JSC Atomredmetzoloto

December 18, 2009 08:43 ET

JSC Atomredmetzoloto Responds to Directors Circular Issued by Khan Resources

Offer Continues to Provide Liquidity and Value Certainty to Khan Shareholders at a Significant Premium

TORONTO, ONTARIO--(Marketwire - Dec. 18, 2009) -


JSC Atomredmetzoloto ("ARMZ") today announced its response to the Directors' Circular issued by the board of directors of Khan Resources ("Khan") (TSX:KRI). ARMZ formally commenced its offer (the "Offer") to acquire all of the issued and outstanding common shares of Khan (each, a "Khan Share") for all-cash consideration of C$0.65 per Khan Share on November 30, 2009. The Offer will remain open until 5:00 p.m. (Toronto time) on February 1, 2010 (the "Expiry Time"), unless extended or withdrawn.

"Khan has provided very little new information to support its recommendation to shareholders that they should reject our all-cash Offer," said Vadim Zhivov, Director General of ARMZ. "Our Offer represents full and fair value for the Khan Shares and fully considers the economics of the Dornod Uranium Property in Mongolia and the significant political and licensing risks inherent in its development. The Offer provides Khan shareholders with an opportunity to receive certain value and liquidity at a significant premium."

ARMZ would like to take this opportunity to respond to some of the statements made by Khan's board of directors in the "Reasons for Rejection" section of the Directors' Circular:

  • The value per pound of resource attributable to Khan implied by the Offer compares favourably with the average value per pound implied by the four most recent transactions involving exploration and development stage uranium companies, including the acquisition of Western Prospector Group Ltd. by China National Nuclear Corporation ("CNNC") announced in March 2009, which involved the property adjacent to Dornod and which was announced prior to the suspension of all uranium mining and exploration licenses by the Government of Mongolia.
  • Net Asset Value ("NAV") is a theoretical valuation methodology and transactions involving unfinanced exploration and development stage projects with unknown ultimate project ownership and an uncertain regulatory and licensing environment are generally completed at a significant discount to NAV.
  • The Directors' Circular overstates Khan's net cash position by C$2 million or approximately 11% once Khan's investment in Macusani Yellowcake Inc. ("Macusani"), which was announced on November 30, 2009, is taken into account. ARMZ is particularly concerned about Khan's investment in Macusani as it does nothing to enhance the value of Dornod, Khan's main property, and uses a material portion of Khan's financial resources to make a non-core equity investment in another early stage junior exploration and development company in another jurisdiction. Furthermore, ARMZ notes that a member of Khan's board of directors is also the Chief Executive Officer and a member of the board of directors of Macusani.
  • The conditions contained in the Offer are standard for offers of this type and are meant to protect ARMZ in the event Khan undertakes any initiatives to diminish the value of the Khan Shares in the context of the Offer, including another non-core equity investment such as Macusani. A large number of the conditions contained in the Offer are fully within the ability of Khan management to satisfy by not taking any actions to frustrate the Offer. At this time, ARMZ fully expects that all of the conditions of the Offer will be fully satisfied at the Expiry Time.
  • ARMZ agrees with Khan's board of directors that the challenges and uncertainty in Mongolia are very real and unique issues facing Khan and that these issues have a material impact on the value of the Khan Shares. However, ARMZ rejects the board of directors' suggestion that by taking these factors into account, the Offer is "opportunistic". ARMZ also notes that the Khan Shares have not traded above C$0.65 since September 22, 2008, well before the increased regulatory and licensing uncertainty came to light.
  • ARMZ fully respects the right of the board of directors of Khan to pursue alternative transactions that provide higher value for Khan shareholders. ARMZ has specifically complied with the Permitted Bid provisions under Khan's Shareholder Rights Plan in making the Offer open for acceptance for a minimum of 60 days in order to allow Khan sufficient time to identify and pursue strategic transaction alternatives. If, and when, such a transaction is announced, ARMZ will carefully consider its alternatives with respect to the Offer in light of its long-term global strategy.

ARMZ's all-cash Offer of C$0.65 per Khan Share represents a premium of approximately 48% over the closing price of the Khan Shares on the TSX on November 26, 2009, the last trading day before the announcement by ARMZ of its intention to make the Offer, and a premium of approximately 103% over the volume-weighted average trading price of the Khan Shares for the twenty trading days ended November 26, 2009.

ARMZ strongly encourages shareholders of Khan to read the offer to purchase and related take-over bid circular (the "Offer and Circular"), which contain the full terms and conditions of the Offer as well as detailed instructions on how shareholders can tender their common shares to the Offer. The Offer and Circular and related documents ("Offer Documents") have been mailed to registered holders of Khan Shares, and furnished to intermediaries for subsequent transmittal to beneficial holders of Khan Shares.

Questions regarding the Offer Documents and assistance in depositing Khan Shares under the Offer should be directed to Laurel Hill Advisory Group, the Information Agent for the Offer, at 1-888-534-1152 (North American toll-free number), 416-637-4661 (Banks and Brokers and collect calls outside North America) or assistance@laurelhillag.com. Additional copies of the Offer Documents may be obtained without charge from Laurel Hill Advisory Group at the contact information noted above, from CIBC Mellon Trust Company, the Depositary for the Offer, at 1-800-387-0825, or on Khan's SEDAR profile at www.sedar.com.

Khan shareholders electing to tender their Khan Shares to the Offer must complete the letter of transmittal or, if necessary, the notice of guaranteed delivery (both of which accompany the Offer and Circular) and return the appropriate document in accordance with the terms and conditions more fully set out under ''Manner of Acceptance'' in Section 3 of the Offer to Purchase. If Khan Shares are held in the name of a nominee, such as a broker, investment dealer, bank or trust company, the beneficial owner should contact such nominee for instructions on how to deposit their Khan Shares to the Offer.

Cormark Securities Inc. is acting as financial advisor to ARMZ in connection with the Offer, and Macleod Dixon LLP is acting as legal advisor to ARMZ in connection with the Offer.

About ARMZ

ARMZ is the world's fifth largest uranium producer with operating mines in Russia and Kazakhstan. During 2008, operations in which ARMZ is involved produced 3.687 tonnes of uranium (9.6 million pounds of U3O8). ARMZ is part of Rosatom - the Russian State Corporation controlling the Russian Federation's nuclear activities. Together with its affiliates and subsidiaries, the company employs over 14,000 people. Through its fully controlled subsidiary PIMCU ("Priargunski") ARMZ partially owns the Mongolian joint venture Central Asian Uranium Company ("CAUC"), established between Khan (58%), Priargunski (21%) and the Mongolian government (21%). CAUC is the corporate entity that owns the Dornod Uranium Property in Mongolia, which contains most of uranium reserves of Khan.

Forward-looking disclaimer

This press release contains only summary information about ARMZ's Offer and does not constitute an offer to purchase any securities. Complete information about the Offer is included in the Offer and Circular. Certain statements contained in this press release concerning ARMZ's objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition of Khan are forward-looking statements. The words "believe", "expect", "intend", "may", "anticipate", "will", "would" and similar expressions and the negative of such expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are not based on historical facts, but rather on current expectations, assumptions and projections about future events. While ARMZ considers these factors and assumptions to be reasonable based on information currently available, they may be proven to be incorrect. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to; any of the terms and conditions of the Offer not being satisfied; general economic conditions; dependence on key personnel; and variations in required capital expenditures. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Contact Information

  • Shareholder Inquiries:
    Laurel Hill Advisory Group. (Information Agent)
    1-888-534-1152 (North American toll-free number)
    416-637-4661 (Banks and Brokers and
    collect calls outside North America)
    CIBC Mellon Trust Company (Depositary)
    Media Inquiries:
    Atomredmetzoloto JSC
    Dmitry O. Shulga
    External Affairs & Investor Relations
    +7-495-508-8808, Ext. 310 (FAX)