JORC resource upgrade out: http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01086997

Indicated resources for zones 1 & 2: 257Mlb @ 480ppm
+Inferred resources for zone 1,2,3 & 4: 110.3Mlb @ 400ppm

=367Mlb total for Rossing South (+ ~25Mlb @ Ida Dome)

...Mr Leslie also added: "The immediate priority remains completing the Definitive Feasibility Study on Zones 1 and 2 to bring these deposits into production within the shortest possible tome frame. Seveteen drill rigs remain on site with the current focus on completing the drilling required to define Measured resources within the Zones 1 and 2 starter pits.

"Once the resource update has been optimised additional drilling will be planned, aimed at converting additional Inferred Resource material to Indicated status amd defining additional resources down plunge of high grade domains. An updated resource is expected within Q1 2011.

"Significant exploration potential remains to be tested throughout the Husab Uranium project, with 7 of the 15 km Rossing South trend yet to be drilled. Although Extract's priority remains resource definition and project development, exploration of this large mineralised system is expected to continue for some time."

Easily justifies a 15Mlb p.a. operation IMO - which is the key to NPV determination & financial negotiations. Also good to see this released in the middle of Q3, not at the end. Let's hope the DFS, due in Q4, is done in an equally timely fashion.


Audio interview & presentation by Jonathan Leslie on: http://www.brr.com.au/event/67730

Cheers,

Mark

A comprehensive AV presentation by Jonathan Leslie, given at the current Australian "Africa Downunder" conference has been made available today, here: http://www.brr.com.au/event/68557/extract-resources-presentation-at-the-paydirt-africa-downunder-conference-2010-jonathan-leslie-ceo?popup=true&wl=146

Nothing dramatically new but JL confirms that the current CAPEX estimate is for plant construction only and does not include infrastructure or mining costs (CAPEX for these is assumed to be met by third parties and included in the OPEX).

Mark

Added a few Kalahari  @ 157p today...

The spot U price is rising: http://www.uranium.info/index.cfm?go=c.page&id=103

Buyers have shown a willingness to pay higher prices, but sellers are limited and current supply for 2010 delivery is relatively thin. As a result, TradeTech’s Uranium Spot Price Indicator is $48.00 per pound U3O8, an increase of $1.25 from last week’s value.

EXT's SP is also rising from a recent low, after it appears that a fund sold out  (see http://www.sharescene.com/index.php?showtopic=906&#entry721147 for further details - sulla's comment has been indepedently verified to me) . The DFS approaches, together with the mining licence application. IMO these will need to be accompanied by some clarity on funding for mine development - at which point I am confident that Extract & Kalahari will combine, eliminating Kalahari's 10% discount to NAV.

Extract's annual report was published today: http://www.extractresources.com/DesktopModules/Bring2mind/DMX/Download.aspx?EntryId=3513&PortalId=13&DownloadMethod=attachment

Cheers,

Mark

I'm thinking of taking advantage of the current KAH shareprice weakness to swap my shareholding for spread bets, with a view to repurchasing in an ISA if in due course KAH and EXT merge and take a main market listing.

Does anyone have an idea how long it might take this to happen? IG give a choice of Dec '10, Mar '11 and June '11, with steadily worsening spreads. I'm inclined to go for March. Is that too optimistic?

In reply to zangdook, post #397

At the AGM, Mark Hohnen indicated in a conversation that early 2011 was on the cards... but, as with all such statements, there are no guarantees.

However, I do find this comment in today's interim results interesting:

...With this in mind, we will continue to utilise our significant 41.12% stake in Extract to ensure that all stakeholders work together to advance the Project and crystallise the value of a world class asset...

"crystallise the value" is an interesting choice of phrase...

Cheers,

Mark

Worth pointing out that IMO Kalahari is currently trading at a 15% discount to NAV:

Extract holding: £1.66 per KAH

North River Resources: £0.04 per KAH

Cash (£23.67m - from interims): £0.10 per KAH

Total NAV £1.80

FWIW, I make Extract's NPV A$9 (ish) based on the current U3O8 spot price and not using the long term U price (for caution's sake). Assumptions: US$1b borrowings (30:70 equity/borrowing split to fund mine development, US$1.3b estimated to fund mine + water, power, etc), 80% working ownership of Husab (BEE involvement - assuming no financial contribution), commercial mining commencing in last Q2013, and taking 30 months to ramp up to full production.

Waiting for the DFS and trying to ignore the daily fluctuations. Ho hum, back to the day job.

Chris

In reply to xigris, post #399

Good work Chris, esp on NPV - and I think your assumption re U pricing is probably overly conservative. However, a) what discount rate have you assumed?; b) have you taken Namibian profits tax into account? I believe this is likely to be 37.5% for a U producer - but there may be tax losses from work to date to bring forward against early production.

Hi Mark,

Thanks. Sorry for the delay in answering your questions (day job intervenes):

• My reason for using the spot price is that Cameco is achieving an average price close to the spot price (link to Cameco second quarter results)
• I'm using a discount rate of 12%
• Earnings in USD. Exchange rate 1.1:1 ASD:USD (currently closer to 1:1)
• I assume that the tax losses are used during the time to full production, with taxation at 37.5% thereafter (I agree with your interpretation of Namibia's tax regimen)

I think it likely that Extract will achieve a higher U price, and I also think that the BEE process will result in significant funding of the mine development. But I am deliberately being pessimistic to minimise the downside risk of my model. I hope that there is a takeover in the short term for a healthy premium. But, if Extract goes onto mine Husab, I suspect I will never sell a single share of my current position and will enjoy the dividend income!

Best wishes,

Chris

Thanks Chris,

...then I agree that your A$9/share figure is highly conservative. I don't see that the BEE process will directly bring in funding. However, it is possible that a consortium, including Epangelo, will take a stake in the project in exchange for funding it.

The 12% discount rate is very high, considering a) the current low interest rate environment; b) relatively low technical risk in the project. I note how ee complains that analysts are using unrealistically high 10% discount rates when valuing oil assets! Though, admittedly, I don't entirely agree with him, I do feel that 10% is a sufficiently conservative figure for this project.

Cheers,

Mark

Hi Mark,

I think its very likely the BEE process will involve Epangelo buying a stake in Swakop Uranium. In many ways, I think a good outcome would be Extract selling 20% of Swakop to Epangelo for a reasonable sum (~US$500 - optimistic I know) and the rest of the mine financed by debt.

I agree that using a discount rate of 12% is high, but as you say that's what the analysts are using. The instos are crucial here (like in Dana) and if they and their analysts are going to use a discount rate of 12%, then so will I (at least for the bear case).

For the bull case, I know you have read it, but for others can I suggest Cameco's Annual Information Form. At page 54 (confusingly, its page 55 on the PDF), it says Camecos share of total reserves are 478m lbs U3O8. I can see that potentially Zones 1 - 4 of Husab might equal this. Plus the elephant in the room is Zone 5. Personally I think that, unless its taken over, Extract will rival or surpass Cameco within the decade. In 2007 Cameco was about $50 per share (about US$20b). If Extract equals that performance, that gives a potentially 20fold increase on where we are now (assuming minimal dilution). And all that for a boring, old fashioned mine, that doesn't have to use any fancy new tech...

Well worth holding for IMO

;-)

Chris

Hi Chris,

Epangelo's problem is that it doesn't have any money. ;0) ...yet it wants to acquire a stake in the Husab project, without acting in a manner that would be seen by international observers as appropriating assets.

The solution? ...My thinking is that it could become a member of a consortium that finances the development of the Husab project. In exchange for gaining government favour, the other consortium members would give Epangelo a free carry. I believe that would work for all concerned.

There are various ways that the financing could be arranged, right from an outright T/O of Swakop or Extract to the provision of a substantial debt-style facility, in exchange for offtake agreements and a modest % of the project. On reflection, it is not surprising that reaching a deal is slow process, there are so many possible permutations. Results of the DFS, however, will form the basis for negotiation, though I'd expect negotiations to be well advanced before the DFS is in the public domain.


By-the-by the appropriate discount rate (or WACC) will be one of the key negotiating issues, but I'd expect the sort of WACC figure being discussed to be more like 8%, in the current climate. In terms of short-term share price movements, yes, analyst NPVs & price targets should be around the levels you indicate. However, that should all change once a deal is done - and it becomes clearer what value industry partners put on the project. Your calculations show just how cheap Extract and Kalahari are at the current level, using even very conservative estimates.

No criticism whatsoever of your methodology intended.

To support your view that Extract could rival Cameco (current net production ~20Mlb p.a.), it is worth noting this from Kalahari's interims:

All these results, and a further 6km of the entire 15km Rössing South Anticline yet to be drill tested, provide further credence for the commissioning of multiple mining operations across Husab.

The 15Mlb p.a. currently scoped is based purely on zones 1 and 2. Zones 3, 4, 5 etc could lift production well beyond that, ultimately, though that won't be evident from the DFS.

Cheers,

Mark

Thanks for your kind words Mark - much appreciated.

I agree, what happens with Epangelo is v important, and key to the government expediting the Mining Licence.

Nice problem to have though. Keeping everything else equal, with a discount rate of 8%, then I make the current NPV A$16.7

Depending on who's out there and interested, IMO a takeover at A$20 is not unreasonable for such a strategic deposit.

Conversely, I'll look for A$40+ in 5 / 6 years and a dividend of A$2

;-D

Chris

Lots of new info out today:

Quarterly Cashflow Report

Quarterly Activities Report

Swakop Uranium September newsletter (Swakop U is Extract's Namibian operating subsidiary)

• Looks like we've got enough cash for another 6-9 months. Funding for mine development should be finalised in that timeframe.
• On track for DFS and mining licence application this quarter (those will be major events, IMO)
• New head of marketing and business development manager appointed. Seems like an appropriate management team is being put in place, and actions are being taken, for a serious second tier miner, as opposed to a junior.

This is getting exciting now, as we get close to a crticial point in Extract's evolution!

Cheers,

Mark

Oh... and another thing: http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Nuclear/6513116

Production loss means ERA will buy uranium to cover contracts

Barcelona (Platts)--13Oct2010/1144 am EDT/1544 GMT

 

Uranium miner Energy Resources of Australia said Wednesday it would have to buy uranium to cover contractual commitments after disappointing production from its Ranger mine in Australia.

Lower ore grades at the mine have resulted in lower than expected production, leading ERA to revise its 2010 production estimates downward to 3,900 mt of uranium, from earlier estimates of between 4,300 and 4,700 mt.

 "Additional supply requirements necessary to meet 2010 sales commitments, anticipated to be around 5,000 mt, will be mostly covered by purchases," the company said.

Profits will be hit, ERA warned, since "the small price margin associated with the sale of the purchased material is more than offset by the on-going costs of operation."

ERA is 68% owned by Rio Tinto.Uranium oxide production by ERA for the 2010 third-quarter was 911 mt, 10% higher than the previous quarter and 35% lower than the corresponding period in 2009.

Combined with the timeline of events I've outlined in my last post, surely this must ramp up the pressure on Rio to act, to secure its future in the U industry? Once in full production in 2015, Extract should produce 6,820 mt p.a.with a mine life of 20 years++ (see Vission newsletter linked above).

Mark

Introductory write-up on Kalahari Minerals and Extract Resources, at: http://www.early-retirement-investor.com/kalahari-minerals.html

http://www.theaustralian.com.au/business/wealth/uranium-creeps-up-on-fad-rivals-mining/story-e6frgac6-1225945349257

Extract Resources (EXT) blips loudly on Criterion's radar. Extract hopes to develop Rossing South in Namibia, the world's fifth biggest uranium deposit. "We have estimated the project will reach first production by 2015 at the rate of 14.5 million pounds a year, with capital requirements of $1bn," broker Patersons says.

Also, not strictly about Extract, but worth a read (just for the rant) is: 

El Oro Chairman's statement and prelims

Best, Xig

The beginning of the end game for Extract Resources?

Kalahari Minerals PLC

Statement re Possible Offer

The Board of the Company notes the recent rise in the Company's share price.

On 21 February 2011 the Company announced it was holding discussions with Extract Resources Ltd (`Extract'), in which Kalahari holds an approximate 43% interest, to explore various different options that might simplify the Extract/Kalahari shareholding structure to facilitate a combination of Extract's Husab Uranium Project with the neighbouring Rössing Uranium Mine owned by Rio Tinto plc. These discussions remain ongoing and there is no certainty that the parties will reach any agreement.

The Company further confirms that it is in talks with a third party, which may or may not lead to an offer being made for the entire issued share capital of the Company. Discussions are continuing and a further announcement will be made when appropriate.

http://www.investegate.co.uk/article.aspx?id=20110307102745P4A8F&fe=1

Offeror announced as China Guangdong Nuclear Power Corp ("CGNPC") with a recommended offer of 290p per Kalahari Minerals (LON:KAH) share, which strikes me as a rather measly premium.  Irrevocable undertakings of Directors to sell to CGNPC can be revoked with an offer 5% higher i.e. 304.5p+.

So the Chinese are looking to gain control of Extract and the Husab mine - let's see if a counteroffer from Rio Tinto (LON:RIO) or another third party is flushed out in the days ahead... 

In reply to StrollingMolby, post #411

I can't see Rio, Areva or ARMZ idly standing by whilst China walks off with the prize...

If Rio don't get their deal, they are effectively out of the U business. A business which Tom Albanese has said is attractive to them. Both of Rio's current main U mines, Rossing and Ranger, are approaching end-of-economic-life.

H/T to harlee7 on another site for finding this juicy tidbit in that esteemed financial organ, The Sun:

KALAHARI MINERALS jumped 24.75p to 285p on news of an approach. Word is rival RIO TINTO, down 100p at 4209.75p, has given Kalahari the once-over and may be ready to offer 400p a share. That would value the company at almost £1billion.

Cheers,

Mark