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majors move to extract kalahari value

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    Majors move to Extract Kalahari value

    The Australian Financial Review
    PRINT EDITION: 12 Oct 2011
    Angela Macdonald-Smith

    Confirmation of China Guangdong Nuclear Power's new takeover interest in the largest shareholder of Extract Resources has refocused attention on the part Rio Tinto may play in the uranium explorer's large project in Namibia.

    Any bid by the Chinese nuclear giant for London-listed Kalahari Minerals is expected to lead to a restructuring of ownership in the Husab project, now 100 per cent held by Extract.

    That could bring Rio Tinto, a shareholder in both Extract and Kalahari, in as a shareholder in Husab, working alongside CGNPC, analysts said yesterday.

    Such a deal could also see the joint development of the Husab deposit with Rio's adjacent Rossing mine, they said.

    CGNPC's interest in Kalahari is part of a wrangling over control of Husab and for offtake from what is set to be one of the world's biggest uranium mines.

    Japanese trading house Itochu also owns stakes in both Extract and Kalahari and is expected to want a share of output from the mine.

    Kalahari, which owns 42.8 per cent of Extract, confirmed on Monday in London that it has resumed talks with CGNPC on a possible recommended takeover offer.

    Any bid is expected to be priced no higher than 270 pence per share, the level the Chinese company had proposed to cut its earlier proposed offer to after the Fukushima nuclear accident in March.

    Under Australian takeover regulations, the purchase of Kalahari by CGNPC would require the Chinese to make a follow-on bid for Extract at an equivalent price.

    Extract yesterday said it had held talks with the Australian Securities and Investments Commission to ensure the interests of all its shareholders are protected should Kalahari be taken over.

    That has been taken to mean that Extract is asking ASIC to force CGNPC to make a follow-on bid.

    A 270p a share offer for Kalahari, valuing the company at about £650 million, equates to an offer of about $9.50 per share, or $2.4 billion, for Extract, CLSA calculates.

    But a takeover of Kalahari is expected to lead to a more extensive restructuring of interests rather than just a follow-on bid for Extract.

    "The simple case is that the Chinese just buy Kalahari and use that to buy Extract, but I wouldn't rule out some sort of engagement by Rio," CLSA analyst Michael Evans said. "I think some co-operation between CGNPC and Rio Tinto is highly likely; it would be a win-win."

    Merrill Lynch analyst Glen Chipman said the most likely outcome could be an equity swap that would allow Rio to increase its stake in Husab in exchange for helping fund the project.

    "Husab is crucial for Rio Tinto maintaining meaningful low-risk uranium exposure," he said.

    Processing higher-grade Husab ore at Rossing would boost the competitiveness of a mine that Rio had suggested had become unprofitable, he said. Extract would also benefit by getting funding for Husab.

    Extract has been in talks with Rio Tinto and others about the best development and financing options for Husab, which it has estimated would cost almost $US1.7 billion to develop as a stand-alone venture.

    Extract shares fell 11¢ yesterday to $8.75 after jumping more than 10 per cent on Monday before being halted pending the update on the CGNPC-Kalahari talks.

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