Khan Resources caught in a geopolitical mess
Canadian junior miner Khan Resources Inc. is caught in a geopolitical mess involving Russia, China and Mongolia. And even as the situation worsens, the company maintains that a planned Chinese takeover is still in the cards.
But shareholders are not buying it. Khan shares plummeted far below the proposed takeout price Tuesday after the company said its mining licenses in Mongolia have been invalidated.
Toronto-based Khan, which controls the Dornod uranium deposit, ran into trouble last year when the Mongolian government suspended one of its licenses. The company then received a hostile bid from a state-owned Russian company that it felt was too low.
Khan thought it resolved all those problems when it got the suspension lifted and struck a friendly deal in February to be taken over by China National Nuclear Corp. (CNNC) for $51.8-million in cash, or 96¢ a share.
But according to Martin Quick, Khan’s chief executive, Russia has worked behind the scenes to squeeze Khan out, despite the Chinese bid.
“What they are trying to do is get Dornod for nothing,” he said.
Russia and Mongolia recently reached an agreement to jointly develop uranium projects in Mongolia, and Mr. Quick said Russia has used it to pressure the Mongolia Nuclear Energy Agency (NEA) to force out Khan.
Tuesday, Khan dropped its bombshell announcement that its licenses have indeed been pulled, and Mr. Quick suspects that the plan is to transfer the mineral rights over to a Russia-Mongolia joint venture.
“It’s an absolute travesty, and we’re going after the NEA in court now,” he said.
Khan shares plummeted more than 30% on the news, and they are now trading at a discount of roughly 40% to CNNC’s offer of 96¢ a share. However, Mr. Quick maintained that CNNC accepted all the political risk when it struck the deal and it should still close. The offer is set to expire May 25th.
Mongolia has said that it wants more mining investment from the West, and it took a big step in that direction last year when it struck an investment agreement with Robert Friedland’s Ivanhoe Mines Ltd. to develop the giant Oyu Tolgoi project.
However, the Khan situation threatens to revive the political risk concerns that have held back Western investment in the past.
“It’s a sad commentary on what’s going on in Mongolia,” Mr. Quick said.
“They speak out of both sides of their mouth. On one side they’re trying to attract foreign capital, and on the other side they’re bowing to the pressure of Russian hardball.”
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