Kalahari Minerals Has Orchestrated A Strong Defence Against Rio Tintos Attempt To Get Hold Of The Husab Uranium Project On The Cheap
By Charles Wyatt
Mark Hohnen, executive chairman of Aim-traded Kalahari Minerals, has fought long and hard to retain his companys 41.14 per cent holding in Extract Resources, the company which controls the Husab uranium project, located approximately 45 kilometres north-east of Namibia's main port, Walvis Bay. The project is strategically located within Alaskite Alley, an area that hosts several world class uranium deposits. Two of these deposits are already in production - the Rossing uranium deposit to the north, owned and operated by Rio Tinto, supplier of eight per cent of the worlds uranium, and Paladins Langer Heinrich deposit to the east. Both of these are located within 30 kilometres of Extract leases. Mark will therefore have been delighted to hear of the resource upgrade at Husab, which establishes the project as the sixth largest uranium deposit in the world, and as the largest in-situ and highest grade granite-hosted uranium deposit in Namibia.
The fear was that Rio Tinto might make a pre-emptive strike for Extract and its Rossing South deposit, either directly, or through Kalahari, as Rio has modest shareholdings in both companies. Such a move would likely have given it control of Husab on the cheap. Then, last March, Jonathan Leslie joined Extract as chief executive and the tenor of speculation changed a bit. Jonathan was on the board of Rio Tinto for nine years and has broad experience of uranium marketing, having spent four years responsible for Rio Tintos worldwide uranium sales into the Far East and Asia. His involvement in uranium then continued, with his appointment as managing director of Rossing Uranium, a job in which he was able to develop close relationships with the Namibian government and related agencies. An ideal man to have at the helm, as he brought inside knowledge of the thinking and tactics of a multinational which had fought a bit dirty in the past. Hes also highly qualified to take Extract from exploration through development and into production.
But the speculation changed tack again in July when Itochu Corporation, a leading Japanese trading house, announced that it had acquired a 10.3 per cent holding in Extract that had previously been held by Polo Resources and some associates. And while all this has been going on, Extract has been moving quickly to complete its definitive feasibility study in the last quarter. But it is the resource upgrade, which was published seven weeks ahead of schedule, according to Mark Hohnen, that takes centre stage at the moment, as it confirms that Jonathan Leslie is pushing ahead as fast as possible towards development.
As Mark Hohnen says: This resource upgrade, which includes an indicated resource of more than a quarter of a billion pounds of U3O8, is a key milestone for Extract, as it moves into its development phase on Zones 1 and 2 of Rssing South. Taken in tandem with the feasibility study it confirms that Extract is committed to developing an open pit mine in these two zones as soon as possible. A maiden resource has also been published on the newly identified Zones 3 and 4, so it is unlikely to stop there as there is plenty more potential, and Husab could end up by hosting a number of mining operations.
No wonder Mark Hohnen has fought so hard to maintain Kalaharis interest in Extract and no wonder Richard Lockwood, one of Londons most experienced fund managers, accepted Marks invitation to come onto the board in March. Richard is a well-known and respected figure with extensive experience in both the uranium sector and investment markets, explained Mark, and I am confident that his considerable industry and business acumen will prove an invaluable addition and further strengthen our board. He will undoubtedly help raise Kalaharis profile as it reaches a vital stage in its development, actively assisting Extract Resources as it advances the world-class Husab project towards production, and providing support to the whole team during this crucial time.
It is no coincidence also that APAC Resources, a major Hong Kong listed company focussed on natural resource investment opportunities and base metals trading, announced in June that it had acquired a holding of 9.95 per cent in Kalahari. The chief executive of APAC is none other than Andrew Ferguson, a close friend of Richards who worked with him at City Natural Resources before accepting his job at APAC. Thus Kalahari now has a Chinese connection. Add that to the arrival of Itochu on the scene, both as a shareholder in Extract, and as a new share holder in Kalahari, and the investor base looks stronger than ever.
Itochus acquisition of a 13.5 per cent stake in Kalahari lead to an invitation for it to have Mr Takashi Yasuda as its representative on the board, an invitation which was accepted. Itochus position, with a stake in both Kalahari and Extract is a fascinating one, as it is clearly pursuing its own interests as well as acting as a spoiler as far as Rio Tinto is concerned. No equivocation from Mark Hohnen when he says: we believe that the experience of Itochu in the uranium sector and in Namibia, as well as the political and financial backing it receives from the Japanese Government, will be highly beneficial to our active strategy with regards to the development of Extract Resources and its Rossing South mine. The project is targeted to be in production by 2013 and everyone is committed to ensuring that Extract receives all the relevant support to ensure that development is fast tracked and the full potential realised for the benefit of all shareholders. To some investors the presence of Itochu on both share registers has reduced the speculative element, and the shares have reacted accordingly, but the fat lady is still a long way from mounting the stage and starting to sing.
On the telephone from Singapore, where he is having meetings with Itochu before continuing on to London, Mark makes two important points. First, the resource update makes clear that although Zone 1 dips more steeply than Zone 2 the resource area is very wide, meaning strip ratios should be favourable to mine to considerable depth. The orebody would appear to support a pit at least 300 metres deep, depending on depth, and the overburden is shallower, so it will be easier and quicker to develop. Second, by the time Rossing South is in production in 2013/4 most of the Japanese uranium contracts will be running out and the price of uranium should be a lot higher.
This view was supported by Alan Eggers of Manhattan Corporation, one of the most successful observers of the nuclear industry, when, at a recent uranium conference in Perth, he said: In the next 10 years US and non-US utilities require about another 120 million pounds of uranium, in addition to the existing shortfall. When the current round of Russian decommissioning is complete in 2013 there will be a looming 220 million pound per year shortfall. We see now as an ideal time to secure resources, build a resource inventory and be ready to produce in 2014 to 2016. No wonder Itochu wants to be in the front row seats as the Rossing South saga unfolds. But lets not forget that the Chinese never like to miss an opportunity to get involved in such situations either.
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