TORONTO (miningweekly.com) – Russian uranium miner Atomredmetzoloto JSC (ARMZ) will offer to buy Toronto-based Khan Resources, which owns a controlling stake in a uranium project in Mongolia.

State-owned ARMZ is proposing an offer of C$0,65 a share for Khan, which represents a 48% premium on the closing price on Thursday, and a 103% premium over the 20-day volume-weighted average price, the Russian group said.

Khan shares surged on the news, and were trading at C$0,61 apiece by 15:55 in Toronto, a gain of 38,6% for the day.

The company holds a 58% interest in Central Asian Uranium Company (CAUC), which holds a mining licence on the Dornod property in Mongolia. ARMZ subsidiary Priargunsky owns 21% of CAUC and Mongolian government-owned MonAtom holds the balance.

Khan also has a 100% interest in an adjacent exploration licence area.

"We believe the offer represents full and fair value for the Khan shares and provides Khan shareholders with an opportunity to receive liquidity at a significant premium to the current market, as well as value certainty today, relative to the significant political and licensing risks associated with the development of the Dornod property in Mongolia." said ARMZ director-general Vadim Zhivov.

Khan said later on Friday that it would not comment on the proposal or speculate on potential action it could take until it had reviewed the offer.

ARMZ is the world's fifth-biggest uranium producer, with mines in Russia and Kazakhstan. It falls under Rosatom – the Russian State company controlling the nation's nuclear activities.

A definitive feasibility study was completed earlier this year on the Dornod project, and the foreign partners must now conclude an investment agreement with the government of Mongolia.

The Dornod project is expected to have a mine life of 15 years, and could produce an average of three-million pounds of the nuclear fuel, at $23,22/lb, according to the study.

Khan said in September that it would try to start negotiations as soon as possible on an investment agreement, now that Mongolia has signed its landmark pact with Ivanhoe Mines and Rio Tinto for their Oyu Tolgoi project.

Mongolia had been putting off talks on other mining agreements until the Oyu Tolgoi deal was resolved, and other companies, including Khan, have expressed optimism that the Ivanhoe/Rio agreement will pave the way for additional deals to follow quickly.