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Kalahari Minerals

Kalahari Minerals calls off merger with Extract Resources on Rio Tinto concerns

Kalahari Minerals stunned investors this morning when it announced that a proposed merger with Extract Resources was being pulled.  Kalahari Minerals already holds a 39.1% interest in Extract Resources, and it was widely accepted that by merging the two companies, the combined group would have been in a better position to continue advancing its portfolio of mineral assets in Namibia, and in particular, its uranium prospects.  

Uranium exploration in Namibia’s world class uranium district surged in recent years on the back of strong gains in the spot price of uranium. However, even with a heavy retreat in uranium prices, the Namibian uranium sector has continued to drive ahead in 2008.

Just last week it was announced that Forsys Metals, which controls the Valencia Uranium Project in Namibia, had agreed to be acquired for C$579 million by George Forrest International, a privately owned industrial group.  Rio Tinto (LSE: RIO) and Paladin Energy (TSX: PDN) already operate uranium mines in Namibia, while Extract Resources (ASX: EXT), Xemplar Energy (TSX-V: XE) and Bannerman Resources (TSX: BAN) are the notable exploration juniors active in the region with interesting prospects.

Kalahari Minerals said that it decided not to go ahead with the transaction after it became apparent that its stakeholders had concerns about the intentions of company’s newest shareholder – Rio Tinto.  Rio Tinto acquired stakes in both Kalahari Minerals (14.9%) and Extract Resources (13.1%) from RAB Capital – the energy and natural resources hedge fund that has been forced to liquidate a number of positions in recent months. Post merger Rio Tinto would have held 19.8% of the combined company.

“After the Restructure, Rio would have held approximately 19.8% of the enlarged company (on a diluted basis) and would have been entitled to further increase that stake without being subject to the 20% limit under the Australian takeovers provisions,” Kalahari stated.

“Following Rio's emergence on the register of Kalahari and Extract, concerns were raised by a number of Kalahari's larger shareholders about the potential for Rio to acquire effective control of the merged company without paying a premium for doing so.

“In addition, a number of those shareholders were concerned that Rio's material holding in the combined group would give it an unhealthy level of control and/or influence in relation to any future negotiations involving a potential transaction between Rio (or its related company, Rossing Uranium) and the merged company either at the asset or the corporate level.”

Kalahari went on to say that it had attempted to seek “guidance and assurances” from Rio Tinto regarding its intentions, but that it had failed to secure a standstill commitment with Rio that would satisfy its shareholders.

“Kalahari retains a 39.11% interest in Extract and now intends to consider a range of other options with a view to maximising the value of that interest.”