Khan Resources (Khan) has signed a non-binding MoU with MonAtom, a Mongolian state-owned uranium development company. The MoU establishes the principal elements of a joint venture transaction, which will finalize the ownership structure surrounding the Dornod uranium project, and creates a framework for developing the project.
Khan’s objective in entering into this MoU is to protect and preserve value for its 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 (ARMZ), the company said.
Khan’s two principal assets in Mongolia are mining license 237A held by its 58% owned subsidiary Central Asian Uranium Company (CAUC) and exploration license 9282X held by its wholly owned subsidiary Khan Mongolia XXK (Khan Mongolia). 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 principal elements of the proposed transaction include the two pending applications to re-register the existing CAUC mining license and Khan Mongolia exploration license under the nuclear energy law to be approved and new licenses issued within seven days of signing the MOU, and Khan Mongolia’s exploration license to be converted into a mining license within 45 days of signing the MOU.
Khan and MonAtom would enter into a new joint venture arrangement whereby they would each hold shares of a joint venture company, which would have ownership in both CAUC and Khan Mongolia.
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 the shares of Khan 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 company 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.
Khan Mongolia would be appointed as the operator of the project pursuant to long term operator agreements with fees on a cost plus basis.
The transaction is subject to conditions including negotiating and signing the formal joint venture agreement, operator agreements and related definitive documentation, as well as required approvals thereof including by the Khan and MonAtom boards. The parties intend to immediately commence negotiations on the definitive agreements with a goal of entering into such agreements before the end of March 2010.