The Extract Complex

The question is of course what to do now?

there are, as always 3 options:

1) sell into strength to secure the current bid terms - it might fail and the SP might fall back - in any event, it is currently possible to sell at a price higher than the takeover offer

2) hold to see if a better offer materialises - as seems likely

3) buy more to squeeze the last bit of juice in the event of a better offer - downside is limited if that doesn't happen and the current bid goes through

My current holding is about 4% of my portfolio and was bought at 148p (thanks to Mark's diligence and generosity). The old style Tournesol would have already taken step 3 with the objective of maximising gains. The new style T is more focussed on risk management/mitigation and is debating between 1 and 2 with a default of 2.

Decisions, decisions, decisions......

T

Hi T,

'Great' minds think alike..........but you've summarised it much better.

With a holding that's crept up to c. 8% of my portfolio I won't be going for your option 3, but with the scale and quality of the resource underpinning value it can't be 1 either. There is a temptation to top slice, but I won't for the moment.

A huge thanks to Mark for sharing the outcomes of his excellent research.

Exciting times!

fuiseog

In reply to tournesol, post #414

Hi T,

It seems that J.P.Morgan and Henderson, who already own over 5% each have made their decisions... and have bought more at over 290p - see recent Rule 8.3 announcements. Doesn't seem too likely that they'd be accepting an offer at 290p. :0)

Cheers,

Mark

Great article here, outlining the regulatory environment applicable to CGNPC's bid. These paragraphs are crucial:

...CGNPC, in any case, needs relief from ASIC to acquire more than 20 per cent of Kalahari, because once it does so it would also acquire a deemed relevant interest in Kalahari's 42.79 per cent shareholding in Extract, and that would breach the fundamental takeover requirement, Section 606 of the Corporations Act, which prohibits a party from acquiring more than 20 per cent of a company without first making a takeover bid to all shareholders.

CGNPC has stated that it intends to seek relief from ASIC to enable it to acquire more than 20 per cent of Kalahari, but Extract said yesterday it would make submissions that the relief not be granted unless the Chinese group also makes an offer for Extract on terms no less than equivalent to those offered to Kalahari shareholders...

 

Cheers,

Mark

Mark, I've just been trying to work out what the above statement means when it says "make an offer for Extract on terms no less than equivalent to those offered to Kalahari shareholders".

• CGNPC are offering 290p per KAH share, or £756m in total.
• KAH own 107,342,087 EXT shares.
• Remove KAH's 45% stake in North River Resources (LON:NRRP) (£11m)
• CGNPC are offering £6.94 per EXT share
• GBP1:AUD1.60264
• CGNPC are therefore offering AUD11.122 per EXT share.

EXT closed at AUD9.28 on Monday 7 March, so the offer represents a premium of 19.8%.  This is clearly better than the premium to KAH's share price on Friday 4 March of 11% because of KAH's discount to NAV.

Meanwhile EXT was up to AUD10.73 overnight so it may not go up very much tonight if the market believes the CGNPC offer won't be beaten.

Do you have a view on whether other EXT shareholders would accept AUD11.122?  Clearly it would be easy for CGNPC to get over the line from a starting point of 43%, but they may only want the uranium supply rather than the hassle of running the mine?  Fascinating machinations playing out!

SM

KAH showing a sudden big drop this morning. Currently down 38p, some 16%, and a good way below indicated bid. Does someone know the bid is being cancelled; overdue reaction to Japan disaster; Chinese announcement of a review of nuclear capacity?

Might be a good time to pick up a few for when the crisis ends.

Devymaster

In reply to devymaster, post #419

This will explain some of the concerns: http://www.heraldsun.com.au/business/mantra-resources-hit-by-u-turn/story-e6frfh4f-1226023510229

SHARES in uranium explorer Mantra Resources plunged yesterday after the Japanese nuclear crisis prompted a Russian uranium miner to dump a recommended $1.16 billion takeover bid for Mantra.

Mantra shares closed down $1.84, or 27.5 per cent, at $4.85 after hitting a low of $4.27.

Africa-focused Mantra and JSC Atomredmetsoloto (ARMZ) announced an agreement on December 15 in which Mantra backed ARMZ's offer of $8 a share.

But yesterday, Perth-based Mantra said: "ARMZ has stated that the recent incidents at the nuclear power plant in Fukushima are likely to have a material adverse effect on the business, results of operations, assets or liabilities, financial position or prospects of Mantra.

"As such, ARMZ considers that the condition precedent in the agreement relating to material adverse change is not capable of satisfaction."

But Mantra said there was potential for another arrangement.

"ARMZ has indicated it is willing to explore how the transaction may proceed by way of an alternative approach or in accordance with its obligations (under the initial agreement)," Mantra said.

In December, Mantra said the cash offer reflected the size, strategic nature and near-term development potential of its Mkuju River uranium deposit in Tanzania

 

Of course, it is easier for CGNPC to reconsider their offer, which is not yet confirmed. There is only a small break fee to pay.

It seems likely that the demand side of U market will be disrupted for an indeterminate amount of time (not least due to reduced demand from Japan). That will significantly affect the valuations of U miners and developers. It is only when the market settles down (which is likely to take a considerable time and will depend on global decisions regarding reactor use and buildout) that rational valuations can be made. In the meantime, financing mine development at a reasonable price is unlikely to be easy.

China has temporarily suspended approval of new nuclear power plants, pending a safety review: http://www.bbc.co.uk/news/world-asia-pacific-12769392

This story is still unfolding.

Mark

Hi Mark,

It seems to me that China is already 'on the hook' as regards sourcing uranium for its nuclear plant pipeline.

The current 'low-ball' offer for KAH was at risk of being trumped by other players (we PI's fondly imagined).

It's at least possible that the Chinese won't seek to 'nickel and dime', they won't need to, as it's unlikely that a Western , shareholder-accountable rival will in present circs be minded to counterbid aggressively....

If China Inc (CGNPC ) pays what in current climate is a 'full ' price for KAH and then controls the resource from which RIO (China Inc =Chinalco) can benefit - and has locked up a supply of uranium for its entire nuclear programme - then it seems to me that 'China Inc.' has achieved its strategic objectives..... a few hundred million here or there will be incidental !

Interview with Mark Hohnen on Reuters:

LONDON, April 5 (Reuters) - Kalahari Minerals (LON:KAH) said talks with its suitor state-owned China Guangdong Nuclear Power (CGNPC), which followed the nuclear crisis in Japan, did not include a lower offer price.

"In the three days I was with them there were no discussions on price. The topic of price wasn't raised once," Kalahari's executive chairman Mark Hohnen told Reuters on Tuesday.

CGNPC's proposed 756 million pound ($1.2 billion) offer was announced on March 7 just days before events at Japan's Fukushima nuclear reactor sparked fears of a radiation disaster, leading an official from CGNPC to tell Reuters on March 24 that the Chinese company may cut its proposed offer.

Uranium stocks dropped following Japan's nuclear crisis with Kalahari's shares falling as low as 192 pence compared to the offer price of 290 pence.

Kalahari holds around 43 percent of Extract Resources which earlier on Tuesday said a feasibility study showed that its key Husab uranium project in Namibia was economically viable.

"I had a meeting the week before last in Beijing and am going down to Namibia this week and meeting with various representatives there," Hohnen said.

"The Chinese deal as far as we are concerned is doing exactly what it's supposed to be doing during the eight weeks between now and May 3," he said.

"Ever since we started the process they have done everything that they've said they are going to do. They haven't left me surprised at all by anything."

http://af.reuters.com/article/investingNews/idAFJOE73R00H20110428?sp=true

http://www.namibian.com.na/news/full-story/archive/2011/april/article/panic-in-mining-over-epangelo/

Storm in a teacup, I hope - I don't believe they can be thinking of confiscating these large holdings of Korean, Japanese, Iranian etc interests.

It probably is a storm in a teacup but I decided to sell anyway. I prefer to crystallise a very substantial profit at the current level rather than risk it by ignoring signs and portents.

URU did v nicely for me previously, so a second courtesy of KAH is more than acceptable......

"The Honourable Minister assured us that the new policy will NOT apply to current licences"

http://clients.weblink.com.au/clients/extractresources2/article.asp?asx=EXT&view=6540015

And statements today from Extract and KAH expressing confidence that the views expressed by the Minister will not affect them.

I do not believe this morning's announcement by Kalahari justifies the trading halt in Extract's shares announced yesterday (i.e. Sunday night UK time). Moreover, from the CGNPC offer announcement:

Kalahari has entered into the Implementation Agreement with CGNPC-URC, which sets out certain steps to be taken by both Kalahari and CGNPC-URC to effect the transaction. The Implementation Agreement contains obligations for each of Kalahari and CGNPC-URC to pay the other a break fee of £7.5 million (the “Break Fee”) in the  

following circumstances...

 

 ...Save as set out below, CGNPC-URC shall pay the Break Fee to Kalahari if, by 5.00p.m. on 3 May 2011 (or such other date as may be agreed between CGNPC-URC and Kalahari), CGNPC-URC has (i) not satisfied or, if applicable, waived each of the Pre-Conditions set out in paragraph 9 above (other than Pre-Condition 5 and Pre-Conditions 2 and 3 in the circumstances described below); (ii) not released the Rule 2.5 Announcement; or (iii) inserted an offer price in the Rule 2.5 Announcement of less than 290 pence per Kalahari Share. In addition CGNPC-URC shall pay a Break Fee to

Kalahari if the Offer Document is not sent to Kalahari Shareholders within 14 days of the Rule 2.5 Announcement or CGNPC-URC is in material breach of (i) certain of its obligations under the Implementation Agreement; or (ii) its obligations under Rule 31.8 of the Code to pay the consideration monies to the Kalahari Shareholders.

 3.5 hours and counting ;0)

At Extract's current SP, I calculate that Kalahari's NTAV is only 203.6p - so either Kalahari is overvalued or Extract is undervalued. I suspect the latter and depending on what is announced, and assuming the trading halt is lifted, I may well be a buyer of Extract tonight.. ;0)

Cheers,

Mark

The real announcement has now been issued (just before the 5pm deadline): http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=10854983 

CGNPC offer still on - but at a reduced price of 270p, post-Fukushima. However, the Takeover Panel is blocking it, it appears due to a technicality in the offer documentation, which Kalahari & CGNPC are appealing. Meantime, deadline has been extended to 16th June. We'll find out what Extract's Board thinks tonight.

The fact that the offer is still on, albeit at a price reduced by ~7%, shows that CGNPC is not concerned about the award of a mining licence.

Fun & games.

FT Alphaville reporting that China Guangdong Nuclear Power Corp wants to reduce it's 290p offer per share to 270p because of the Japanese nuclear problem.

But the Takeover Panel says this is against the rules. An original offer, made without a reservation that allows repricing, cannot be altered during the offer period or up to 3 months after it. The KAH Board are appealing. If the appeal fails CGNPC can pay the full 290p now, or wait 3 months to make a lower offer.

fuiseog

Oops, should have checked for an RNS, and there is one to confirm the position:-

“The Panel Executive has ruled that CGNPC-URC is not permitted to announce a firm offer for Kalahari at 270 pence per share, even with the agreement of the Kalahari Board"

http://www.investegate.co.uk/Article.aspx?id=20110503165850P34BC

Both prey and predator have landed themselves, and us, in a right old mess here.

fuiseog

Well called Mark, I hope you got most of the 14% rise.

"Extract Resources Ltd., aiming to build the world’s third-largest uranium mine, rose the most in six weeks in Sydney after saying development work will continue even as Namibia plans to take ownership of all mining rights.

Extract rose 14 percent, the most since March 21, to A$7.63 at the 4:10 p.m. close in Sydney, while the benchmark S&P/ASX 200 Index dropped 0.9 percent. The explorer is proceeding with drilling and plans to develop the Husab project in Namibia, the Perth-based company said today in a statement."

http://www.businessweek.com/news/2011-05-04/extract-climbs-in-sydney-after-saying-mine-work-proceeding.html

With KAH making up 6.5% of my portfolio I was pleased (relieved?) to sell out this morning to bank a decent profit.  Chances are I'll be leaving  plenty for the other guy but protection of capital takes precedent.

fuiseog

In reply to fuiseog, post #431

Looks like this is not panning out as some expected.

With Extract under a trading halt pending an announcement relating to discussions between KAH and CNOOP I am naturally curious, as a holder of both KAH and EXT, what the content of the announcement will be. Presumably interest in this situation has waned on this board.