Khan bested in bid for Western Prospector

Western Prospector Group’s (WNP-V, WEPGF-O) confidence that Khan Resources (KRI-T, KHRIF-O) wouldn’t succeed in a hostile takeover bid for the company is proving well founded.

On July 15, Western Prospector announced a superior offer from the Hong Kong-based private investment firm Tinpo.

Tinpo’s $1.34-per-share offer trumps Khan’s 58-per-share bid by 130% and values Western’s equity at roughly $74 million — a sum princely enough to win the unanimous support of Western’s board.

The deal would see a subsidiary of Tinpo acquire all of Western’s outstanding shares, bringing its uranium assets in Mongolia into the world of private equity.

Western has agreed to pay Tinpo a $3.7-million termination fee if the deal is not consummated.

“After an extensive review of Western’s strategic alternatives launched in response to Khan’s unsolicited bid, the Tinpo offer was determined to be the most attractive option for Western’s shareholders,” said Gordon Pridham, chairman of the special committee of Western’s board of directors in a statement.

To go through, two-thirds of Western’s outstanding shares must be tendered to the deal.

Western made it clear from the get-go that Khan’s earlier offer should be rejected as inadequate and because the companies didn’t share the same values.

In a bold move, Western waived its shareholders’ rights plan earlier this month after its major shareholders told management they wouldn’t tender their shares to Khan’s offer.

Waiving the plan meant Western shareholders couldn’t buy shares on the cheap in an effort to dilute the stock if Khan acquired a significant percentage of Western shares.

“If Khan hopes to succeed in its offer for Western, it will have to offer shareholders fair value,” Pridham said at the time Khan made its offer.

Khan first made the offer on May 11, then extended it to July 25 from July 15.

The companies have uranium projects in Mongolia that are about 40 km apart.

Western Prospector’s Gurvanbulag project has a resource of 22.3 million lbs. uranium oxide while Khan holds the Dornod project, which has total probable reserves of 49 million lbs. uranium oxide from the No. 7 underground deposit and the No. 2 open-pit deposit (currently filled with water).

The No. 7 deposit hosts probable reserves of 11.28 million tonnes grading 0.156% U3O8 (using a cutoff of 0.04% U3O8), while reserves at No. 2 total 6.94 million tonnes grading 0.127% U3O8 (at a 0.025% U3O8cutoff). The probable reserves are inclusive of a 64-million-lb. indicated resource.

A 2007 prefeasibility study outlined a plan to mine reserves from both deposits starting in 2011 over a span of 15 years at a combined rate of 3,500 tonnes per day.

Khan says the acquisition would result in $100 million in savings because only one mill would have to be built instead of two, and other infrastructure could be shared.

Khan has invested US$6 million in Dornod, which saw US$150 million in spending by former Russian owners between 1988 and 1995.