According to recent developments, CNNC Inc. has commenced its previ­ously announced offer to acquire all of the outstanding common shares of Khan at CUSD0.96 in cash per share under the condition – among others - that at least 66 2/3% of Khan Shares be tendered to the CNNC offer and not withdrawn.

But according to the Nuclear Energy Law of Mongolia article 7.2, if holders of licenses (such as Khan resources)on exploration, exploita­tion of radioactive mineral should sell, present, collateralize and trans­fer to other’ ownership, possession and exploitation, more than 5 percent of their shares, decision of such shall be submitted to the Nuclear Energy Commission with original copy of de­cision, name and address of holder of licenses and scope of activity, within 14 days after taking the decision.

Therefore, if the license holder does not fulfil its obligations as speci­fied in article 7.4 of the Nuclear En­ergy Law, the state administrative authority in charge of nuclear energy issues shall invalidate the license.

The Nuclear Energy law was passed in order to vest the Nuclear Energy Regulatory Agency of Mon­golia with the authority to implement governmental policies concerning the exploration, exploitation and use of radioactive minerals and nuclear en­ergy, and the introduction of nuclear technology and development nuclear research on the national territory while making nuclear and radiation safe and ensuring security.

Nevertheless, Khan has aknowl­edged it was aware of the NEA’s statements that the CNNC offer re­quires its approval in accordance with Article 7.1 and 7.2 of the Nuclear En­ergy Law, and the suggestion that the licenses held by Khan’s subsidiaries in Mongolia may be revoked if such approval is not sought and obtained.

Although these statements are not official government actions and have no legal effect, Khan’s indirect wholly owned subsidiary Khan Resources LLC and its indirect 58% subsidiary Central Asian Uranium Company LLC (CAUC) are writing to the NEA to register their objection to the statements. Khan has obtained legal opinions that Articles 7.1 and 7.2 ap­ply only to transfers of shares of the direct holders of Mongolian mining and exploration licenses in Mongolia. They do not apply to an acquisition of shares of Khan Resources Inc., a Ca­nadian company.

Central Asia Uranium Corporation United (CAUC) is the joint venture over which Chinese CNNC is battling with Russian ARMZ to controls the exploration license for the Dornod uranium deposit. The joint venture is owned at 58% by Canadian Khan, 21% by Russian state-owned ARMZ, and 21% by Mongolian state-owned MonAtom.

ARMZ had previously announced it was launching a formal all-cash USUSD33 million bid to acquire Khan Resources shares for US62-cents per share, but the offer was turned down by Khan who advised its shareholder against. Since then, an offer was made by CNNC which the Canadian company has opted for.