Extract price surges.The stock price of rising uranium star...

Extract price surges.

The stock price of rising uranium star Extract Resources surged today by a third in Australia; Rio Tinto rumoured to be on prowl for further Namibian assets.
Author: Barry Sergeant
Posted: Tuesday , 09 Sep 2008
JOHANNESBURG -

Some 14% of London-listed Kalahari Minerals, which holds 39% of Australia-listed Extract Resources, changed hands late yesterday in London, at 38 pence a share, a 27% premium to the 30 pence Kalahari Minerals had been trading at for most of the day. Extract Resources has been in the news recently, on materially positive drill analysis results announced by it out of Namibia, from the Rössing South discovery.

According to sales-traders in the markets, the seller of the Kalahari Minerals block was RAB; Macquarie traded the stock. This morning, Extract Resources was in strong demand in Australia, with the stock price closing 32% up on the day. Under London rules, the buyer of the block of shares in Kalahari Minerals is obliged by the end of tomorrow to tell Kalahari Minerals who the buyer is, and then to make a public disclosure to the same effect.

On 5 September, Kalahari Minerals and Extract agreed to a friendly merger, by way of a scheme of arrangement, where Kalahari Minerals would bid 1.6 of its shares for each Extract Resources share, creating a "Mergeco" with some 341m shares in issue.

RAB are said to now be in further discussions with the buyer of the block in Kalahari Minerals, this time over RAB's 22m shares held in Extract Resources, which currently has 213m shares in issue. Market sources say the "best bet" is that the potential predator circling this story is Rio Tinto. It has been noted that a collection of investment analysts are currently visiting Rössing (Rio Tinto) and Rössing South, the Extract Resources/Kalahari Minerals project.

Rio Tinto currently stands as No 2 uranium producer in the world, after Canada-based Cameco. Rio Tinto holds a majority stake in ERA, and also owns 69% of the Rössing mine, known to uranium specialists as the "grand old lady" of the Namibian uranium industry. Rössing lays claim to 140mlb historical production over 30 years, with current production running at around 8% of global uranium oxide output. Rössing boasted an initial resource of 373m tons grading 0.03% to 0.05% uranium oxide; remaining resources of 250m tons at 0.025% uranium oxide are contained in the monster 5km long, 500m wide and 350m deep open pit.

Earlier this year, management at Extract Resources targeted a 128m to 200m pound uranium oxide resource by the first quarter of 2009, with expectations towards the upper end of this range, from a strike length of 4km. The Rössing South anomaly, however, is some 15km long; the 200m pound target resource comes from two orebodies.

Uranium-related activity and development in Namibia gained a relatively high profile in August 2007, when Areva paid USD 2.5bn for Uramin, formed just two years previously to acquire and develop mineral properties, predominantly uranium, in Namibia, the Central African Republic and South Africa.

In announcing recent drill results from Rössing South, Peter McIntyre, Extract Resources MD, put it this way: "Rössing South is the first new alaskite hosted uranium discovery in Namibia in many years and is shaping up as the most significant discovery since the SJ deposit at the Rössing Mine". Put another way, Rössing South could emerge as the most significant uranium discovery in Namibia in some thirty years.

Extract Resources ranks as one of the better performing of dozens of listed uranium stocks, currently trading just 17% off its high, compared to industry bellwether Cameco (down 46%), and favoured growth story Paladin (also down 46%). Paladin recently announced a new resource estimate for the Langer Heinrich project in Namibia, where it has been mining since late 2006.

Further names present in Namibia include Bannerman (down 80%), Deep Yellow (down 51%), Xemplar (down 96%), and Forsys, down a modest 12%. The relative outperformance of Forsys among uranium names is based at least in part on the recent grant of a mining license for its Valencia uranium project, 25km east of the Rössing Mine. Valencia contains 62m pounds of uranium oxide in a conceptual pit, with a lower average grade than those now emerging from Rössing South.