Bloomberg News

Extract to ‘Urgently’ Resume Partner Talks After China Bid

December 12, 2011

(Updates with Extract shares in 11th paragraph.)

Dec. 9 (Bloomberg) -- Extract Resources Ltd., owner of the world’s fourth-largest uranium deposit, will “urgently” resume talks with potential partners as a A$2.2 billion ($2.2 billion) takeover bid from China looms following an offer yesterday 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 Extract should the Chinese company’s 632 million-pound ($988 million) bid for Kalahari Minerals Plc succeed. London-based Kalahari, whose directors have recommended the Chinese bid announced yesterday, owns 43 percent of Extract.

“At no stage have we ever been restricted from talking to anyone, so we have continued to have those partnership discussions and we are going to be resuming those as a matter of urgency,” Jonathan Leslie, chief executive officer of Perth- based Extract, said in a phone interview from London today.

Extract’s search for a partner to help develop its Husab uranium deposit in Namibia, which has been estimated to cost about $1.7 billion, were slowed following the announcement of talks between Guangdong Nuclear and Kalahari in March, Leslie said. “We’ve got existing contacts with all the major players in the uranium industry, and the very fact that this offer has taken place shows the strategic importance of it.”

Rio Tinto

Rio Tinto Group, the world’s third-biggest mining company and owner of the Rossing mine adjacent to Extract’s Husab, is unlikely to make a rival bid as it may partner with Guangdong Nuclear in developing the asset should the Chinese company be successful, BMO Capital Markets analyst Edward Sterck said yesterday.

Rio owns 14 percent of Extract and 11.5 percent of Kalahari, according to data calculated by Bloomberg. Extract in February said it was in talks with London-based Rio about merging the companies’ uranium projects in the African nation.

“We’ve continued to have discussions but the particular structure we were looking at then has been put on hold,” Leslie said today. It would be “very surprising” if Rio weren’t part of renewed partnership talks, and Extract’s other major shareholder, Tokyo-based Itochu Corp., was part of such discussions earlier, he said.

Tony Shaffer, a London-based spokesman for Rio Tinto, declined to comment. Rio’s Rossing mine is the third-biggest producer of uranium, accounting for about 6 percent of global supply, according to World Nuclear Association figures. Husab is about 7 kilometers (4.4 miles) from Rossing and 30 kilometers from Paladin Energy Ltd.’s Langer Heinrich project.

Deal Parameters

“When we have discussions with people, they know exactly what those parameters are now,” Leslie said today. “We are going to certainly look at all alternatives.”

A full takeover bid for Extract will be triggered should Guangdong Nuclear get a 50 percent stake in Kalahari, according to yesterday’s statement on the bid, citing the Australian Securities and Investment Commission.

Extract rose as much as 5.7 percent to A$8.55 in Sydney trading. The stock closed at A$8.47, valuing Extract at A$2.1 billion.

“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,” BMO’s Sterck, a London-based analyst who has a “market perform” rating on Extract, said by phone. “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.”

Recent Transactions

Kalahari dropped 0.1 percent to 241.75 pence in London trading at 11:18 a.m. Guangdong Nuclear offered 243.55 pence a share for Kalahari. APAC Resources Ltd., with a 14 percent stake, and Itochu Corp., with 13 percent, 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 CEO Andrew Ferguson said by phone today in Hong Kong. The company will take its time to evaluate the offer, he said.

In October, Rio Tinto agreed to buy Canadian uranium explorer Hathor Exploration Ltd., gaining control of more than 70 percent of the stock on Dec. 1. That deal valued Hathor’s resource at $11.16 per pound of uranium oxide, according to BMO. The offer for Kalahari values its resource at $4.08 a pound, BMO said.

Await Guidance

The Kalahari offer is conditional on Guangdong Nuclear getting acceptances of more than 50 percent. The offer is at a 16 percent 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 percent of the stock, are to recommend the deal, and Guangdong Nuclear has secured non-binding letters of intent for a further 3.9 percent stake. Extract shareholders should take no action and await further guidance from the company’s independent directors, CEO Leslie said.

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 U.K. Takeover Panel. Kalahari said 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.

China’s Nuclear Plans

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.

Extract is being advised by Rothschild and Clayton Utz, it said. Guandong Nuclear are advised by Deutsche Bank AG and Kalahari by Azure Capital, Strand Hanson Ltd. and Ambrian Partners Ltd.

--With assistance from James Paton in Sydney and Michelle Yun in Hong Kong. Editors: John Viljoen, Tony Barrett

To contact the reporter on this story: Jesse Riseborough in London at jriseborough@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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