The investment will be made in two instalments, with Areva initially buying a 9% stake at a price of A$6.20 per share for a cash injection of A$121.1 million. Within six months, Areva can increase this stake to 18% by subscribing to another lot of shares at A$7.20 each for a total of A$171.5 million in cash.
Once the second investment is made, Areva gains the right to market two-thirds of the uranium that Summit produces at its Mount Isa mine û a mine which is scheduled to begin production in about 2010. The arrangement could be potentially lucrative to Areva given that Australia has recently signed an agreement to provide uranium to China for power generation purposes. China is expected to build between 40 and 50 nuclear plants over the next 20 years.
The deal with Areva is designed to thwart the planned takeover of Summit by its partner in the Mount Isa project, Paladin Resources. The relationship between the 50:50 joint venture partners has become fractured since the larger Paladin launched the hostile takeover in February this year. In an all-scrip deal, Paladin is offering one of its shares for every 2.04 Summit shares.
PaladinÆs bid values Summit at A$1.1 million, while ArevaÆs investment values the company at about A$1.2 billion.
SummitÆs managing director, Alan Eggers, told analysts and journalists yesterday that the cash injection would give his company the financial resources to bank the Mount Isa project. Analysts have argued that Paladin is the natural owner of Summit given its larger size and its financial capacity to develop the mine more quickly.
ôNow we have the backing of the worldÆs leading uranium industry player, which will significantly enhance our ability to take our assets from exploration success, through mine development and production,ö says Eggers. ôArevaÆs vote of confidence in our project justifies our recommendation to shareholders to reject PaladinÆs inadequate offer.ö
PaladinÆs offer for SummitÆs shares is due to close next Monday (April 16) and, so far, Paladin has only received acceptances of less than 1%, according to Eggers.
Paladin and Summit became partners in the Mount Isa project last year when Paladin made a A$175 million scrip acquisition of Valhalla UraniumÆs interest in the mine. Initially the new joint venture relationship ran smoothly, but once Paladin moved to consolidate its ownership of the project, Summit went on the defensive.
Last month Summit commenced legal proceeding against Paladin, claiming Valhalla UraniumÆs prospectus materially breached information disclosure provisions in the joint venture agreement. Paladin remains sceptical about the claims, saying the legal proceedings were only launched after it made its takeover offer.
However, if the court finds in favour of Summit, Eggers and his team will be entitled to buy PaladinÆs 50% stake in the project at 85% of its market value. The investment from Areva would give Summit the cash to do this.
SummitÆs shares have been in a trading halt since Tuesday and last traded at A$5.80 per share. PaladinÆs shares closed at A$10.38 yesterday.
ArevaÆs investment in Summit is subject to shareholder approval and a green light from the Foreign Investment Review Board.