Australian Financial Review Street Talk PRINT EDITION: 11 Mar 2011 Edited by Sarah Thompson and Khia Mercer
Investors betting on a follow-on bid by China Guangdong Nuclear Power for Extract Resources after its move on major shareholder Kalahari Minerals are not far off the mark.
Rather than trying to avoid the Australian Securities and Investments Commission provision that requires it to make a downstream bid for the Namibia-focused uranium developer, China Guangdong is understood to be more than willing to go down that path, with control of Extract's huge Husab uranium resource the ultimate target.
While terms and timing are still to be decided, the Kalahari offer signals a bid price for Extract of close to $10.75 per share, once Kalahari's 45 per cent stake in North River Resources is taken out of the equation.
That still leaves some upside from Extract's close yesterday of $10.52.
Securing relief from ASIC is more a question of the Chinese wanting greater flexibility on when they would make the offer for Extract, in order to avoid having to bid for Extract before the �756 million ($1.2 billion) offer for Kalahari is locked away. Britain's stricter takeover regulations that prevent bids heavily laden with pre-conditions are not making things easier for the Chinese. Nor have Extract's plans for a venture with its shareholder Rio Tinto for the development of Husab through Rio's neighbouring Rossing mine.
It was the imminence of that venture that set the Chinese scrambling to put an offer to Kalahari. But the Chinese don't want to lock Rio out, and Rio is expected to be quite amenable to working with China Guangdong at Husab.
Rio, whose largest shareholder is state-owned Chinese giant Chinalco, is no stranger to joint ventures with the Chinese.
The cost benefits of processing the Husab ore through Rossing are hard to ignore when mine costs are already put somewhere north of $1.5 billion.
But talks with Rio about Husab are something for further down the track, with China Guangdong prevented by British regulatory restrictions from discussing any special deals with individual shareholders of its takeover target. Nearer term, China Guangdong will engage with both Rio and Kalahari shareholder Itochu about its offer but neither are expected to accept the bid, leaving the Chinese potentially holding about 75 per cent of Kalahari.
China Guangdong's immediate focus is clearing away the regulatory provisions both in China and Australia by the May 3 deadline so it can go ahead with a firm offer for Kalahari. From Rio's point of view, it appears that a joint venture with the Chinese involving offtake arrangements would be preferable to spending billions of dollars on a full bid for Extract or Kalahari.
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