The Australian Financial Review PRINT EDITION: 5 May 2011 Angela Macdonald-Smith
China Guangdong Nuclear Power is angling to cut the price of its proposed takeover offer for the biggest shareholder in Extract Resources but investors in the Namibia-focused uranium explorer have reacted with relief that the reduction in the bid price was not any greater.
The Chinese nuclear giant still faces resistance from a UK regulator to the proposed 7 per cent cut in its planned offer for London-listed Kalahari Minerals to about GBP712 million ($1.08 billion), despite having secured an agreement from Kalahari's board.
China Guangdong's tilt at Kalahari, which owns 42.76 per cent of Perth based Extract, has been dogged by problems from the start, not least the worldwide sell-down in uranium equities after the earthquake and tsunami in Japan on March 11 that triggered the partial meltdown of the Fukushima reactor. That, combined with heightened uncertainty about uranium mining rights in Namibia, has weighed on both Extract and Kalahari's shares, opening up a gap of more than 20 per cent between China Guangdong's proposed 290 pence per share offer and Kalahari's trading price.
Shares in Extract, which owns the giant Husab uranium deposit in Namibia, surged 14 per cent yesterday to $7.63, and Kalahari shares also gained in London.
"It's a relief that the Chinese are still interested," said Patersons Securities analyst Simon Tonkin. "Given the material events of Fukushima, a 7 per cent reduction isn't that large, so that's positive for Extract."
Assurances from Extract and other uranium miners in Namibia that policy changes on mining rights proposed by the government should not affect their venture are also providing some comfort to investors, analysts said.
The proposed reduction in the offer price for Kalahari is smaller than the more than 12 per cent cut in the takeover offer by Russia's ARMZ for Mantra Resources since the Japanese nuclear crisis.
But the plan by China Guangdong to reduce the offer price to 270 pence per share from 290 pence has been rejected by the UK Takeovers Panel under strict regulations that prevent such a move unless the bidder had specifically reserved the right to do that when it announced its original agreed offer on March 7.
Kalahari, which is being advised by Deutsche Bank, is appealing against the ruling of the panel executive but it said that even if the appeal were successful there was no certainty an offer would be made.
Extract noted the developments yesterday and said it was still waiting to hear from the Australian Securities and Investments Commission about the requirement and terms of any downstream offer by China Guangdong for Extract.
Under Australian takeover regulations, the bid for Kalahari would need to be followed by one for Extract on at least the equivalent terms unless ASIC granted an exemption.
In the meantime, Extract is continuing to work on potential development options for Husab to improve the efficiency of the project and on extending the uranium resource at the site. That work includes discussions with Rio Tinto about a potential joint development of Husab with Rio's adjacent Rossing mine.
Analysts estimate that such a co-ordinated venture would cut the cost of developing Husab to less than $US1 billion from almost $US1.7 billion on a stand-alone basis.
That means that Rio, which has a stake in both Kalahari and Extract, is still highly likely to be involved in the development of Husab, even if the Chinese bid goes through, one analyst said.
The Chinese bidder and Kalahari, which is being advised by Azure Capital, also agreed to extend the deadline for proceeding with a formal offer to June 17 from May 3. China Guangdong is still working on getting approvals in China and Australia to make a firm bid. Japanese trading house Itochu, which wants to buy uranium oxide from Husab, also holds stakes in Extract and Kalahari.
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