High uranium prices sparks bid for Summit

Paladin Resources, an Australian uranium explorer, offered Tuesday to buy Summit Resources for about 997 million Australian dollars, or $791 million, in shares as it seeks full ownership of a deposit of the nuclear fuel in the Australian state of Queensland.

Summit shareholders would receive one Paladin share for every 2.04 Summit shares, Paladin said in a statement. That implies a price of 5.05 dollars per Summit share based on closing prices Monday, a 26 percent premium. Summit shares surged as much as 28 percent Tuesday to 5.11 dollars.

Uranium prices have more than doubled in the past 12 months amid rising demand for the fuel for power generation, helping to almost triple Paladin's share price in the last 12 months. Australia has about 40 percent of the world's known uranium reserves, yet contributes 23 percent of output due to a ban on new mines by the Labour Party, which controls all state governments. Labour is expected to overturn the ban in April, Deutsche Bank said Feb. 21.

"Summit has a very large uranium resource base, one of the biggest undeveloped resource bases in Australia, so from that point of view it's attractive," said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management. "Paladin is looking five to 10 years down the track and is quite prepared to play a waiting game and hope that the situation will change and mining approvals will be granted."

Summit, which is being advised by Gresham Advisory Partners, described Paladin's offer as "hostile" and advised shareholders to take no action while the board considers the bid.

"This offer is not unexpected and, in my opinion, is designed to capture value that will otherwise flow to Summit's shareholders," Summit's managing director, Alan Eggers, said in the statement. "We will be communicating more fully about this with our shareholders shortly."

Summit controls a uranium reserve of more than 34 millions kilograms, or 75 million pounds, at Mount Isa in Queensland. This is among the largest reserve of companies in Australia, not including than Rio Tinto Group and BHP Billiton, Summit said on its Web site. Its most advanced project is the Valhalla uranium deposit near Mount Isa, which is operated and 50 percent-owned by Summit, while Paladin owns the rest.

Paladin stock has made a return of 34,085 percent in the past five years, according to data compiled by Bloomberg.

Paladin's bid adds to recent acquisitions in the industry, including SXR Uranium One's accord to buy UrAsia Energy for $3.1 billion, while last year Paladin bought Valhalla Uranium and Mega Uranium of Canada bought Redport. Areva, the world's biggest maker of nuclear power plants, said this month it wants to buy Australian deposits to raise its reserves.

Paladin last week approved development of a $185 million uranium mine in Malawi, and earlier this year started its first uranium production at the Langer Heinrich mine in Namibia. It secured the stake in the Valhalla/Skal project through a 174 million dollar stock-based purchase of Valhalla completed in November.

"Summit has an attractive portfolio of Australian uranium deposits that will complement Paladin's extensive asset base," Paladin's managing director, John Borshoff, said in a statement made to the Australian Stock Exchange.

Production may start up at the Valhalla/Skal deposits in 2012, assuming the Queensland government reverses its policy stance and permits uranium mining in the state, Borshoff said.

Uranium spot prices reached $85 a pound as of Feb. 19, up from $38.50 a year ago, according to the Ux Consulting. The price rise was partly prompted by delays to Cameco's Cigar Lake project in Saskatchewan due to flooding. Prices may reach $95 a pound by 2008, up from an earlier forecast of $65, ABN AMRO Holdings said in a report Friday.

"The significant number of new entrants in the uranium exploration space, the ongoing strength in uranium prices and the five-year-plus lead time in taking a project from exploration to production are likely to lead to ongoing rationalization, and we expect some ongoing excitement in the sector," ABN analysts led by Warren Edney said in the report.

Paladin's bid for Summit "makes sense and adds value," Edney said Tuesday. The offer looks "cheap" in terms of dollars per pound of uranium resource, compared with SXR's agreed bid for UrAsia, which is about twice as much on that measure, he said.

source news : iht.com