Paladin Bids A$997 Million for Summit to Get Uranium

Paladin Resources Ltd., an Australian-based uranium explorer, offered to buy Summit Resources for about A$997 million ($791 million) in shares as it seeks full ownership of deposit of the nuclear fuel in Queensland.

Summit shareholders would receive one Paladin share for every 2.04 Summit shares, the Perth-based company said today in a statement. That implies a price of A$5.05 per Summit share based on yesterday's closing prices, a 26 percent premium. Summit shares surged as much as 28 percent today to A$5.11.

Uranium prices 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 almost 40 percent of the world's known uranium reserves, yet contributes 23 percent of output due to a ban on new mines by the Labor Party, which controls all state governments. Labor is expected to overturn the ban in April, Deutsche Bank AG 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.''

`Hostile' Offer

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 Managing Director Alan Eggers said in the statement. ``We will be communicating more fully about this with our shareholders shortly.''

Summit, based in Perth, controls a uranium resource of more than 75 million pounds at Mt. Isa in Queensland, the largest of any company in Australia other than Rio Tinto Group and BHP Billiton Ltd., the company says on its Web site. Its most advanced project is the Valhalla uranium deposit near Mt. Isa in Queensland, which is operated and 50 percent-owned by Summit, while Paladin owns the rest.

Shares in Paladin, the best performer in the Morgan Stanley Capital International World Index over the past five years, today fell as much as 62 cents, or 6 percent, to A$9.68. They were at A$10.03 at 1:33 p.m. Sydney time. Paladin is being advised by Azure Capital Partners.

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

Shares in Perth-based Summit, which have surged more than sixfold in the past 12 months, rose as much as A$1.11 on the exchange. They were at A$5.02 at 1:24 p.m. in Sydney.

Industry Acquisitions

Paladin's bid adds to recent acquisitions in the industry, including SXR Uranium One Inc.'s accord to buy UrAsia Energy Ltd. for $3.1 billion, while last year Paladin bought Valhalla Uranium Ltd. and Canada's Mega Uranium Ltd. bought Redport Ltd. Areva SA, the world's biggest maker of nuclear power plants, said this month it wants to buy Australian deposits to boost 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 A$174 million 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 Managing Director John Borshoff said in the statement, which was lodged with 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.

Spot Prices

Uranium spot prices reached $85 a pound as of Feb. 19, up from $38.50 a year ago, according to the Ux Consulting Co. The price rise was partly prompted by delays to Cameco Corp.'s Cigar Lake project in Saskatchewan, Canada, due to flooding.

Prices may reach $95 a pound by 2008, up from an earlier forecast of $65, ABN Amro Holdings NV said in a Feb. 23 report.

``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 today. 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:www.bloomberg.com