Kalahari Minerals Plc - Extract Resources



Kalahari Minerals ("KAH")is an AIM and NSX listed resource company with uranium, gold, copper and other base metal interests in Namibia.

The company’s key value drivers are its holding of around 43% in ASX, TSX and NSX listed Extract Resources Limited and its circa 45% interest in AIM listed North River Resources Plc.

Kalahari Minerals believes that its key asset - Extract Resources - has the potential to become one of the largest uranium mines globally with a total resource well in excess of 500Mlb of uranium.



Extract Resources

Extract Resources owns a world class uranium deposit (“Rossing South”) regarded as the largest undeveloped uranium deposit in the world.

The Rossing South deposit, located close to Walvis Bay in Namibia, is some 7km south (and over a range of hills) from Rio Tinto’s world-class Rossing uranium mine - one of the longest running uranium mines in the world - which started production in 1976 and is still going strong.

Recent Newsflow

KAH announced on December 8th that China Guangdong Nuclear Power Corp., together with the China-Africa Development Fund has launched a £632 million cash bid for Kalahari Minerals Plc which, if successful, would trigger an offer for Extract Resources, in which it is the largest shareholder with a nearly 43% stake.

CGNPC has offered 243.55 pence a share for KAH shares, and if successful this would be followed by an A$8.65 a share offer for Extract that values it at roughly A$2.17 billion. The Australian Securities and Investments Commission has ruled that the Chinese companies must bid for Extract if CGNPC and its partner secures more than 50% of the voting rights in Kalahari.

Following the lifting of a temporary ban imposed by UK regulators, Kalahari confirmed on October 10, 2011 that offer talks had resumed with state-owned China Guangdong Nuclear Power Corp.

On 10th November 2011, the company announced that CGNPC has tabled a possible offer at 243.55 pence a share, valuing Kalahari at around £615 million, while negotiations continue. The company cautioned that "there can be no certainty that an offer will be made for the company."

CGNPC now has until 17.00 GMT on 8 December to either announce a firm intention to make an offer or state that it does not intend to make an offer.

Kalahari Minerals' major project - Husab's - neighbour is Rio Tinto Plc, 90% owner of adjacent Rossing uranium ore mine (first half 2011 Rossing production volumes were 38% lower than in 2010, due to lower grades and lower extraction rates) and Kalahari’s and Extract’s second biggest shareholder, is unlikely to stand by and let the Chinese walk away with it. We await a bidding war to commence anytime.

On August 10, 2011, Extract Resources reported a substantial increase in reserves at its huge Husab uranium deposit in Namibia, just as China Guangdong Nuclear Power can resume takeover talks with Kalahari Minerals to renew its bid to gain a dominant shareholding in the project.

On June 8th, 2011, Kalahari Minerals confirmed that its 42.8% owned Extract Resources’ Husab project is the fourth largest uranium deposit in the world. Earlier, Extract had revealed an increase in its total resource to more than 500 million pounds of U308.

Listen to Jonathan Leslie, managing director and CEO of Extract Resources commenting on the resource update and further developments, including his views on the attempted Chinese bid.

Commenting on the upgrade, Kalahari's executive chairman Mark Hohnen said: "The globally strategic nature of the assets, its projected development into a long life mine mean Husab will become the largest producer of uranium in Namibia, and one of the three largest producers in the world."

On March 7th, 2011, Kalahari Minerals confirmed that it had received a 290 pence a share "possible offer" of £756 million from China Guangdong Nuclear Power Group Co (CGNPC). - China’s second-largest nuclear reactor builder. However, the deal folded as, in the wake of the Fukushima nuclear scare, CGNPC attempted to lower its bid to 270 pence a share. Kalahari then appealed but the case was dismissed and CGNPC withdrew its possible offer.

Would be interesting to see whether any other bidders will now come forward and what Rio Tinto Plc will do. A bid price of £4 a share would value the group at just £1 billion.

On February 21st, 2011, Kalahari confirms that it is holding discussions with Extract Resources to explore various different options that might simplify the Extract/Kalahari shareholding structure. Is a merger between the two on the cards?

At the same date, Kalahari also confirmed that Extract Resources is currently holding discussions with Rio Tinto around a potential "combination" of the Husab Uranium Project with the neighbouring Rössing Uranium Mine, with a view to capturing the significant potential synergies that could be generated from a joint development of the two projects. Is a joint venture or even a merger on the cards?

Pursuant to the announcement made on 9 December 2010, at an Extract shareholder meeting on February 21st, 2011, approval was given to the issue 7,299,069 shares to Kalahari Uranium Ltd., via a placement at an issue price of $8.35 per share. As a result, Kalahari Uranium's total interest in Extract will now be 107,342,087 shares, representing 42.79% of Extract's enlarged share capital.

On 13th December 2010, Kalahari Minerals announced that it has raised £41.76 million, following an issue of 18 million new shares at 232 pence each, in order to fund its increase in its shareholding in Extract Resources.

On December 9th, 2010 Kalahari announced that, via its wholly-owned subsidiary Kalahari Uranium it is increasing its interest in Extract Resources through a Aus$60.9 million placement in new shares at a price of Aus$8.35 per share.

Kalahari executive chairman Mark Hohnen said ""Our ongoing support for Extract's development schedule for the world-class Husab Uranium Project underpins our confidence that it will become one of the world's largest uranium mines".

In its October 2010 Uranium Project Update, Extract Resources confirmed its Husab Uranium Project’s Rössing South as one of the most significant uranium discoveries ever made.

Addressing the AGM (November 4th, 2010) Extract Resources' chief executive Jonathan Leslie said that the definitive feasibility study on its Husub uranium project had been pushed back from the fourth quarter this year to the first quarter next year. While the company had done already extensive work on the site the extension was needed for an "optimised" project.

In a subsequent interview Leslie confirmed that Japanese trading house Itochu Corp and shareholder in both Extract Minerals and Kalahari Resources, wants to purchase production from its Husab mine.

It isn’t just the sheer size of the project that impresses, but the uranium grades being reported have been well in excess of the typical grades found in Namibia.

Earlier, on 28 June 2010, at the Annual General Meeting of Kalahari Minerals Mark Hohnen, executive chairman confirmed that Extract Resources is about to enter the transformational period in its development – "transforming from a pure exploration company to a one tier uranium production company".

Favourable environment!

Addressing the three-day Paydirt 2010 Africa Downunder Conference, in Perth, earlier in September, Extract’s new CEO, Jonathan Leslie, said that "new uranium supply required to fill shortfalls from 2015 would precipitate higher U3O8 prices".

A rebound in the uranium spot price next year and the emergence of the Rossing South uranium project in Namibia as a producer from 2014 would help Extract Resources emerge as the owner of the second largest uranium mine globally.

Leslie confirmed that the Extract's Rossing South project:

"is well positioned to become globally, the second largest producing uranium mine with the potential to produce 15 Mlb/y of concentrate, . . . . (with) first production underway over 2014-2015."

Leslie added that "Rossing South’s path to maiden output would benefit from the deposit’s high grades and conventional, low risk open-pit mine development."

Low cost uranium miner!

Internal studies by Extract, earlier in March, 2010, suggested relatively low production costs of around $23.60/lb, at an estimated capital cost of $704 million, producing in excess of 15m lbs of uranium oxide (“yellow cake”) for more than 20 years.

Recently, Reuters - October 27th - reported that Extract Resources' Namibian subsidiary Swakop Uranium had presented an environmental impact assessment report for scrutiny to the government that:

  • it intend to start building a new mine in 2012 with production expected two years later

  • it planned to mine for uranium up until around 2028 (four years longer than initially indicated)

  • it would have a throughput of 15 million tonnes per annum to produce 8,000 tonnes of uranium yellow cake with 70 percent contained uranium

  • the cost of developing the mine are estimated to be over $700 million

Projected production costs of sub $24 compares extremely favourable as the industry average production cost is around $40 per pound. With uranium spot prices currently around the $60+ range, a boost to say $70/lb - which some 'insiders' are predicting "soon" - would make Extract a highly profitable operator.

If achievable, Extract would join other low-cost uranium miners world-wide, including UraniumOne, which claims to be the world’s lowest-cost producer (UraniumOne company presentation, June 8th, 2010, page 16) with cash costs below $20 per pound compared with Cameco at $22, Energy Resources of Australia (a subsidiary of Rio Tinto PLc (owns 68 percent) at $26, Paladin Energy at $28 and Denison at $36.

Recent Shareholdings Developments

APAC Resources

In an interview with Proactive Investors, on June 2010, Mark Hohnen, executive chairman of Kalahari Minerals, confirmed APAC Resources increasing their shareholding to 9.55% in Kalahari. Hohnen reiterated the significance of this to Kalahari Minerals, saying:

“APAC has a venerable track record in the natural resource sector, with its CEO, Andrew Ferguson, bringing a wealth of experience of the London mining arena from his six years as co-fund manager at City Natural Resources High Yield Trust”. He also noted that "APAC's strategic investment in Kalahari Minerals provides the company with an entry point to the Asian resource industry and in particular access to China, which I believe strengthens our position as we work together with Extract to develop the Husab uranium project”.

Subsequently, APAC has increased its shareholding in Kalahari, and, as per APAC Resources Investor Presentation, from October 2010 (page 10), APAC's shareholding now amounts to 12.2 per cent.

Itochu Corporation

APAC Resources' initial purchase was preceeded by the acquisiton of a shareholding by Itochu Corp, a Japanese trading house, earlier in the year, who purchased a 15% stake in Kalahari Minerals through its wholly-owned subsidiary Nippon Uranium Resources.

This brought about similar strategic links for Kalahari in the Asian market, specifically Japan, as that of APAC Resources in the Chinese market, according to Proactive Investors.

This was followed by Itochu Corp, again via its wholly owned Australian subsidiary, Nippon Uranium Resources, taking a direct shareholding in Extract Resources, investing a total of $137.9 million for a 10.3 per cent shareholding.

Itochu's investment in Kalahari Minerals as well as Extract Resources is in line with its strategy of acquiring stakes in uranium equities and projects. Itochu Corp. already owns stakes in a number of uranium projects.

Rio Tinto Plc

Rössing South is located directly south of the Rio Tinto’s Rössing Mine. It's worth noting that Rio Tinto has a direct 14.7 per cent stake in Extract Resources, and a 12.5 per cent shareholding in Kalahari Minerals.

Take-over premium vanished due to concentration in shareholdings?

With the recent share purchases, more than 75% of Extract's shares are now held (in-)directly by three strategic investors (Kalahari 42%+, Rio Tinto direct 15 per cent (indirect approx 20%) and Itochu direct 10 per cent (indirect approx 16%).

With this highly concentrated equity ownership of Extract Resources, the likelyhood for a takeover of Extract with a substantial market premium appears to be greatly diminished.

Value drivers

Extract's projected production costs of sub $24 compares extremely favourable as the industry average production cost is around $40 per pound. With uranium spot prices currently around the $45+ range, a boost to say $70/lb - which some 'insiders' are predicting - would make Extract a highly profitable operator.

In addition, significant exploration potential remains at Rossing South and the scope of the project may increase substantially thereby significantly further increasing the value of the Rossing South project, and Kalahari's shareholding therein.

North River Resources Plc

And then, of course, there is always Kalahari's 45 per cent shareholding in AIM-listed North River Resources, a South African-based early stage multi-resource development company.

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WE WOULD LIKE TO POINT OUT, THAT:

1.the above mentioned companies, Kalahari Minerals Plc, Extract Resources Ltd and North River Resources Plc (hereinafter "the Companies") are solely examples of listed companies involved in (future) resources mining operations and is not to be construed as a share recommendation. Neither Early Retirement Investor nor EMAR Publishing are registered as an investment advisor or as an independent financial advisor and do not provide individualised advice

2.the price of shares and investments and the income derived from them can go down as well as up, and investors may not get back the amount they invested

3.where the information consists of pricing or performance data, the data contained therein has been obtained from company reports, financial reporting services, periodicals, and other sources believed reliable

4.data computations are not guaranteed by Early Retirement Investor.com or any of the data providers and may not be complete.

5.The editor or contributors may have an interest in the shares mentioned.

6.Dividend yields move up and down. As a company’s share price increases the dividend yield falls. And vice versa: if the share price falls the dividend yield increases.


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