldwide.
But late last week the Chinese nuclear power giant had yet to satisfy the conditions for making a formal offer, including several Chinese government approvals plus clearances from Australian regulators.
The bid for Kalahari, which was expected to be followed by a takeover offer by China Guangdong for Extract itself, was already looking shaky after a global selloff of uranium stocks following Japan's Fukushima nuclear disaster which has sparked a rethink of nuclear power expansion plans in several countries.
That opened up the gap between China Guangdong's 290 pence ($4.46) a share offer price and Kalahari's sagging market price, a gap which widened further last week after Namibia's mining minister announced plans for legislation giving the state exclusive rights to the exploration and mining of "strategic minerals" including uranium.
While details of the bill remain unclear, the news sparked a fresh bout of selling in Namibia-focused uranium stocks, with Kalahari and Extract in the direct firing line.
At the latest close Kalahari's shares had dropped to 227.5 pence, more than 20 per cent below the proposed offer price.
"It always makes things difficult when you have such a gaping difference between the offer price and the trading price," said one source close to the process.
The Chinese government, keen to back quests to lock in overseas energy resources, is understood to broadly support the bid while harbouring doubts about the now apparently over-inflated price.
Russia's ARMZ in March set the precedent for a cheapened bid when it negotiated a 12 per cent cut in its takeover offer for another Australian-based uranium explorer, Mantra Resources, in the wake of the Fukushima nuclear crisis.
But Warwick Grigor at BGF Equities said any move by the Chinese to renegotiate would clear the way for Rio Tinto, already a shareholder in Extract and Kalahari, to snatch control of Husab, potentially squeezing out China Guangdong.
Pressure has in any case been growing on Extract to pursue a joint development of Husab after it revealed last month that a stand-alone project could cost almost $US1.7 billion.
Rio owns the neighbouring Rossing uranium mine in Namibia and is known to be keen to participate in Husab. Analysts suggest the cost of developing the deposit would drop to less than $US1 billion if the ore was processed at Rossing.
China Guangdong is expected to seek to negotiate with Kalahari an extension to the May 3 deadline for meeting the conditions for its offer, but faces paying a break fee of GBP7.5 million if Kalahari doesn't agree and it fails to meet the conditions.
Proceedings are also being slowed by public holidays in the UK, for the royal wedding on Friday and today for May Day.
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