ext expects post-quake funding for $1.7b plant

Extract Expects Post-Quake Funding for $1.7 Billion Uranium Plan

April 05, 2011, 12:37 AM EDT
By James Paton

April 5 (Bloomberg) -- Extract Resources Ltd., an explorer proposing a $1.7 billion uranium venture in Namibia, expects to overcome difficulties confronting the industry after Japan's nuclear crisis and successfully fund the mine.

Extract's Husab uranium deposit will be developed because of its "strategic importance," Chief Executive Officer Jonathan Leslie said today on a conference call with reporters.

China Guangdong Nuclear Power Group Co. last month offered 756 million pounds ($1.2 billion) for Kalahari Minerals Plc, which owns about 43 percent of Extract, seeking access to the Namibian deposit. Smaller uranium explorers may experience delays and struggle to raise money in the aftermath of the disaster at the Fukushima Dai-Ichi nuclear power plant north of Tokyo, Leslie said.

"It would be unrealistic to say there will be no effect on financing," Leslie said from Sydney. "For all uranium projects, it's going to be more difficult than it was before."

Shares of uranium explorers and producers have tumbled amid concerns the emergency at Tokyo Electric Power Co.'s stricken reactors will prompt countries to suspend plans to build nuclear power plants. Extract fell 25 percent in the three weeks following the March 11 earthquake and tsunami, compared with a 2.9 percent gain in the benchmark S&P/ASX 200.

Extract rose as much as 5 percent to A$8.38 in Sydney today, the most in two weeks. The shares were 3.1 percent higher at A$8.23 at 1:12 p.m. local time, while the benchmark S&P/ASX 200 Index gained 0.2 percent.

Debt Funds

Extract, about 14 percent-owned by Rio Tinto Group, said some 60 percent of Husab project costs may be funded with debt if it develops the mine on its own and that it would aim to approve the venture by the end of June. Husab is about 7 kilometers (4.4 miles) from London-based Rio's Rossing mine and about 30 kilometers from Perth-based Paladin Energy Ltd.'s Langer Heinrich project.

While Extract is considering a "standalone" project, it said in February it was in talks with Rio about a potential combination of Husab and Rossing.

"If one option gives us better economic value, we would go down that route," Leslie said today after the company released its development plan and cost estimates.

A successful bid by China Guangdong Nuclear Power, that country's second-largest reactor builder, would give it access to Husab, which Extract expects to become the third-largest producing mine, behind Cameco Corp.'s McArthur River and the Saskatoon, Saskatchewan based-company's unfinished Cigar Lake mine.

Russian Takeover

Mantra Resources Ltd., a uranium company with projects in Africa, agreed in March to a lower takeover offer from Rosatom Corp., the Russian state-owned nuclear company. Rosatom's ARMZ Uranium Holding Co. cut its offer for Mantra by 12 percent to A$1.02 billion ($1.06 billion) because of the Japan disaster.

Extract is talking with potential customers and has "identified several possible strategic contracting opportunities," the company said today.

The Husab study shows the "economic viability of the project," Leslie said in the statement. "Extract is committed to developing this strategically important project, working with key stakeholders to determine the optimum funding and development framework to bring the project into production."

Husab is expected to produce 15 million pounds of uranium oxide a year and begin in 2014, Extract said today. The company is confident Husab, the world's fifth-largest uranium deposit, will climb in the rankings, Leslie said on the call.

Capital costs are projected at $1.48 billion, and production costs are estimated at $28.50 a pound, excluding royalties, marketing and transportation, Extract said. Cash of $86.5 million at the end of March is expected to be enough to fund drilling and initial development, it said.

--Editors: John Viljoen, Ryan Woo

To contact the reporter on this story: James Paton in Sydney [email protected].

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