A unique scenario is unfolding at Anglo-Australian miner Rio Tinto, which despite being BHP Billiton’s takeover target, is reportedly also eyeing Canadian uranium explorer Xemplar Energy Corp.Author: Rodrick Mukumbira (Mineweb)
Posted: Monday , 07 Jan 2008
The hunted might be transforming himself into the hunter, if reports that BHP Billiton's takeover target Rio Tinto is considering making its own bid for Canadian uranium explorer Xemplar Energy Corp [TSX:XE.V, NSX:XE] are true.
On Sunday Britain's Sunday Express newspaper reported that Rio Tinto, the diversified Anglo-Australian miner, is becoming more and more interested in Xemplar following the latter's December report that it had discovered in Namibia what is believed to be one of the world's biggest uranium deposits.
The Sunday Express report, which did not quote any sources, said Xemplar is waiting for independent verification of its uranium discovery, and "Rio is understood to be watching events carefully and will decide on whether or not it will make a move for the firm after the results come in".
Rio Tinto Monday could not comment on the report with one senior official describing it as a "market rumour or speculation".
"We never comment on market rumour or speculation so I'm afraid I can't help you with this," Nick Cobban, Rio Tinto's Principal Advisor: Media Relations, told Mineweb.
Rio Tinto has interests already in two major uranium mines: Energy Resources of Australia Ltd (ERA)'s Ranger operation in Australia (68%) and Rössing in Namibia (69%).
But Xemplar is red-hot stock and already boasts one of the highest market capitalisations among uranium developers at around US$742 million. London's Fairfax analyst Marc Elliott says the company is worth close to US$2 billion.
Despite having been around for little more than a year, it has secured control over the biggest land package of all uranium companies in Namibia that boasts its flagship Warmbad project.
According to investors' blog, beleggen.blogo.nl, the writing has been on the wall since December 18 when Xemplar announced drill progress at its Warmbad project.
One blogger said Rio Tinto officials met with the heads of Xemplar on the same day following the drill progress announcement in London when proposals were made on taking over the company.
The blogger says that it's not only Rio Tinto that is waiting anxiously for Warmbad's drill results and that developments point to a simmering takeover battle with French mega nuclear builder Areva, which recently acquired 100 of another Namibian uranium explorer UraMin, likely to join into the race.
"My source has gotten confirmation that neither of these guys can afford to lose Xemplar to the other, given some recent circumstances. My source also informed me that the grade of the assays is above 400," the blogger wrote.
Fairfax's Elliott also says Chinese bidders might join into the race.
Rio's interest in Xemplar comes after it shot down a takeover bid by fellow Anglo-Australian mining giant BHP Billiton saying BHP's proposal to swap three of its shares for every Rio Tinto share would undervalue it.
The Financial Times reported over the weekend that "shareholders in Rio Tinto and BHP Billiton should prepare for a long haul in 2008 as BHP's campaign to take over Rio is expected to run for at least the next 12 months".
It quotes the paper saying the action will ramp up again in the run-up to February 6, the deadline set by the UK Takeover Panel for BHP to either make a formal offer or walk away.
BHP is yet to decide on the exact date to launch its bid, with speculation that this is likely to take place before January 23 when it releases its second-quarter production figures.
Business Spectator says BHP believes that the three-for-one share offer is a generous one and it is not prepared to over-pay for Rio, but "it is worth noting Rio has not complained about the merger on competition grounds, presumably because that strategy would backfire if it chose to accept an increased offer at a later point".
The BHP takeover bid, nevertheless, if successful and approved by competition authorities, would create a firm that would control about a third of the world's iron ore production, leaving Brazil's Vale as the only other serious competitor.
If Rio Tinto takes over Xemplar, and with BHP successfully bidding for the company, the combined firm would also have a huge slice of the international uranium mining market with Olympic Dam, Rössing and ERA and another big uranium project like Xemplar's would likely attract problems with regulators, which might result in the combined firm being forced to sell off some uranium interests.