minesite article on kalahari/extract, page-3

December 17, 2008

Mark Hohnen of Kalahari Minerals Sees Real Value In His Stake In Extract Resources And Will Not Let It Go Cheaply


By Charles Wyatt



Back in September Mark Hohnen, executive chairman of Kalahari Minerals, proposed that his company and Extract Resources should work out a way of merging. The stimulus for this action was the fact that Rio Tinto had acquired a 14.9 per cent shareholding in Kalahari and a 10.9 per cent stake in Extract. The Rio stake in Extract was increased to 13.1 per cent shortly afterwards. The vendor was poor, beleaguered RAB Capital, under pressure to sell off its shares, and the transaction meant that Rio Tinto would have had 19.8 per cent of any enlarged company. This is below the 20 per cent limit which would trigger a bid under Aussie rules, but shareholders in Kalahari were worried that such a holding would enable Rio Tinto to get effective control of the merged company on the cheap, as well as allowing it to exert an unhealthy level of influence on future decisions. They were mindful that Rio Tinto’s big Rossing mine, which is only five kilometers to the north of Extract’s own uranium prospects, has been in uninterrupted operation for 30 years and could probably do with more resources.
Mark Hohnen did the right thing in asking Rio Tinto what it had in mind and whether it would agree not to increase its holding in the enlarged company for a period of time after the planned merger was implemented. Rio had a few other things on its mind at the time, such as BHP Billiton, but it nevertheless it decided not to agree to the mooted standstill so Mark called the merger off. Throughout this period Kalahari had been very much in the driving seat due to its 39.05 per cent holding in Extract. The company used its muscle again at the beginning of December by proposing the removal of Bob Buchan as chairman of Extract. Bob, who made his name at Kinross Gold, had been brought in to raise the profile of Extract among North American investors and to help the company list on the TSX. Mark Hohnen had come to the conclusion that this was not working out, was a waste of money, and was taking eyes off the ball at Extract. He emphasises that he has great respect for Peter McIntyre and his crew, but that he wanted every effort to be thrown into increasing the value of the Rossing South uranium discovery

Extract is an Australian-based uranium exploration company operating in Namibia. Its principal asset is its 100 per cent owned Husab uranium project. This contains three known uranium targets - Ida Dome, Hildenhof and Rossing South - the last of these being its latest discovery in the area. Only last week Extract announced some huge uranium intersections at Rossing South, accompanied by high grade chemical assay results which confirmed it as one of the most significant uranium discoveries made in recent decades. It has now been found that uranium mineralisation remains open along strike to the south and down dip to the east, and that’s raised expectations that the company will deliver up a much larger resource than was originally expected. According to Peter McIntyre, managing director of Extract, “Major hits on the southernmost line of Zone 1 give strong indication that this zone is still wide open and we intend to release an initial resource estimate early in the New Year.”

No wonder Mark Hohnen did not want Rio Tinto interfering in what could be a “world class company maker” (his words) for both Extract and Kalahari. His master stroke, however, was a placing to raise fractionally under £4 million earlier this month at a price of 32p per share. That was right on the share price at the time. He points out that this was the maximum number of shares Kalahari could issue at the time and, encouraged by demand, he will be back for more next year. The share price has since advanced to 36.25 p and as the peak for the shares earlier this year was just over 45p the company has clearly performed better than most of its peers.

Kalahari itself has a portfolio of copper and base metal prospects in western and eastern central Namibia. Two of the project areas, Dordabis and Witvlei, are prospective for sediment-hosted copper mineralization, while a third, Ubib, is believed to be prospective for gold, and is close to the operating Navachab gold mine. Kalahari has just completed a major drilling programme on the copper, and an initial resource estimate can be expected early next year.

The company also has a 90 per cent interest in the highly prospective Namib lead-zinc project centred around the old Namib lead mine, which was an underground operation from 1965 to 1992. Previous mine studies indicate surface tails and underground mining reserves of 1.65 million tonnes at 5.7% zinc, 1.6% lead and 40.2 grammes per tonne silver. Kalahari aims to take the project to the bankable feasibility study stage with a view to re-commencing mining operations in the short term. But current lead and zinc prices mean there is no immediate hurry.

Mark Hohnen went on to say to Minews from Namibia that “recent results from Rossing South reinforce our belief that this is the most outstanding new deposit to come to market in recent years. I have just been speaking with the geologist in charge of the project and am now convinced that the initial resource will be right at the top of Extract’s target range, with approaching 100 million pounds of U3O8. And this is just from the southeastern end of Zone 1. There will be more to come there and then there is Zone 2 which could be similar in size. Nor should Ida Dome be overlooked as it already has a JORC compliant resource of 25.1 million pounds of U3O8.”

“So let’s be very conservative and assume a total resource of 150 million ounces. Forsys Metals, which operates in the same uranium district was recently acquired at a price of US$9.00 per resource pound, and the Forsys ore is lower grade. If we only take a price of US$5.00 per pound this would value Extract at US$750 million and it is only capitalised at US$190 million. You can’t be surprised that I want to hang on to the 39.05 per cent holding and realise true value for my shareholders.”

He has now requisitioned a meeting of Extract shareholders to discuss the removal of Bob Buchan, since Bob would not quit voluntarily. This should herald a new era in the relationship between the two companies. Constructive and helpful it will be, but Mark has put down his marker that he wants to see the rating of Extract reflect the value of its assets to a far greater extent.