proposed downstream cash offer for extract

Proposed downstream cash offer for Extract by CGNPC-URC
and CADFund

December 9, 2011: Extract Resources Ltd (ASX/TSX/NSX: EXT) ("Extract" or “the
Company”) notes the announcement by Taurus Mineral Limited (“Taurus”), an entity
owned by CGNPC Uranium Resources Co., Ltd. (“CGNPC-URC”) and The China-Africa
Development Fund (“CADFund”), of a recommended cash offer for Kalahari Minerals plc
("Kalahari"), Extract’s 42.74% shareholder, at a price of 243.55 pence per Kalahari share
(the “Kalahari Offer”). The Taurus announcement includes a proposal to make a
downstream cash offer to Extract shareholders of A$8.65 per Extract share (the “Extract
Offer”), if Taurus receives acceptances of the Kalahari Offer in respect of more than 50%
of the voting rights in Kalahari.
Extract has not been party to the negotiation of the terms of the Kalahari Offer or the
proposed Extract Offer, including in relation to the offer prices. The Extract Independent
Directors intend to carefully review the details of the proposed offers and consider all
available alternatives for maximising shareholder value before making any
recommendation to Extract shareholders.
In the meantime, Extract shareholders are advised to TAKE NO ACTION and await
further guidance from the Extract Independent Directors.
The Kalahari Offer
The announcement by Taurus represents a firm intention to make an offer for Kalahari
under the Rule 2.7 of the City Code on Takeovers and Mergers (UK) at a cash price of
243.55 pence per Kalahari share.
The Kalahari Offer is subject to certain conditions, including (inter alia):
• Taurus receiving valid acceptances of the Kalahari Offer in respect of more than
50% of the voting rights in Kalahari;
• Kalahari not disposing of its shares in Extract during the Kalahari Offer period or
voting in favour of any transaction that would result in Kalahari’s shareholding in
Extract being materially diluted;
• the Government of Namibia not withdrawing, rejecting or adversely amending any
of Extract’s mining or exploration licences;
• Namibian Competition Commission approval; and
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• no material adverse change to the value of Extract’s assets occurring as a direct
result of any act or omission of Kalahari.
The Kalahari Offer will open for acceptance once offers have been dispatched to Kalahari
shareholders, which must take place within 28 days of the announcement by Taurus.
The Proposed Extract Offer
Since the announcement of a possible offer for Kalahari in March 2011, Extract has been
actively engaged in a consultation process with the Australian Securities and Investments
Commission ("ASIC") to ensure that the interests of all Extract shareholders are protected
in the event that an offer is made for Kalahari. This included Extract making submissions
to ASIC around the potential requirement for, and terms and conditions of, a downstream
offer for Extract.
ASIC has made declarations under section 655A(1)(b) of the Corporations Act 2001 (Cth)
(“Corporations Act”) modifying the application of certain provisions of Chapter 6 of the
Corporations Act to Taurus and its related parties. Under these declarations Taurus has
been granted relief to acquire an interest of more than 20% of Extract’s shares (“ASIC
Relief”) subject to certain conditions.
Extract is pleased to note that the conditions of the ASIC Relief granted to Taurus (and its
related parties) include a requirement that Taurus proposes to make an off-market
takeover bid to acquire all Extract shares under Chapter 6 of the Corporations Act, if it
receives valid acceptances of the Kalahari Offer in respect of more than 50% of the voting
rights in Kalahari. Furthermore, the price to be offered to Extract shareholders must be
clearly and accurately determined from the price offered to Kalahari shareholders.
Extract Offer Price
Under the Extract Offer, Extract shareholders will be offered cash consideration of A$8.65
per Extract share. The Extract Offer price is the “see-through” price derived from the
implied value of Kalahari’s shareholding in Extract (on a fully diluted basis) at the Kalahari
Offer price of 243.55p.
Taurus’s announcement contains the formula used to calculate the Extract Offer price.
Extract has been provided with the opportunity to make submissions to ASIC in relation to
the proposed formula and considers that the formula results in an effective Extract Offer
price that is clearly and accurately determined from the price offered to Kalahari
shareholders.
Timing of the Extract Offer
Under the conditions of the ASIC Relief, offers must be dispatched to Extract shareholders
within four weeks of Taurus having received acceptances under the Kalahari Offer
representing more than 50% of the voting rights in respect of Kalahari. Furthermore ASIC
has declared that the Extract Offer must be made within 116 days of Taurus’s
announcement of the proposed downstream Extract Offer. Extract notes that these are the
maximum timeframes set out under the ASIC Relief, and an Extract Offer could occur prior
to these dates.
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Under section 624(1)(b) of the Corporations Act, the Extract Offer must remain open for a
minimum of one month. A condition of the ASIC Relief is that the Extract Offer must also
remain open for at least two weeks after the date which is the later of:
• the date on which Taurus becomes unconditionally entitled to shares carrying more
than 50% of the voting rights in Kalahari; or
• the date on which the Kalahari Offer is free of conditions.
Extract Offer Conditions
Under the conditions of the ASIC Relief, the Extract Offer must be conditional only on:
• Taurus becoming unconditionally entitled to shares carrying more than 50% of the
voting rights in Kalahari; and
• an event or circumstance referred to in section 652C(1) or section 652C(2) of the
Corporations Act (i.e. certain prescribed occurrences) not happening.
Extract notes that the relatively low level of conditionality associated with the Extract Offer
means that Extract shareholders will not be disadvantaged versus Kalahari shareholders.
Other
A condition of the ASIC Relief is that Taurus must declare the Extract Offer free of all
conditions before completion of any contracts arising from acceptances under the Kalahari
Offer.
Importantly, the ASIC Relief only modifies and varies section 611 and section 631(1) of
the Corporations Act. All other provisions of Chapter 6 remain intact.
A copy of the ASIC Relief instrument is attached to this announcement.
Husab Uranium Project
As announced on 1 December 2011, the Ministry of Mines and Energy of the Republic of
Namibia has now issued a Mining Licence for development of Extract’s Husab Uranium
Project (“Husab”). The issue of the Mining Licence represents the final stage to achieving
all of the material permits Extract requires in order to develop the project.
Through the ongoing partnership process, the Company has received a strong level of
interest in Husab from potential strategic investors. These discussions are continuing and
include a range of possible investment structures. The nature and level of interest
received has confirmed Husab’s status as a world class and highly strategic asset.
The company intends to continue discussions regarding debt financing of the project and
potential offtake arrangements to underpin its development. Plans for delivery of access,
power and water infrastructure are also well advanced, while the Mine Optimisation and
Resource Extension (MORE) programme continues to deliver results that increase the
mine life through definition of further reserves, and that optimise the design of the
processing plant and mining operations.
Extract is being advised by Rothschild and Clayton Utz.