Don't give up Dornod, Khan tells shareholders

17 December 2009

Canadian company Khan Resources has urged its shareholders to reject a takeover bid as it strives to find a way forward over disputed mining licences with the Mongolian government.

Khan thought it was in line to develop Dornod, in north eastern Mongolia, until a surprise move by the country's government to rescind mining licences and set up a joint venture with Russia's AtomRedMetZoloto's (ARMZ) instead. Khan owns 58% of Central Asia Uranium Company (CAUC) which had the Dornod license, as well as 100% of an adjacent exploration lease.


In an apparent attempt to resolve the rights conflict, ARMZ made an unsolicited offer to acquire all of Khan's outstanding common shares at C$0.65 (around $0.62). At the time the offer was announced, the Russian company's director general Vadim Zhivov said it represented "full and fair value". ARMZ already holds 21% of CAUC through its Priargunsky subsidiary, with Mongolia's MonAtom holding the remaining 21%.

"Prejudicial and opportunistic"

After over one week's deliberation Khan's board of directors has unanimously recommended its shareholders reject the offer, describing it as inadequate, failing to recognize the full value of the company, and containing "objectionable" terms and conditions, as well as being "highly prejudicial and opportunistic" and exposing Khan to serious risks.

"ARMZ has commenced its unsolicited offer during a critical period when Khan is making every effort to cooperate with the government of Mongolia to re-register the essential mining and exploration licences for the Dornod uranium property and to pave a path forward," said Grant Edey, Khan board member and chair of a special committee who reviewed the offer. In so doing, he said, ARMZ was "seeking to take advantage of Khan and its shareholders at a particularly vulnerable time", capitalizing on regulatory uncertainty. He reiterated that Khan's management remained focused on finding "alternative strategic transactions" and maintaining a positive working relationship with the Mongolian government.

The Dornod deposit was discovered by a Russian geological expedition in 1972 and mining took place from 1988 to 1995, with ore hauled to Krasnokamensk in Russia for processing. A number of NI 43-101 reports have been prepared since, showing the project to have excellent viability. Khan's mining plans feature a "state-of-the-art" milling and processing facility, with the company forecasting average annual production of approximately 3.5 million lbs of U3O8 over a mine life of at least 15 years.

Another Canada-based company, Western Prospector, had 11 uranium exploration licences suspended by the Mongolian government in July. Those licences covered the Saddle Hills area, and include seven known uranium deposits including Gurvanbulag, also previously exploited by the Soviet Union. Various other companies also have uranium interests in Mongolia.