Mining Journal > Finance > Extract studies options as US$2.2 billion China takeover looms

Extract Resources Ltd, owner of the world’s fourth-largest uranium deposit, is studying its options as a A$2.2 billion (US$2.2 billion) takeover bid from China looms following a deal to buy its biggest shareholder.
     
Australian regulators have ruled that state-owned China Guangdong Nuclear Power Group Co must offer A$8.65 a share for Perth-based Extract should the Chinese company’s £632 million (US$988 million) bid for Kalahari Minerals plc succeed because of Kalahari’s 43% stake in Extract.

Extract’s independent directors “are working carefully to assess the details of the proposed offer and will consider all available alternatives for maximizing shareholder value,” chief executive  Jonathan Leslie said in an e-mailed statement.

The bid “clearly demonstrates the strategic nature of Husab as a tier-one asset as well as confidence in the long-term fundamentals of the uranium industry.”

China is pursuing new sources of the fuel to feed rising demand for atomic power. BMO Capital Markets said Rio Tinto, owner of the Rossing uranium mine adjacent to Extract’s Husab, was unlikely to make a rival bid.

“It’s difficult to see anyone else coming in to counter-bid for Kalahari given the friendly nature of the offer and the relatively tightly-held shareholder base of Extract and Kalahari combined,” Edward Sterck, a London-based analyst at BMO who has a “market perform” rating on Extract, said by phone.

A full takeover bid for the company will be triggered should Guangdong Nuclear get a 50% stake in Kalahari, according to yesterday’s statement on the bid.

“Rio Tinto is unlikely to come in with a direct counter-bid to Guangdong Nuclear because they may be expecting to be part of development plans anyway,” Sterck said. Rio Tinto owns 14% of Extract and 11.5% of Kalahari, according to data calculated by Bloomberg. “Kalahari shareholders will probably view the offer favourably given broader market conditions.”

Kalahari advanced 3.2% to 242 pence in London yesterday. Guangdong Nuclear offered 243.55 pence a share for London-based Kalahari in a deal recommended by the target’s directors, according to the statement. APAC Resources Ltd, with a 14%t stake, and Itochu Corp, with 13%, are Kalahari’s biggest shareholders.

“If you look at other recent transactions in the market, it’s not necessarily the greatest price in the world,” APAC chief executive Andrew Ferguson said by phone today in Hong Kong. The company will take its time to evaluate the offer, he said.

The Kalahari offer is conditional on Guangdong Nuclear getting acceptances of more than 50%. The offer is at a 16% premium to the average price for six months prior to March 4, the last day prior to the first announcement by Guangdong Nuclear of a possible offer for Kalahari, it said.

Kalahari directors, who hold about 2.2% of the stock, are to recommend the deal, and Guangdong Nuclear has secured non-binding letters of intent for a further 3.9% stake.

Rio Tinto’s Rossing mine is the third-biggest producer of uranium, accounting for about 6% of global supply, according to World Nuclear Association figures. Husab is about 7 km from Rossing and 30 km from Paladin Energy Ltd’s Langer Heinrich project.

Extract in February said it was in talks with Rio Tinto about merging the companies’ uranium projects in the African nation. Extract also said at the time it was talking to Kalahari “to explore various options that might simplify the Extract Kalahari shareholding structure.”

Extract shareholders should take no action and await further guidance from the company’s independent directors, CEO Leslie said. The company is seeking to develop Husab at a cost of about US$1.7 billion with a mine that may last for more than two decades.

Extract raised its estimate of reserves at the project in August by 37% to 320Mlb (145,000t) of uranium oxide.

The offer price for Kalahari compares with an initial March proposal by Guangdong Nuclear of 290 pence and a reduced May offer of 270 pence that was barred by the UK Takeover Panel.

Kalahari said on Nov 10 that the companies were in talks for an offer of 243.55 pence.

The acquisition would be the second-biggest Chinese takeover of a foreign mining company, according to data compiled by Bloomberg. The nation began its first commercial nuclear plant in 1994 and now has the highest number of atomic facilities being built, data from the World Nuclear Association show.

China, the world’s biggest energy user, has 13 generators in commercial operation and 28 under construction, according to the Ministry of Environmental Protection. China may have more than 100 atomic reactors by 2020, it said in June.

Dec 9 (Bloomberg)