Monsters of Rock: Bid to shut down Rio’s uranium ‘pre-crime’ stumbles

Takeovers Panel knocks back Minority Report play vs Rio Tinto’s play vs ERA
Zentree Investments demands undertakings to prevent Rio’s full control of rehab company, notably the sale of its controversial Jabiluka deposit in the NT
Materials sector crawls to narrowest of losses

The minority investor urging the Takeovers Panel to stop Rio Tinto (ASX:RIO) mopping up the minority shareholders in dead parrot uranium play Energy Resources of Australia (ASX:ERA) has been rebuffed after asking the body to stop a capital raising that hasn’t yet been announced.

In a gambit which echoes Stephen Spielberg’s Tom Cruise-led 2002 thriller Minority Report – a Philip K. Dick inspired adaptation about a futuristic police department which predicts crime before it happens – prominent minority Zentree Investments had asked the panel to step in to stop Rio Tinto picking up a 90% stake via a capital raising.

Though the equity raising has been flagged (and is essential to ensure 86.3% Rio owned ERA can continue to fund the now $2.3 billion cost of rehabbing the Ranger uranium mine) nothing official has happened yet.

In March, ERA announced it was preparing the raise sometime this year with Rio, which appears to be pulling the strings, being appointed to manage ERA’s rehab under a management services agreement a little later in April.

If minorities don’t participate in the raising, largely regarded as a money sink given the outcomes for the clean-up are basically reputational, Rio could move above a 90% ownership level without offering a premium to other shareholders. In other words, Zentree is trying to prevent what it thinks could become a takeover by stealth.

CEO Jakob Stausholm has regularly stated he could not justify offering a premium with the cash of Rio shareholders just to lose more money.

The Takeovers Panel today declined to conduct proceedings, on the grounds that the raising, while flagged, still remains a “hypothetical.”

“Among other things, the Panel considered that the application was premature because the key circumstance underlying the application, being ERA’s potential capital raising, had not yet commenced and there is no certainty that unacceptable circumstances will arise,” the panel of Robin Bishop, Louise Higgins and Jeremy Leibler said.

“The Panel concluded there was no reasonable prospect that it would make a declaration of unacceptable circumstances. Accordingly, the Panel declined to conduct proceedings.”

Zentree’s demands

Zentree is led by entrepreneur Richard Magides, a long-time critic of Rio’s ERA strategy and one of the top minorities pushing back along with WA stockbroker Willy Packer.

In essence, they want to see ERA develop the Jabiluka uranium deposit, an undeveloped orebody that Mirarr Traditional Owners say they never want to be mined.

With Rio in the driver’s seat their demands appear safe.

Zentree requested the Takeovers Panel halt any transaction of share issue that resulted in a 20% or above shareholder increasing their stake or allowing Rio to underwrite an equity raising of more than $200 million.

There were other requests to limit Rio’s control over ERA board decisions and make market disclosures more transparent. More curiously, Zentree was after an undertaking to be enforced on ERA to start a sales process to sell Jabiluka above a specified price.

That would be one way to ruffle the feathers of Rio, the Federal Government and the Mirarr. Rio and ERA have committed not to exploit the resource while opposition from the Mirarr remains, having pledged with the support of Canberra to return the shuttered Ranger to a state matching the surrounding Kakadu National Park.

Since the closure of Ranger, all of Australia’s uranium production has come from mines in South Australia, with a number of other jurisdictions like WA having restrictive policies around uranium production.

Uranium oxide is fetching US$85.50/lb according to Numerco, down from a multi-year high of US$107/lb in January but well up on cyclical lows of under US$20/lb seen around 6-7 years ago.

Turning to the markets and the materials sector closed a minute 0.01% in the red. Gold stocks were among the stronger resources performers.