26 Feb 2010 19:07

ARMZ drops interest in Khan Resources after annulment of Mongolian licenses

MOSCOW. Feb 26 (Interfax) - Russian uranium holding Atomredmetzoloto (ARMZ) has decided against buying Khan Resources now that Mongolia's government has annulled the Canadian company's uranium mining and exploration licenses, ARMZ chief Vadim Zhivov told Interfax.

Khan's share price plummeted following news the licenses had been annulled and that ARMZ would not proceed with the takeover bid. The stock was down 8.7% to C$0.94 by 6:43 p.m. Moscow time or 10:43 a.m. Toronto time.

Zhivov said the decision to annul the licenses was reached at an emergency session of the Mongolian government on Thursday evening.

The decision was based on opinions by the Parliamentary Committee for Security and International Policy, which uncovered breaches of Mongolian legislation. "In connection with this, ARMZ plans to announce the termination of its offer to buy out Khan Resources shareholders soon," Zhivov said.

Zhivov said ARMZ now intended to pursue its interests in Mongolia in the framework of the Russian-Mongolian Dornod Uranium joint venture, which is being set up in line with a government-to-government agreement. He said he expected the joint venture would be created "in the next few months."

Simultaneously, ARMZ will discuss further action related to obtaining licenses to uranium fields with Mongolia. ARMZ would contribute know-how and financial resources to the joint venture, and Mongolia's contribution might include licenses, Zhivov said. "I think we could begin production [in the joint venture's framework] in the next three or four years," he said.

ARMZ is interested in the Dornod uranium field in Mongolia. Soviet geologists explored the Dornod field in the 1970s. The field was mined actively in the period 1988-1995 and the ore was processed by Russia's Priargun Mining Chemicals Association. Zhivov said the former USSR invested around $600 million in today's money in exploration and infrastructure at the field.

The Dornod license used to be held by Central Asian Uranium Company (CAUC), in which Khan owns 58% and Mongolia's MonAtom and ARMZ subsidiary Priargun Mining each own 21%. Mongolia suspended the license after it adopted new legislation governing nuclear energy in the summer of last year.

ARMZ said at the end of November that it had offered to buy 100% of Khan Resources and with it control over the Dornod uranium project for about $36 million.

China National Nuclear Corporation (CNNC) soon made an improved bid, which Khan's management backed. Khan announced plans to bypass the Russian company and form a new joint venture to develop the Dornod field with Mongolia's MonAtom by the end of March.

ARMZ then extended its own offer until March 1, saying that the Canadian company's plans conflicts with the spirit of state bilateral agreements between Russia and Mongolia on cooperation in uranium exploration and mining.

Russian President Dmitry Medvedev signed the government-to-government agreement on the uranium joint venture in Ulan-Baator in August last year.

Mongolia said at the beginning of February that it was not dropping plans to form the joint venture with Russia to mine the Dornod field and that it was in the process of discussing the details of an agreement.