What's Happening With Extract Resources?

3rd Jun '10 by marben100

8 comments 7209 reads

Extract Resources, the ASX & TSX listed Namibian uranium miner (ASX:EXT, TSX:EXT) part owned by Kalahari Minerals (LON:KAH) , released the latest drilling results on its Rossing South project on 21^st May. Rossing South is the most significant global uranium discovery in decades and is likely to be amongst the world’s top 3 uranium mines once fully in production. For further analysis on Extract, see this: http://www.stockopedia.com/content/the-extract-complex/30317.

Extract currently has the largest mineral drilling programme in Africa underway, with 19 rigs deployed. Since Extract's last JORC resource statement in July last year, the focus has mainly been on infill drilling on the existing known zones 1 and 2. This is necessary to form the basis of Extract's DFS (definitive feasibility study) which is due in the fourth quarter of 2010. I have analysed the latest results and believe that they reveal some interesting new information.

New Drilling and Current Resources

Figure 1 below shows the locations of the drill holes listed in the latest release. Click on the diagram for a clearer view in a separate window.

Figure 1 - New drilling locations

Figure 1 covers an area of 4.1km East-West x 9.4km North South (it appears stretched east-west due to the underlying spreadsheet used to create the diagram). Each cell represents a 100m x 100m area. Where an annotation appears in a cell, drilling results have been reported for that cell (either in this month's release or previously). Cells coloured yellow represent infill drilling reported this time in previously drilled cells. Cells coloured green are "virgin territory", previously undrilled (i.e. new exploration). We can see that a significant amount of new explo has been reported this month. I have marked the approximate extent of the previously reported zone 1 and 2 resources on the diagram.

Note that the official JORC resources are 145Mlb U3O8e for Zone 1 and 122Mlb for Zone 2. An independent estimate ^[1] of additions to those resources by drilling results released since last July suggests that the next official JORC declaration should include at least 173Mlb for Zone 1 and 164Mlb for Zone 2 - representing an aggregate increase of 70Mlb... but that's before new exploration is taken into account.

Findings of Drilling to Date

The following illustration shows what all…

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xigris

4th Jun '10

Thanks Mark,

I see that APAC Resources have taken their holding of KAH to 4.45%.

That's 2.2m shares bought since 10th May.

Chris

marben100

Kalahari have published their 2009 annual results this morning. They include this paragraph:

In order to accelerate development work at Rössing South, Extract
has now increased drill rigs on-site from one to nineteen, spending some A$8
million a quarter on drilling. In October 2009, Extract released a targeted
resource at Rössing South of 452-552Mlbs U3O8, and Kalahari believes that
Extract will achieve a figure close to the top end of this range by Q3 2010,
when Kalahari expects a resource upgrade to be achieved by Extract.
Importantly, resource growth is expected to come from various areas including
from the current infill drilling that it being conducted on Zone 1 and 2, in
addition to depth extensions in Zone 1 and 2, southern extensions to Zone 2,
the eastern limb of Zone 2, and at depth between Zone 1 and 2.

I believe that this is in line with my views (though I think they mean "western limb of zone 2").

It is also noteworthy that:

ASX 200 listed company Extract, in which Kalahari's subsidiary,
Kalahari Uranium Limited, holds a 40.78% interest (as at 1 June 2010)

According to my records, that impies that Kalahari have bought around 1m Extract shares in the market since last November.

Cheers,

Mark

10th Jun '10

APAC have taken their holding of KAH to 9.55% (21,585,392 shares)

This exceeds their committment to buy a minimum of 12.8m shares in the RNS from 4th May. It comfortably exceeds the total number of shares that KAH had to sell them (up to 16m).

Clearly, APAC are buying heavily in the market. I hope this means that KAH are buying EXT, expecially at EXT's current depressed price.

FWIW, I consider the comments in The Australian by Rosatom as being a last ditch attempt prior to some serious corporate action.

Best,

ohisay

That was an interesting link on Rosatom - another one here which I hadn't seen before.

http://www.perthnow.com.au/business/russians-threaten-extracts-uranium-site-in-namibia/story-e6frg2r3-1225876458414

Thanks,

I don't think the Russians will get anywhere (but who knows with what's happening with BP in the US)

Kalahari have issued an RNS confirming my hypothesis

Kalahari Minerals plc, the AIM listed resource company, announces that APAC
Resources Limited ('APAC'), the major Hong Kong listed company focussed on
natural resource investment opportunities and base metals trading, has today
increased its interest in the Company to 21,585,392 ordinary shares of 1 pence
each ('Ordinary Shares'), representing 9.55% of the total issued Ordinary Share
capital of Kalahari, following the acquisition of 11,200,000 Ordinary Shares.

These newly acquired Ordinary Shares represent the second tranche of Ordinary
Shares acquired by APAC under the sale agreement between Kalahari, Coronet
Resources Limited ('Coronet') and APAC, announced on 4 May 2010 (the
'Agreement'). Under the terms of the Agreement, Coronet agreed to sell up to
16,000,000 Ordinary Shares ('the Share(s)') at a price of £1.85 in cash per
Share, equating to £29,600,000.00 and these Shares have now been sold to APAC.
The remaining 5,585,392 Ordinary Shares held by APAC were purchased in the
market.

11th Jun '10

Hi All,

I don't think the Russians will get anywhere (but who knows with what's happening with BP in the US)

I agree and think the story was a plant, as the battle for ownership of Rossing South hots up. Here is an article that I feel clears the matter up (H/T to "Ugly" on another site): http://www.newera.com.na/article.php?articleid=11355

From that article, this is what Jonathan Leslie had to say:

Extract’s Chief Executive Officer Jonathan Leslie told New Era from Toronto, Canada, yesterday that Rössing South is wholly owned by his company and any prospects of bringing partners on board for the project would be subject to his company’s approval.

Leslie also dismissed talk in Russia that his company has failed to meet the deadline set by the Namibian government to develop the mine.

“The Namibian government is happy with the progress we have made so far. We have been hearing these reports for three weeks now but the Namibian government has promised that it would not interfere in our commercial negotiations with third parties,” Leslie said.

Even more importantly, here's word from Epangelo, the Namibian govt's new vehicle for mining investment:

Chairperson of Epangelo Mining, Advocate Ellaine Samson told New Era upon inquiry yesterday that “uranium tops our mineral interest”, adding that she “won’t deny that we’ve an interest in the Rössing South project”.

Samson has, however, maintained that her company is “not in the know” of any attempts to muscle out Extract from the project, saying the Australian company is legally the owner of the project.

“It would be pre-empting to say we intend to take over the project.

“Namibia is a law respecting country and anything has to be a result of mutual negotiations,” she said.

Leslie revealed that his company is currently sitting with a proposal by Epangelo Mining, in which the Namibian parastatal has expressed interest in the project. “We spoke to Epangelo about this but no agreement has been reached,” he said.

LOT's of parties are interested in Rossing South (which is why drilling it, to determine it's true worth, is the top priority for the company). ;0)

Just one final point, talk about "deadlines being missed" and licences being 3 years old is clearly misleading. The explo licence relating to Rossing South, EPL 3138, was renewed in April 2009 for a further 2 years: http://www.extractresources.com/DesktopModules/Bring2mind/DMX/Download.aspx?EntryId=3338&PortalId=13&DownloadMethod=attachment

Extract has posted a new presentation, given this week at the RBC Metals and Mining conference in Toronto: http://www.extractresources.com/DesktopModules/Bring2mind/DMX/Download.aspx?EntryId=3483&PortalId=13&DownloadMethod=attachment

Gratifying that Extract's official interpretation (slide 10) seems to match mine as shown in Figure 2 from my original article:

Gero

12th Jun '10

Hi All

Latest WH Ireland (07/06/10) Broker Note for Extract.

Regards

Steve

Extract Resources Limited

Buy
Price A$6.65
Target Price A$8.02
3-year Target A$12.37

Evident Scalability still Not Understood by the Investor

-Current 3-year target of A$12.37 ps
-Raised average Resource grade by 25% to 600ppm
-Lowered our LT U3O8 price 8% to US$55/lb
-Raised operating costs by 11% as a result of increased stripping ratios
-Additional US$25m in capex for pre-strip
-50% increase in production would result in a 3-year target of A$17.73 ps

As mentioned in the recent EXT quarterly, approximately 72km of both RC and diamond drilling went towards infill, extensional and sterilisation of Zones 1 & 2. There are now 19 drill rigs on site and we applaud management for its diligence in converting much of its Indicated to Inferred and Measured categories for the Definitive Feasibility Study (DFS), currently scheduled for completion in the 4Q10. However, it has become apparent that, as a result of recent diamond drilling, an over-reliance on the cheaper RC technique under-estimated the insitu grade by at least 23%. RC drilling, by its very nature, breaks up the rock into small rock fragments and dust, which is not considered a statistical issue when drilling a heavy element such as gold. But in an alaskite (the host rock), composed primarily of quartz (20 to 60% by volume), with the difference composed of alkali-feldspar, primary uranium mineralisation as uraninite appears to be highly susceptible to aerosol loss. If confirmed officially, it will be interesting to see how the
company will accommodate this issue in future resource calculations.

We also updated our assumptions. For instance, the arbitrage between the spot price and the long-term U3O8 price has increased by 7% over the past seven months to 42%. Even taking into account the relative liquidity of the market, it is too high given both carrying costs and commodity price spreads. We therefore hypothesise that the long-term price will decline from current levels (US$58/lb), lowering our LT price assumption to US$55/lb U3O8. As flagged in our previous note, we fully incorporated additional costs from the previously announced higher stripping ratios, coupled with slightly higher capex. Although our cost per tonne is no-longer within company guidance (~+11%) as released with the pre-feasibility study (~A$23.9/t), we await the DFS release, due in 4Q10, before we will review our figures.

We understand that the company is evaluating the option of building a 6km conveyor belt from Zone 2 to the existing Rossing mill, coupled with the development of their own processing plant. We believe that a toll-treatment option is clearly a sub-optimal outcome for all EXT's shareholders, with the exception of Rio Tinto, especially when compared with the opportunity of increasing capacity throughput to capture additional economies of scale and possibility of bringing additional cashflows earlier. For example, assuming a 50% increase in capacity, additional capex of US$200m coupled with scalar increases in opex and repayments, etc., the three year price target would increase to A$17.73 per share. If we increased productive capacity by 100%, additional capex of US$350m, the three year target would increase to A$23.25 per share. Although there is a risk that the project could inundate the primary market with supply, it is clear evidence that management should retain full control of this project.

Despite our three year target declining by 11%, we believe that investors have yet to appreciate the significance of the Rossing South Discovery and the ability of it to add to shareholders wealth. Our financial model is currently constrained by pre-feasibility output guidance. However, we believe that future optimisation studies will recommend greater production levels than currently anticipated, coupled with the prospect of mining higher-grade
portions of the ore-body to facilitate faster payback. We think this company to be very good value for a risk tolerant investor with a 5-year time frame.

Full Report
http://www.capmarkets.com/ViewFile.asp?ID1=138173&ID2=420391633&ssid=1&directory=12494&bm=0&filename=EXT_WHI_070610.pdf

What's Happening with Extract Resources?

New Drilling and Current Resources

Findings of Drilling to Date

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Marben100

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