Kalahari Minerals: City analysts eye potential for fresh bids
4:20 pm by Jamie Ashcroft and Giles Gwinnett
Rio Tinto (LON:RIO, ASX:RIO) could spark a fresh takeover battle for Kalahari Minerals (LON:KAH) after Chinese mining firm CGNPC-URC withdrew its offer for the company yesterday, according to City firm Singer Capital Markets.
Earlier this week, the state-backed firm China Guangdong Nuclear Power Uranium Resource Co - or CGNPC-URC for short- pulled out after the UK Takeover Panel knocked back an appeal which prevented it from reducing the bid from 290 to 270 pence a share.
The Chinese firm hoped to revise the original price ? which valued Kalahari at GBP756 million - after global uranium equities plummeted in the wake of the Fukushima nuclear disaster that followed the massive earthquake in Japan in March.
Kalahari has a major stake in one of the hottest new properties in the uranium mining industry - via its 40 percent stake in Extract Resources (ASX:EXT, TSE:EXT) - the Rossing South mine development, on the Husab project in Namibia.
Rio owns the neighbouring Rossing uranium mine - which has produced more than 260 million pounds of uranium since 1976 - also has a notable indirect stake in the project through its 11.5 percent stake in Kalahari as well as its 14.23 percent stake in Extract.
As such it may be positioned as a potential 'king-maker', or even a bidder, in any takeover of Kalahari.
Singer Capital Markets analyst Charlie Long reckons the Chinese firm will come back with a fresh approach, but in the meantime an offer from Rio could spark a bidding war that could see Kalahari valued at the original offer price.
"We still believe the Chinese will return in around three months with a new 270 pence offer," Singer's Long said in a note to clients.
He added: "If Rio Tinto believes CGNPC will return with a 270p bid in 3 months time, it would make commercial (perhaps not political) sense for Rio to bid 270p and force the Chinese to revisit their original 290p bid."
While the analyst noted that CGNPC could feasibly lower the price too, he kept an upbeat view on the stock as he repeated a 'buy' recommendation which targets 262 pence a share.
Long highlighted comments from Kalahari chairman Mark Hohen's address to shareholders at yesterday's AGM.
The analyst claimed that the most illuminating sentence in Hohnen's statement reads: "We may, going forwards, review alternatives for co-operation in the absence of an offer by CGNPC-URC for Kalahari".
According to Long this leaves the door open for the Chinese to return to the table in three months time, and only if they don't will Kalahari look at the alternatives more seriously.
Indeed he emphasised that Kalahari has not demanded that the Chinese firm pays a US$7.5 million penalty for breaking off the deal (although it still reserves the right to in future), which is an important detail as it suggests Kalahari still considers CGNPC a likely bidder, he says.
Meanwhile Ambrian Capital's Duncan Hughes has also been watching the story unfold in recent days. He put out a note to clients in which he repeated a 'buy' recommendation, after yesterday's AGM.
The analyst said: "The fact remains that Rio remains torn between the interests of its Rossing mine, its Extract shareholding and its Kalahari shareholding.
"We wait with interest to see what move, if any, Rio will make over the next few months."
Indeed there appears to be plenty more twists and turns to come in this particular takeover story, and like the City's analysts we look on intently.
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