I thought last weeks DJ Carmichael's report was very...

I thought last weeks DJ Carmichael's report was very interesting. Not sure if they foresaw KAH's & Dattels latest move though:

Extract Cross-Holdings - Rio Tinto s Discrete Game Dilemma

Rossing South, as previous explained, ticks all the boxes for Rio Tinto being a strategic mineral for the company. Namely, it is a relatively high-grade, long-life, large through-put mine and is a likely a first quartile cost curve producer. Despite issues within the Board, spiralling debt, plummeting share-price, thousands of redundancies, closure of mines, asset sales and a highly controversial deal with Chinalco, Rio Tinto saw the discovery of Rossing South as so significant that they tried to acquire EXT (largely before the market had realised or had understood what EXT had discovered). It subsequently appears that Rio tried a number of different avenues to orchestrate deals to acquire large parcels of shares from a number of parties and interestingly, voted to retain EXT s former chairman, Bob Buchan, when its largest shareholder KAH sought his removal.

According to our calculations, Rio Tinto currently has a 21.6% (38.3% KAH holding in EXT x 15.8% = 6.05% + 15.57% in direct holding EXT) controlling interest in EXT. Rio could increase its holding by embarking on one of the two strategies outlined below:

1. Rio could make a Takeover Offer, either for EXT alone, or EXT and KAH together. Unfortunately this would likely to be a very expensive scenario and ultimately an unsuccessful option for several reasons.

2. Firstly, we believe that KAH (38.3% holding) management have a long-term desire to regain control of EXT, now knowing they effectively sold the family farm . Their best option would be over time, via ASX creep provisions (as described below), gain a majority holding. Therefore we believe they are unlikely to sell their current holding into any Rio Offer. Secondly, a well known investor, Stephen Dattels has a substantial personal holding and is Chairman in both Polo Resources (10.17% holding in EXT) and Emerging Metals (9.84% holding in KAH). He also has had substantial corporate experience, most notably, he was intimately involved in the take-over of Uramin by Areva. According to our calculations, Stephen Dattels has influence over 13.94% of EXT. We believe this holding would cause Rio to pause for thought, because although we have no doubt Stephen Dattels would sell at a price, we think it highly likely that the outlay will be too much for Rio to swallow given the number of other priorities they are going to have to address in the near-term. There are also other parties with substantial holdings in KAH, including Niger Uranium and Blakeney LLP (an effective 9.74% in EXT) that in any successful offer, the bidder would have to convince before any deal could be finalised.

3. Alternatively RIO could increase its holdings by 3% every 6 months under ASX creep provisions (ASX rule 6.11 item 9), once the company has crossed the 19.9% mandatory takeover threshold. However, as previously mentioned, we believe that Rio Tinto s overall holdings have already crossed that threshold (effective 21.6% holding), but they have not issued a formal Offer. We would be surprised if the ASX had not been informed of this and were considering the issue. But as yet, they have issued no guidance.

At this point we would reiterate that Rio appears to be comfortable with only a 69% holding in the Rossing mine. Therefore, it is not inconceivable that if a Takeover Offer was made by Rio Tinto, either a small majority, or even a large minority holding could meet their strategic objectives.

Given our understanding of Game Theory, we believe that the most likely scenario (although clearly not the only alternative) is that KAH is likely to become the majority shareholder in EXT. We think it highly likely, ceteris paribus, KAH will use ASX creep provisions to gain a majority holding (>50%) in EXT inside the next five years. Given the overall complexity of the company s holdings, we think it unlikely that Rio or any other major uranium producer (simply because Rio will not be a willing seller) will make an official takeover offer without KAH s implicit authorisation. We also believe that competing interests from other minority holders will scupper any deal. Therefore, we envisage the most likely short-term scenario is a stalemate with various parties largely maintaining their current holdings.