Japanese trading house ITOCHU to acquire 15% equity...

Japanese trading house ITOCHU to acquire 15% equity interest

Ambrian 26 March 2010

Nippon Uranium Resources (Australia), a wholly-owned subsidiary of the Japanese trading house ITOCHU Corporation, has agreed to acquire a 15% equity interest in Kalahari. ITOCHU has stated that this is a long-term strategic shareholding, and that it currently does not intend to make an offer for Kalahari. ITOCHU is a 150-year old major Japanese trading house, with a long history in the uranium market. It has activities in Namibia, where it has an interest in the offshore Kudu gas field.

While the announcement does not make the source of the stock clear, we assume the stake will be bought in the market from existing shareholders (ie, 62.6m shares). There was some 21.5m turned over overnight at 185p, and Nomura - which acts as financial adviser to ITOCHU and Nippon Uranium Resources - has advertised having traded 43m shares (and UBS 26m shares). Kalahari has requested ITOCHU nominate a director to its Board to ensure this strategic relationship is maximised to the benefit of all its stakeholders.

Kalahari owns a 40.44% stake in Extract Resources, which intends to release a resource upgrade for its Rossing South uranium project in Namibia in 3Q10 to incorporate drilling since July 2009, with a DFS to be released in 4Q10.

This event not only adds a major new strategic shareholder to the Kalahari register, but also effectively mops up the short-term investment positions in the market. This should support Kalahari moving towards target price levels.

We expect, given the size of the resource, an expansion on the base case 15Mtpa plant (~15Mlbs U3O8/US$523m EBITDA pa). Specifically, we think 20Mtpa is highly likely (~20Mlbs U3O8/US$697m EBITDA pa), or even up to 25Mtpa in the longer term (~25Mlbs U3O8/US$871m EBITDA pa).

http://www.kalahari-minerals.com/News/Analyst_Research/Japanese_trading_house_ITOCHU_to_acquire_15~_equit/News.aspx?id=178


This is the second time Ambrian has mentioned a possible increase in production levels.

The first was on the 18/02/2010.

QUOTE
"Key share price drivers for Kalahari will be the release of a resource upgrade and following pre-feasibility data around mid-year. We expect the pre-feasibility will indicate production throughput higher than the 15Mtpa in the scoping study given the size of the resource, and note that even at a conservative US$50/lb, 6x EBITDA lifts from 2.69GBP/KAH share at 15Mtpa to 3.58GBP at 20Mtpa. For energy bugs, 6x EBITDA at 25Mtpa and US$60/lb equates to 6.20GBP/KAH share, although it is probably too early to be banking on reaching 25Mtpa!"

http://www.kalahari-minerals.com/News/Analyst_Research/Infill_Drilling_Results_-_More_wide~_high-grade_zo/News.aspx?id=165


Could it be that Dattels has done a deal with Itochu with regards to an off-take agreement?

Perhaps Itochu did not want to get into a bidding war with Kepco, for a stake in EXT, and have done a deal with Dattels, with regards to Itochu making a substantial off-take agreement offer to EXT, in return for the stake in KAH?

Should Kepco be successful in acquiring a stake in EXT, which would no doubt include a substantial off-take agreement, this would then make it economically viable for EXT to invest in a larger plant to increase production levels.

After all it is no good increasing production levels to 20 or even 25Mlbs, if there is no guarantee of a purchaser.

Could this be the reason for the delay in resource upgrade and DFS?

Regards

Steve