Australian Financial Review PUBLISHED: PRINT EDITION: 10 Mar 2011 Angela Macdonald-Smith
Uranium explorer Extract Resources has signalled it would seek to force China Guangdong Nuclear Power into making a full bid for the company should the Chinese firm proceed with its plan to bid for Extract's biggest shareholder, Kalahari Minerals.
Shares in Extract, owner of the giant Husab uranium deposit in Namibia, surged another 8 per cent to $10.73 yesterday, extending the previous day's 7.3 per cent jump amid rising expectations of a bid.
Extract said yesterday it would oppose China Guangdong Nuclear's application to the Australian Securities and Investments Commission for relief from the legal provision that would require it to make a follow-on offer for Extract if it acquired more than 20 per cent of the company, unless Extract shareholders were offered at least the same terms.
London-listed Kalahari's primary asset is its 43 per cent stake in Extract. Perth-based Extract's independent directors want to ensure the company's shareholders "are not disadvantaged in any way", it added. Otherwise Extract said it would ask ASIC not to grant the exemption.
China Guangdong has signalled it won't proceed with the bid for Kalahari unless it gets the ASIC exemption. RBC has calculated that China Guangdong's proposed GBP756 million ($1.2 billion) bid for Kalahari implies a value of $2.8 billion for Extract, or $11.16 per share, signalling any bid would need to be at least that price.
Kalahari's takeover by China Guangdong would effectively give the Chinese nuclear giant control over Husab, which is set to become the world's second-largest uranium mine once it starts production in 2014.
China has been scouring the world for uranium assets to meet its nuclear power growth plans. Rio Tinto owns 14.7 per cent of Extract and 11.5 per cent of Kalahari and some analysts expect the China Guangdong bid to trigger a move by Rio on either company. Until now, Rio has been focusing on ways to access the Husab resource without bidding for control of Extract, through a deal to process ore from the deposit through its neighbouring Rossing mine.
Extract said yesterday it was continuing work on its feasibility study for the project and is understood to still be negotiating with Rio on the joint development of Husab, which would help reduce the estimated $1.5 billion cost.
Talks it had been having with Kalahari on a potential streamlining of its ownership have been put on ice.
Japan's Itochu also owns stakes in Extract and Kalahari.
Rio and Itochu could block the bid for Kalahari through their combined 25.2 per cent stake but that would not stop China Guangdong from gaining control, said Warwick Grigor at BGF Equities in Sydney.
He outlined two possible scenarios: either Rio, Itochu and China Guangdong work as a team, which could lead to a joint venture for Husab with a smaller Extract maintaining a stake as a listed company, or Rio and Itochu increase their stakes in Kalahari or Extract, with Kalahari the more likely because its shareholder register includes several investment groups that "just want to maximise their return on capital."
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