Extract still an option for Rio TintoThe Australian Financial...

Extract still an option for Rio Tinto

The Australian Financial Review
PRINT EDITION: 21 Oct 2011
Street Talk
Edited by Sarah Thompson, Christine Lacy and Stephen Shore

Rio Tinto's Doug Ritchie has certainly been busy since becoming group executive in charge of energy but few foresaw yesterday's $555 million bid for Canadian uranium explorer Hathor Exploration.

Eyes had been firmly fixed on Namibia, where Rio was expected to somehow get into the mix in China Guangdong Nuclear Power's $1.1 billion tilt at Extract Resources shareholder, Kalahari Minerals.

But those believing that the Canadian play might rule out a move by Rio to participate in Extract's Husab uranium project, which lies neatly adjacent to Rio's under-utilised Rossing mine, should think again.

With China Guangdong having been locked in talks with Kalahari over the past few weeks and no sign yet of a deal, there's still a lot to play for.

Rio's bid for Hathor implies a value of about $9.90 per pound of uranium resources, topping Cameco's $8.70 per pound offer.

But it is more than double the $4.70 per pound valuation implied in China Guangdong Nuclear Power Corporation's offer for Kalahari, assuming the Chinese come back at the earlier proposed price of 270 pence per share.

Russia's ARMZ paid $9.80 per pound for Mantra back in March, even after Fukushima, so the Chinese mooted offer leaves some room for manoeuvre.

Not that a counter-bid is what Rio necessarily has in mind, some seeing a much more chummy outcome involving Rio, China Guangdong and Extract all working alongside at Husab.

It all ties up with a renewed push into energy, not just by Rio but, of course, by BHP Billiton, which has spent almost $US20 billion on US shale gas acquisitions this year, while a go-ahead for the circa $30 billion expansion of Olympic Dam - the world's biggest uranium resource - is firmly on the table for mid-2012.

http://www.afr.com/p/opinion/extract_still_an_option_for_rio_W1Ubkt6nEplXoKVlMeO40K