Waves at Kalahari

Control over the fabulously-rich Rössing South uranium deposit is again the motive behind a brewing controversy. Last week Friday, the owner of the EPL, Extract Resources through its local wholly owned subsidiary, Swakop Uranium, put out a statement saying the board of directors took note of an upstream offer for control in a rather obscure venture capital company, listed in London under the name Kalahari Minerals plc.
Kalahari Minerals plc is listed on the London Stock Exchange’s AIM board. Relative to its peers, it is a small company but its biggest attraction lies in its 43% stake in Australia’s Extract Resources. Since listed in 2007, Kalahari Minerals had an unspectacular share performance, trading small volumes of stock, usually between 900,000 and 2 million shares per day. However, last week Thursday, a day before the official announcement of an offer for at least 50% of Kalahari Minerals’ shares, trade for the day exploded with more than 45 million shares traded on the single day. The price also shot up to 242.5 pence. On 22 November, it still traded for 218 pence.
This movement in share price closely mirrored an announcement that a Chinese company listed in Hong Kong, Taurus Mineral Limited, has made an offer for the entire shareholding of Kalahari Minerals at a strike price of 243.55 pence. This announcement was quickly followed by an official announcement from Extract Resources, quoting much Australian stock exchange rules and regulations, but unambiguously stating the Extract board will act to maximise shareholder value for its own shareholders.
Trading in Kalahari Minerals shares on Friday in London was still robust with over 3 million shares changing owners, but share was stuck at 242 pence, a clear reflection of the offer value.
Taurus Mineral Limited is owned by two Chinese entities, both essentially Chinese government investment vehicles. The offer to Kalahari Minerals is subject to certain conditions, amongst others that Taurus receives valid acceptances of the Kalahari Offer from more than 50% of the voting rights in Kalahari; that Kalahari does not dispose of its shares in Extract during the offer period; that the Namibian government does not withdraw, reject or adversely amend any of Extract’s mining or exploration licences; and finally that the Namibian Competition Commission approve the transaction.
Throughout the negotiating process between the Chinese and the Taurus directors, the Extract board was left out in the cold. The statement from Extract Resources referred to their surprise when they learnt of the offer, saying the boards “noted” the offer from Taurus to Kalahari Minerals.
But the Extract Board also “noted” that the announcement includes mention of a downstream offer for the rest of Extract not owned by Kalahari Minerals, expressing their concern about the formula to be used to calculate the share price.
The deal is complicated by the fact that four separate jurisdictions must be considered for approval on top of shareholder approval. Kalahari Minerals is in the UK, Extract in Australia, Taurus is incorporated in Hong Kong, and Swakop Uranium is registered in Namibia.
Recently, Swakop Uranium announced that their focus on Zone 1 and Zone 2 in their EPL, has indicated a better than expected resource increasing the mine’s estimated production life to 20 years. Earlier in the year, Swakop Uranium was also granted its mining license which immediately made Swakop Uranium, Extract Resources and Kalahari Minerals an attractive target for strategic investors. Kalahari Minerals MD, Mark Hohnen referred to this fact in an earlier report where he alluded to discussion with potential investors long before the Taurus offer was announced.