Summit Resources comes out punching over Paladin uranium bid
Australian junior uranium explorer Summit Resources has come out with its reasons for rejection of the unwelcome takeover offer from fellow uranium company, Paladin Resources. Author: Ross Louthean Posted: Tuesday , 20 Mar 2007
PERTH -
Summit Resources Ltd, which has substantial uranium deposits in Queensland, today put on its boxing gloves to combat an unwelcome takeover bid from emerging uranium producer Paladin Resources Ltd.
Both companies are domiciled in near-Perth suburbs and a few months ago had what could have been seen as a mild difference of opinion, when Paladin took over Valhalla Uranium Ltd, on whether Summit may have a right to buy the 50% stake in the Valhalla deposit and other areas in what was known as the Mt Isa Joint Venture.
Paladin acquired Valhalla Uranium, and when it announced a takeover bid more recently for Summit -- on the basis of one Paladin for every 2.04 Summit shares - Summit directors quickly dubbed this opportunistic and unwelcome.
Today Summit released a Target Statement, outlining seven key reasons why its shareholders should reject the bid from Paladin, which is just commissioning the Langer Heinrich uranium mine in Namibia.
These claims were:
1. The offer does not recognise Summit's "unrealised potential": It does not recognise Summit's "world class" projects in one of the most prolific metal producing districts in the world, and does not adequately reflect the unrealised potential of Summit's projects. 2. Summit's world class deposits: The company believes it will be able to develop its Mt Isa uranium project into one of the top five uranium projects in the world. By rejecting the offer shareholders would avoid diluting their exposure to Summit's projects and would see shareholders avoid exposure to Paladin's "inferior" uranium projects in Namibia and Malawi. 3. The offer is timed to close before key events: The Paladin offer would close before the Australian Labor Party meets and was expected to reverse its policy of not allowing any new Australian uranium mines. Also there was expected to be a determination of the joint venture litigation action Summit commenced against Paladin and Valhalla Uranium's main shareholder Resolute Resources. 4. Paladin needs Summit but offers little: Paladin's projects have higher sovereign and political risk and Paladin needs Summit to diversify its risk away from Africa. Paladin wants to become operator of the Valhalla-Skal joint venture in Queensland (through the takeover of Valhalla Uranium); and Paladin recognises Valhalla and Skal deposits are geographically stranded within the 100% owned Summit tenements, and it cannot control development of those resources without a takeover. 5. Paladin will not manage the litigation in "Summit's interests": If Paladin gains control of Summit, Paladin "will not pursue the joint venture litigation with the vigour it deserves." Removal of the majority of Summit's board and replacement with Paladin appointees would not serve shareholder interest. 6. This may not be Paladin's last move: Paladin was unlikely to get control in the first attempt and may return with a higher offer in the future. 7. Paladin's offer may incur a significant capital gains tax liability: Paladin must acquire 80% of Summit shares before capital gains tax roll-over relief is available to Summit shareholders. "Your directors believe that this is very unlikely, leaving shareholders who accept with potentially large capital gains tax liabilities to be paid in cash."
Summit has undertaken some sparring before today. Last week it alerted the Australian media to African media reported problems Paladin may have with the Malawian Parliament being upset with its government over allegations of non disclosure of terms on royalty arrangements with Paladin for the mining of the advanced Kayelekera uranium deposit (which Paladin points out will have a tremendous impact on this poor country's gross domestic product).
Intierra's Minmet mining research data base shows that Paladin's current market capitalisation was $A4.609 billion based on the 500.97 million shares being priced on the Australian Stock Exchange (ASX) at $A9.20/share, whereas the market capitalisation for the Toronto Stock Exchange listing was $C4.138 billion based on the same number of shares at $C8.26/share.
Summit, listed on the ASX and also the New Zealand Stock Exchange, has a market capitalisation of $A902.3 M, based on 197.44 M shares @ $A4.57/share.
Paladin's counter punching will be interesting. In the Australian media today it reported Summits reasons for rejecting the big were flawed.
Paladin claimed that in April last year Summit claimed it expected to announce eight new resources on the joint venture ground, but this was downgraded to five or six in October. By the end of 2006 only the Valhalla resource was confirmed.
On the issue of when the Australian Labor Party would change its policy, Paladin's managing director John Borshoff claimed that by 2010 Western Australia and Queensland will be "uranium-friendly, as are South Australia and the Northern Territory."
The Australian newspaper reported that since the Paladin offer was launched Summit's largest shareholder, Firebird Global Master Fund, had sold its holding of 8.2% of Summit.
SMM Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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