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As the price of uranium continues to remain relatively stable, China continues to exert pressure on secure energy resources. While the expectation from Extract is that an offer price of $8.65 per share will be proposed by next month the independent directors are hesitant to make any firm recommendation until an offer has been confirmed.
By Dave Brown – Exclusive to Uranium Investing News
As the price of uranium remains relatively stable, China continues to exert pressure on secure energy resources, and Extract Resources Limited (ASX:EXT) is well-positioned to benefit. Earlier this week, the uranium developer issued a press release under the expectation of a takeover offer from Taurus Minerals (OTC Pink:TAUM) by no later than March 1.
Extract was offered $2.2 billion by China Guangdong Nuclear Power Group (CGNPC) for its Husab uranium project with conditions that were met on Friday. The Husab project is well-known by many uranium industry stakeholders as the largest in situ, highest grade, granite-hosted uranium deposit in Namibia. It is also the fourth largest uranium-only deposit in the world.
Background
Last June, Extract announced a 33 percent increase in the total resource of the Husab deposit; the project obtained environmental approval for linear infrastructure in July. The scope of the linear infrastructure included water supply, electricity, access roads, and telecommunications. This was the second and last environmental approval needed for the development following the environmental approval that was obtained in January 2011. In December the mining license for the uranium mine project was issued.
Buyer beware
In last year’s Ernst & Young African Mining Investment Environment Survey it was noted that although Namibia scores relatively well on the favourable mining investment radar, the country is currently reviewing its mining tax legislation. It is important to understand that the recently proposed “revenue-based taxation” has been reconsidered and either removed in its entirety or reduced in scope of application.
While the expectation from Extract is that an offer price of $8.65 per share will be proposed by next month, the independent directors are hesitant to make any firm recommendation until an offer has been confirmed. The company suggests that the directors are continuing to actively investigate whether there are any available alternatives that could maximize value for Extract shareholders. The market has not demonstrated a strong interest in the news, as the share price is currently trading in the range of $8.60. Although the share price has seen muted growth this year, other uranium mining companies have seen relatively greater year-to-date appreciation. The World Uranium Index, which serves as an indicator for the top ten global producers of uranium, has increased 23.6 percent since the start of the year.
Merger and acquisition appetite
A recent volatility outlook from Ernst & Young explained that despite market uncertainty in 2011, a number of large deals were completed, and this trend should continue into the new year. Last year’s largest deal was the Atomredmetzoloto JSC (ARMZ) acquisition of Mantra Resources for $981 million by means of its Canadian-based subsidiary Uranium One. The Russian mining company was also seeking to obtain uranium reserves in Africa.
The Rio Tinto (LSE:RIO,NYSE:RIO,ASX:RIO) takeover of Hathor generated considerable interest, as the deal provided Rio Tinto with an important foothold in the Athabasca Basin. According to Ernst & Young, the possible consolidation of the sector has resulted in some players engaging in “poison pill” shareholder rights strategies to defend against hostile takeovers. Rio Tinto was mired in a dispute regarding its interest in a Mongolian copper project with Ivanhoe Mines (TSX:IVN).
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.