By Greg Peel"As the founding director of the Company I have been...

By Greg Peel

"As the founding director of the Company I have been overwhelmed by the support shown by our shareholders for Summit's staff, management team and Board since Paladin first announced its unsolicited offer. Many of those shareholders have been loyal supporters and believers in Summit and its vision for many years. To those of you in particular I say thank you."

And with that note Alan Eggars recommended Summit Resources (SMM) shareholders accept the latest scrip offer from Paladin Resources (PDN), open until April 27.

It was seventeen years ago when geologist Eggars staked out a plot of dirt forty kilometres from Mt Isa in Queensland's remote interior. In order to develop the site, Summit sold 50% to Valhalla Uranium, a majority owned subsidiary of Resolute Mining (RSG). However, Summit retained the right to buy back that 50% at 85% of market value should Valhalla Uranium ever decide to sell.

In 1997, and even before a drilling program was completed, Eggars was able to announce to the market there were "spectacular grades" of uranium oxide at the sites known as Valhalla and Skal. Unfortunately, the Queensland government did not permit uranium mining, and as such Eggars began a long and fruitless campaign to try and have the policy overturned. If it was not for global warming, Eggars may just about have been forced to give up.

But 2007 brought renewed hope when word got around that the federal ALP was prepared to reverse its policy. This was enough to encourage Paladin Resources' John Borshoff to make his move.

Paladin, fresh from spectacular share price appreciation spurred by the imminent commissioning of its Namibian uranium projects, bought Valhalla Uranium out from under Eggars' nose – not the share of the project, but the company. Summit protested and took Paladin to court. There Paladin would still be, if Borshoff hadn't decided to make another move.

The extraordinary surge in the spot uranium price in 2007 was quickly reflected in the Paladin share price, and so Paladin went in for the kill with an audacious hostile scrip offer for Summit that would hand the entire Valhalla project over to Paladin and avoid any further mucking around. Eggars went into defence mode.

Summit signed a deal with French energy company Areva that saw Areva subscribing for 9% (with an option for a further 9%) of Summit in exchange for the marketing rights to two-thirds of Summit's uranium. When extrapolated, the deal valued Summit beyond the Paladin offer. By this stage, less than 1% of Summit shareholders had accepted the Paladin offer.

It was time for Borshoff to relax some of the "hostility" of his Summit assault, and adopt a more conciliatory approach. Paladin immediately countered with an increased scrip offer, matching the value of the Areva bid. Paladin also stated it welcomed the Areva deal, and would honour it. By now, Paladin had effectively valued Summit at 50% above where it was trading the day before the first hostile bid.

Alan Eggars had a lot to think about.

While it may have seemed akin to giving a child up for adoption, a 50% re-rated bid is not something that can be shrugged of from a commercial point of view. And this bid would possibly be the last. Moreover, Summit surmised that some 20% of its stock was now held by hedge funds looking for a quick profit. The likelihood is that they would have accepted the Paladin offer.

At the end of the day, Summit saw benefits for its loyal shareholders in becoming part of a much bigger company with existing production and growth prospects. Exposure to the Mt Isa deposits would be retained through ownership of Paladin shares. And importantly, there remains a risk that Queensland's Premier Beattie will still not endorse a change of Labor policy on uranium mining, despite having earlier said he would. Summit had to consider passing this risk on to Paladin, rather than remaining independent but potentially still at the ball game without a ball.

"I remain convinced that the Mount Isa Project will prove to be world class and that it will produce one, but several world class metal deposits", said Eggars in his announcement to the ASX yesterday. "I look forward to the day when the first drum of yellowcake leaves the plant and my only regret is that I will not be part of the management team that finally delivers our dream."

So what do Paladin shareholders think about the conquering of Summit?

Not necessarily much. Approaching noon the Paladin share price is down 4% and back under $10.00. Analysts at UBS weighed up the pros and cons.

If you consider the price for which Paladin secured the first 50% of Valhalla, it has secured a promising resource at a low entry price. It has, however, paid a high premium to secure Summit compared to recent market consolidation prices.

Paladin has now avoided any court costs, and Summit's other assets could provide "hidden value". It has also back-doored a deal with Areva which should be beneficial in the long run. But all of this has come at the cost of 26% dilution to the Paladin share price, and we still don't know which way Premier Beattie will turn.

In the grander scheme of things, Paladin is a stock highly leveraged to a uranium price which shows no signs of exhausting its uphill push just yet. UBS makes this point, and Macquarie analysts agree. While Paladin's valuation might looked stretched, says Macquarie, it's presently hard to see the downside.

Neither UBS nor Macquarie have changed their ratings or target prices on Paladin. Deutsche Bank and ABN Amro are still weighing up the news. The FNArena database B/H/S ratio for Paladin remains at 1/3/0 with an average target of $10.38.

In other news, Energy Resources Australia (ERA) posted its quarterly production report yesterday which simply ratified the earlier downgrades and guidance following the flooding at the Ranger mine attributable to Cyclone George.

Again, brokers made no change to forecasts, with the exception of JP Morgan. JPM's analysts have incorporated the effect of a higher Aussie dollar assumption in pulling back their target for ERA from $31.00 to $30.00. The B/H/S ratio remains at 2/2/1 with a new average target of $27.56.