Australia | Apr 13 2007
By Greg Peel
There is little doubt Paladin Resources (PDN) is determined to secure the 70-odd million pound Valhalla/Skal uranium resource near Mt Isa. The company wasted no time in countering Summit Resources’ (SMM) deal with Areva announced yesterday. (Reaching For The Summit; Australia; 12/04/07)
Paladin has increased its unconditional scrip offer from one Paladin share for every 2.04 Summit shares to one for 1.67 – a 22% increase. If you take Paladin’s closing price of Wednesday (the day of the Areva announcement) of $10.38 the offer equates to $6.22. Areva’s initial offer was for 9% at $6.20.
If you take yesterday’s closing price of $10.00 then the deal is worth $5.99, which is below Areva in theory, however Paladin points out that if you consider the actual value of the option (today) Areva has to pay $6.20 in May for 9% and $7.20 for another 9% in six months you ultimately arrive at a price of $5.94.
Nevertheless, the offer period has been extended by two weeks to April 27, so there’s still plenty of time for Paladin’s share price to move around, and it remains to be seen just what the market might think of the effective 26% dilution implied by the Summit offer. The dilution is driven by the fact that Valhalla will not be producing uranium until at least 2010.
Both the scrip offer, and the offer period are now final, Paladin has decreed, unless of course another offer comes in to trump. We may not have heard the last of it yet, although Areva has indicated it won’t try to out-bid Paladin. Paladin’s John Borshoff has, unsurprisingly, suggested this is a much better deal for Summit shareholders than the Areva deal. Summit’s Alan Eggars has, unsurprisingly, told his shareholders to do nothing until the board weighs up the pros and cons.
What is interesting however, is that Paladin has indicated it would still vote in favour of the Areva 9% deal. This implies Paladin is not simply hell bent on acquiring 100% of Summit, and either sees the benefits of the Areva distribution deal or is looking for some conciliation in order to put this acquisition battle to rest, or both.
Now – coming to the matter of resource value. Analysts have approached this valuation in different ways. It has to be considered that (a) Summit presently “controls” all of Valhalla/Skal but only owns 50% and (b) Summit has further known deposits in the general Mt Isa region, some up which are proved up and some of which are not. How one determines Summit’s total uranium resource then determines what valuation is implicit from the new offer.
To that end, Macquarie considers the valuation to be US$21/lb which is about the same as the valuation for Paladin’s own resources. ABN Amro suggests US$22.50lb on a similar basis but UBS is quoting US$30/lb which is similar to the valuation implicit in the earlier SXR Uranium One/UrAsia merger. UBS is considering Valhalla/Skal only it would appear.
Whatever the “correct” figure, it seems that this battle in the Queensland Uranium Wars may be actually closer to a result. No analyst has altered its rating and target on Paladin as a result of this development, leaving the FNArena database B/H/S ratio at 1/3/0 and average target at $10.38.