Khan signs MOU with state-owned uranium giant in Mongolia

Khan Resources (KRI-T) has come up with a clever plan to dodge a hostile takeover bid AND meet  the requirements of Mongolia’s recently passed Nuclear Energy Law by embracing the country’s state-owned uranium company in a new joint venture.

Khan has signed a non-binding memorandum of understanding with MonAtom, which holds all the uranium licences under Mongolian state control and is in charge of all activities involving radioactive minerals in the country.

The joint venture will go a long way in finalizing the ownership structure of Khan’s Dornod uranium project in northeastern Mongolia. Its Dornod project, the site of a former Russian open-pit uranium, is licenced for mining and exploration.

If successful, the joint venture would “protect and preserve value for Khan’s shareholders in light of the Mongolian Nuclear Energy Law, the status of Khan’s mining and exploration licenses in Mongolia and the hostile bid by JSC Atomredmetzoloto,” also known as ARMZ, ” the company explained in a statement.

The news sent Khan’s shares up 10¢ apiece or 14.7% to close at 78¢ a share.

According to Khan’s board of directors, a joint venture with MonAtom would be a much better fit for shareholders than ARMZ’s hostile takeover bid of 65¢ per share for the Toronto-based company.

Khan’s two principal assets in Mongolia are mining license 237A held by its 58% owned subsidiary Central Asian Uranium Company or CAUC, and exploration license 9282X, held by its wholly owned subsidiary Khan Mongolia XXK.

CAUC is a joint venture between Khan (58%), MonAtom (21%) and the Russian company JSC Priargunsky Industrial Mining and Chemical Union, a subsidiary of ARMZ.

The proposed structure contemplates MonAtom acquiring a 51% interest in each of CAUC and Khan Mongolia in accordance with the Nuclear Energy Law, but MonAtom would then transfer to Khan part of its interest in the joint venture in exchange for newly issued shares of Khan representing 17% of Khan’s outstanding shares, and a warrant to purchase an additional 2.9% of Khan’s shares at an exercise price equal to the market price on the date that the definitive agreements are signed.

This transfer would result in Khan owning 65% of the joint-venture company and the joint-venture owning 74% of CAUC and 100% of Khan Mongolia.

In addition, Khan would have the right to nominate a majority of the members, including the chair, of the management committee, which will serve as the governing body of the joint venture.

As long as MonAtom remains a significant shareholder of Khan, it would be also entitled to nominate two candidates for election to Khan’s board of directors.

Khan Mongolia would be appointed as the operator of the project pursuant to long-term operator agreements with fees on a cost plus basis.

“Since the passage of the Nuclear Energy Law last summer, it has been clear that the only viable path for Khan is to negotiate a mutually acceptable solution with the Government of Mongolia which achieves the Government’s 51%ownership objective while protecting and maximizing value for Khan and its shareholders,” Martin Quick, Khan’s president and chief executive, outlined in a prepared statement.

“With this MOU, we think we have achieved the right balance. It gives us a stable ownership and regulatory platform upon which we can obtain the necessary financing to complete the project. We believe that this transaction delivers far greater long term value to Khan’s shareholders than ARMZ’s hostile bid.”