HN: Hello this is Harry Norman for Proactive Investors and welcome to another Proactive audio interview.
Today I am talking to Mark Hohnen, Executive Chairman of Kalahari Minerals listed on the AIM market mining sector, stock ticker KAH, share price 44.75 pence Sterling and market cap 80.06 million pounds Sterling, web address kalahari-minerals.com.
Mark, thankyou very much for joining us for this interview.
MH: Thankyou Harry
HN: Please can you bring us up to speed on Kalahari Minerals progress in Namibia, Mark?
MH: Harry, 08 was a very active year for Kalahari Minerals. In the case of our base metals we had a very very active program, 87000m of drilling on the copper projects out at Witvlei, and 22000m of drilling on the lead-zinc at Namib. So it was a lot of work achieved on the ground and then our interest in Extract had a very very active program. They had work going on at Ida Dome and also with the discovery of Rossing South in January last year, they've had a full program there which has enabled them to come forward with their first resource statement this year.
HN: Kalahari Minerals came close to merging with Extract Resources recently, which is already held 39.6% by Kalahari Minerals. Why did you terminate the merger?
MH: Harry, to be exact, it was the Kalahari shareholders who were not prepared to support the merger. The reason for that was that the merger would have simplified the structure. We were offering 1.6 Kalahari shares for 1 Extract share, but as soon as we announced the merger Rio Tinto purchased the RAB Capital holding of just under 15% of Kalahari and 11.6% holding in Extract. So they entered the register of both companies and it was very clear to us that their real aim in life was to get a joint venture with Extract on the Rossing South area. We were very worried that they could go to 30% of the merged group under the UK rules and we didn't think that was in the best interests of the shareholders and our shareholders were very strongly of that view. We asked Rio to enter into a voluntary handcuff, where they would not increase their holding until such time as we've been able to talk through these issues. They were not prepared to do that and, on the back of that, some of our shareholders just said, well, we're not prepared to vote for the merger because there's too much of a risk of you getting into a bear hug. So that's basically why it was called off. We wouldn't have been able to get the vote.
HN: Forsys Metals, which is also developing uranium assets in Namibia, was recently acquired by George Forrest International. What sort of valuation does that takeover imply over Extract's assets, Mark?
MH: That's a good question. The George Forrest appears to have paid US$9/lb for the Valencia deposit held by Forsys. Valencia is a very similar type of deposit to Rossing South, but it is very low grade. So it is interesting he seems to have paid such a high price. If we were to apply that US$9/lb to the Rossing South Zone 1 resource and the Ida Dome 25 million lb resource, you've got a valuation of US$1.2 billion on Extract. At the same time, Extract has announced it will have its Zone 2 resource by the end of July or early August and their target there, their upper end target, is 105 million lbs. We can, we're very confident, we Kalahari are very confident that's easily achievable, particularly with the results they brought out this morning. So you can add on there another US$1.15billion, which would give a total value to the uranium assets of US$2.35billion, of which Kalahari holds 40%.
HN: Earlier this week Extract announced the maiden resource at Rossing South. What are your thoughts on this resource and how big do you think Rossing South is going to be?
MH: Harry, the Zone 1 resource that was announced this week was announced at 108 million lbs and at grade of 430 ppm. In last year Extract announced its target he was 60 to 90 million lbs at a grade of 260 to 300, which is the same as Rossing So they've exceeded that handsomely, but more interestingly, it's open to the north and the south and at depth. So Zone 1 itself is going to be much larger. Zone 2 which is 2km in length and has been drilled 2km in length, their target there is 90 to 105 million lbs. We believe that the upper side is certainly very achievable. Brock Salier, who is the resource analyst at Ambrian (our brokers), has been on site there and his initial target for Rossing South is 300 million lbs. We think that's very easily achievable given time and given drilling. The most important thing to remember is that the Rossing structure, the Rossing South structure is some 15km long and that between Zone 1 and Zone 2 they've only so far drilled 4.4km. So there is another 11km of potential there and there's no reason to say that it isn't all going to be bearing. So this thing could be a real elephant. It's certainly now the most important discovery in Namibia and one of the most important in the world.
HN: How similar is the geology at Rossing South to the geology at Rio Tinto's Rossing Mine and how do the uranium grades compare?
MH: The Rossing mining grades about 260 to 300. These grades are 430 so they are well in excess of the Rossing grades. That's Zone 1. The mineralisation is very very similar to Rio's Rossing and we think it will be very easily treated and, you know, we don't foresee any problems.
HN: Uranium prices have rebounded quite nicely since the first half of 2008, but base metal prices are still weak. Has this changed Kalahari Minerals priorities towards its zinc and copper assets, Mark?
MH: Harry, obviously Kalahari's main aim in life at the moment is to support the Extract program and support Extract as best it can in its exploration program. We, at the same time, think that the base metals (copper and lead/zinc) are extremely valuable assets. And as mentioned earlier, we are in the very fortunate position where we aggressively drilled last year and had very big programs on both of our base metal projects, which puts us into a very strong position now to do some resource estimates and then we can work out the best way forward. We actually believe that copper is going to recover sooner and in base terms today they are very very valuable assets in their own right.
HN: So Mark, what is Kalahari Minerals's financial situation?
MH: Kalahari Mineral's financial situation at the moment is strong. We had a small capital raising at a very small discount to the market in December. We raised money at 32p. We had 5.5 million pounds in the bank and that should look after us into the rest of this year.
HN: What can investors expect from Kalahari Minerals over the next 18 to 24 months, Mark?.
MH: The Kalahari investors will see a very constant flow of information now coming forward. The base metal projects having achieved the massive amount of drilling that we did last year ... 87000m on the copper and 22000m on the lead/zinc ... work is now being done on resource estimates. There will be a flow of information towards the end of February, end of March and the end of April on those projects. Extract has announced the maiden resource this week. They have also announced that Zone 2 will be in the public hands by the end of July or at the latest early August. There is a constant flow that'll come out. They've got a massive program going on on Zone 2, so there'll be a flow of information out of that. And one would hope that by the end of this year they will have the results of their bankable feasibility and be able to announce when they're going into the next stage in getting this into production. So basically, the flow of information is going to be very very strong. Neither of these companies are now exploration companies. They both have resources. It's a matter of how big those resources are and how quickly they can get them to production.
HN: So Mark, thankyou very much for joining us.
MH: Thankyou Harry.
HN: This interview was recorded on the 30th January 2009. Remember Proactive Investors is not an investment advice service. Make sure you register for our weekly Proactive Investors newsletter which will you informed about our articles, interviews and events. Thankyou for listening.
EXT Price at posting:
$1.59 Sentiment: Buy Disclosure: Held
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