TORONTO (miningweekly.com) – TSX-listed Khan Resources has signed a nonbinding memorandum of understanding (MoU) with MonAtom, Mongolia's State-owned uranium development company, on setting up a joint venture company to own and develop Khan's uranium project in the country.

Shares in Khan surged 14,7% on Monday, to C$0,78 apiece. The stock traded as high as C$0,83 earlier in the day.

Khan's main asset is a 58% interest in Central Asian Uranium Company (CAUC), which holds a mining licence on the Dornod uranium project in Mongolia. Khan also owns 100% of an adjacent licence.

MonAtom and a subsidiary of Russia's Atomredmetzoloto (ARMZ), which has launched a hostile bid for Khan, each own 21% of CAUC.

The Dornod project has faced uncertainty after Mongolia passed a new nuclear energy law, and with Khan fending off ARMZ's takeover campaign.

Khan said it believes the deal with MonAtom will enable it to fulfill the requirements of the new law in Mongolia and provide certainty for the project, while still retaining value for its own shareholders.

The new nuclear energy legislation gives the government the right to take ownership without payment of at least 51% of a project if uranium resources were determined through exploration with State funding.

"With this MoU, we think we have achieved the right balance,” said Khan CEO Martin Quick.

“It gives us a stable ownership and regulatory platform upon which we can obtain the necessary financing to complete the project.”

The parties aim to have a definitive JV agreement signed by the end of March.

Under the terms of the MoU, MonAtom would buy a 51% interest in both CAUC and Khan Mongolia, in accordance with the new nuclear energy law, but MonAtom would then transfer to Khan part of its interest in the joint venture in exchange for shares representing 17% of Khan, and a warrant to buy another 2,9%.

At the end of the day, Khan would own 65% of the new JV company, which in turn will own 74% of CAUC and 100% of Khan Mongolia.

“Khan's board of directors believes that the transactions contemplated by the MoU will, when completed, deliver far greater value to Khan's shareholders than the $0,65 per share offered by ARMZ in its hostile bid,” the firm said.

Khan and its financial advisor, Haywood Securities, have estimated the company's net asset value at some $2,52 a share, taking into account the implications of the MonAtom deal.

Khan said that under the agreement with MonAtom, applications to reregister the existing CAUC mining license and Khan Mongolia exploration license would be approved and new licenses issued within seven days of signing the MoU.

The company's exploration licence would also be converted into a mining licence within 45 days of signing the MoU and Khan Mongolia will be appointed as the operator of the Dornod project.

The company said the JV partners will aim to negotiate and finalise an investment agreement with the government of Mongolia within six months after signing a definitive JV agreement.

The investment agreement will likely be modelled on the deal secured last year by Rio Tinto and Ivanhoe Mines for their Oyu Tolgoi copper/gold project.