The Australian Financial Review Street Talk PUBLISHED ONLINE: 14 Nov 2011 Edited by Sarah Thompson and Stephen Shore
China Guangdong Nuclear Power Co's (CGNPC) latest offer for Extract Resources's major shareholder, Kalahari Minerals, is below fair value and opens the door for Rio Tinto to produce a higher offer of its own, says Merrill Lynch analyst Glen Chipman.
The 243.55 pence offer for Kalahari being discussed - lower than the 270 pence proposed price in May and the 290 pence price before the Fukushima disaster values Extract at a see-through price of $8.80 to $9 a share taking into account its cash position and unlisted performance rights.
Mr Chipman said one near-term catalyst for an offer from Rio, which owns an effective 19 per cent stake in Extract through its holdings in Extract and Kalahari, would be the grant of a mining licence over Extract's Husab uranium project in Namibia. Husab neighbours Rio's ageing Rossing mine, which has infrastructure available to process the uranium and cut the capital costs of Extract's project significantly.
Mr Chipman said the mining licence could be granted in a number of weeks, triggering an offer from Rio.
However, some think Rio may decide not to bid for Kalahari or Extract and instead to form a joint venture with CGNPC over the project if the Chinese group's takeover ambitions prove successful. CGNPC does not operate any uranium mines globally and is already a customer of Rio's.
Merrill Lynch has a price target of $9.50 on Extract, compared to its closing price of $7.90 on Friday.
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