mark hohnen (kah) talks to proactive investor, page-2

Full script for ease of reference :-

Friday, March 20, 2009

Kalahari Minerals' Mark Hohnen Speaks to Proactiveinvestors
by Proactiveinvestors


Mark, thank you very much for joining us for this interview.

Thank you Harry.

Please can you bring us up to speed on Kalahari Minerals’ progress in Namibia.

Harry, ’08 was a very very active year for Kalahari Minerals in the case of our base metals. We had a very active program; 87,000 metres of drilling on the copper projects out at Witvlei and 22,000 metres of drilling on the lead-zinc at Namib. So there was a lot of work achieved on the ground and then our interest in Extract had a very active program; they had work going on at Ida Dome and also with the discovery of Rossing South in January last year they have had a full program there which has enabled them to come forward with their first resource statement this year.

Kalahari Minerals came close to merging with Extract Resources recently, which is already held 39.6 percent by Kalahari Minerals, why did you terminate the merger?

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 of the Kalahari shares for 1 Extract share. But as soon as we announced the merger, Rio Tinto purchased the wrap-capital holding of just under 15 percent of Kalahari and 11.6 percent holding in Extract. So they entered on the register of both companies and it was very clear to us that the 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 percent of the merged group under the UK rules and we didn’t think that was in the best interest 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 decrease their holding until such time as we were able to talk through these issues; they were not prepared to do that. On the back of that some of our shareholders just said they were not prepared to vote for the merger because there was just too much of a risk of Kalahari getting into a bear hug. So that’s basically why it was called off; we wouldn’t have been able to get the vote.

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 assets?

That’s a good question. The George Forrest appears to have paid 9 US dollars per pound 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 was interesting that they seem to have paid such a high price. If we were to apply that $9 to the Rossing South Zone 1 resource and the Ida Dome £25 million resource, you have a valuation of US$1.2 billion on Extract. At the same time Extract has announced that it will have its Zone 2 resource by the end of July or early August and their upper end target there is £105 million. Kalahari are very confident that that is easily achievable and particularly with the results they brought out this morning. So you can add on there another 1.15 billion, which would give a total value to the uranium assets in Namibia of US$2.345 billion, of which Kalahari holds 40 percent.

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?

The Zone 1 resource that was announced this week was announced at 108 million pounds and at a grade of 430 parts per million. In the last year Extract announced its target here was 60 - 90 million pounds with a grade of 260 – 300 which is the same as Rossing. So they have 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 2 kilometres in length and has been drilled 2 kilometres in length, their target there is 90 – 105 million pounds. 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 pounds; we think that’s very easily achievable given time and given drilling. The most important thing to remember is that the Rossing South structure is some 15 kilometres long and between Zone 1 and Zone 2 there have only so far drilled 4.4 kilometres. So there is another 11 kilometres of potential there and there is no reason to say that it isn’t all going to be bearing. So this thing could be a real elephant. It is certainly now the most important discovery in Namibia and one of the most important in the world.

How similar is the geology at Rossing South to the geology at Rio Tinto’s Rossing mine and how do the uranium grades compare?

The Rossing mining grades are at about 260 – 300 and these grades are at 430, so they are well in excess of the Rossing Grades at Zone 1. The mineralisation is very similar to Rio’s Rossing and we think it will be very easily treated and we don’t foresee any problems.

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?

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 metal; the copper and the lead-zinc, extremely valuable assets and as mentioned earlier we are in the 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 valuable assets in their own right.



What is Kalahari Minerals’ financial situation?

Kalahari Minerals’ financial situation at the moment is strong. We had a small capital raising to a very small discount to the market in December; we were at 32.5p and we raised money at 32. We have £5.5 million in the bank and that should look after us into the rest of this year.



What can investors expect from Kalahari Minerals over the next 18-24 months Mark?

The Kalahari investors will see a very constant flow of information now coming forward. The base metal projects having achieved the massive amounts of drilling; 87,000 metres on the copper and 22,000 on the lead-zinc, work is now being done on resource estimates and 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* and 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 will come up; they have a massive project going on at Zone 2 so there will be a flow of information out of that. 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 are going into the next stage and getting this into production.

So basically, the flow of information is going to be 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 into production.



Kalahari Minerals recently raised more cash, are you planning on increasing your stake in Extract Resources?

Kalahari will increase its stake as and when it can. Under the Australian Corporate Governance Rules, we are entitled to purchase up to 3 percent in any 6 month period and we have purchased some shares in the past month. We have also purchased around 1.9 million warrants which we will exercise. It is in our interest at the moment to just quietly increase our holding to make sure that we get the best leverage for the Kalahari shareholders.



Kalahari Minerals recently requested that Extract Resources drops its secondary listing in Toronto and that a non-executive chairman steps down. Why?

Basically Kalahari really is of the view that for Toronto to work you really have to be very active in that market, that’s no different than for London to work for Kalahari; I have to spend a lot of time over here and I am very happy to do that, spending time with my shareholders. Extract has been on the TSX now coming up for 2 years. They have not got many shareholders in North America and we think it is an expensive way forward when the existing shareholder profile is basically Australia and London. So we just don’t think that it’s this market where money can be best applied on the grounds that we think it is better to concentrate where you are getting traction. It’s nothing against Mr Buchan, I think he is a very good operator and is very well known; he has been involved with the creation of Katanga and Kinross, but as I said if the TSX isn’t working it would be best suited in my view having a Chairman who was either based in Australia where the operating office is, or Namibia as that’s where the action is and that is where it is all going forward. So it really is not a personal issue between Kalahari and the Chairman, it is just one that is best utilising the resources that are available.



How is the relationship between Kalahari Minerals and Extract Resources?

I think that the relationship is very good, on a professional basis it is very strong. It is public knowledge that Extract thinks that it’s a negative to have Kalahari with such a big shareholding, but they were able to raise $30 million in Australia last year in a pretty soft market and they raised it at a very tiny discount to the market because Kalahari stood up and took its 39 percent. So the management of Extract seems a little negative, but we provide office facilities in Namibia and the teams all work very happily together. Personally I think it’s a good relationship.



Are you tempted to auction off your stake in Extract Resources to the highest bidder?

No, we’re not. Extract is governed by the ASX and the Australian rules are that you cannot breach 19.9 – it is a criminal offence to breach over a 19.9 percent shareholding in Extract. So we wouldn’t want to see anyone in that position. If somebody wanted to put a bid on the table for Extract then obviously we would consider it but the best value that we can get for our shareholders at the moment is to fully support Extract going forward. When Zone 2 comes in, between Ida, Zone 2 and Zone 1 that’s 250 million pounds and as I said earlier, you have a value of around 2.3 billion. The next 12 months is critical to getting this extremely significant resource up and into a position where it can go into production. If somebody wants to come in and wants to talk to us the door is always open but our business is to make sure we get a resource that will support Extract in their endeavours.



I don’t quite understand that part about it being illegal to hold more than 19 percent, as you already hold nearly 40 percent.

You have to remember historically how this all came about; Kalahari was in a joint venture with Extract, we had 49 percent and they had 51 percent. At Extract’s request in March 2007 we transferred our 49 percent joint venture interest to a 36 percent equity interest in their company. That was subject to shareholder approval so that is an exception to the rule because the shareholders approved that, but if somebody was to come in and want to purchase that they would be limited to buy not more than 19.9 percent of Extract at any given time.



Rio Tinto still owns sizeable chunks of Extract Resources and Kalahari Minerals. Is Rio Tinto a supported shareholder?

I think Rio Tinto is a very positive shareholder, I think it’s fantastic that they are there. They are a big shareholder of both companies and they own around 67 percent of one of the longest producing uranium mines in the world which is only 7 kilometres away. I think the mere fact that they hold an interest in both of these companies really supports the statements that we have both made, both Extract and Kalahari, about the quality of the resource that we have.



The Namibian Uranium district is world class, but Namibia has power and water supply issues. How will this affect your projects?

The water issue is one that is being tackled by all of the potential mines; there is a water group that Rossing is part of, Bannerman is part of, Extract is part of. NamWater have claimed that they are going to build a desalination plant in time but at the same time Euromin is building their own desalination plant. So we are happy in our time frame to think that water is not an issue, well, it’s a manageable issue. As far as power goes, we believe the Namibian government is now on top of that and in the time frame that is required for a production from the Rossing South we certainly feel that that issue has been tackled. But in all of our initial feasibilities and all of Extract’s initial feasibilities they have taken into account the generation of power by the company itself.