Rio’s buy keeps Extract’s options open Kate HaycockFriday, 24...

Rio’s buy keeps Extract’s options open


Kate Haycock

Friday, 24 October 2008

RIO Tinto’s unprecedented on-market buy into Extract Resources’ share register has bolstered the uranium junior despite the bursting of the yellowcake bubble – even if Rio’s long-term goals for its Extract stake are unclear.

Extract managing director Peter MacIntyre said Rio’s on-market share purchases of 15% of Extract’s stocks was a validation of the company’s exploration work in Namibia.

The key attraction for Rio, he said, is the Rossing South deposit, 5km south of the miner’s majority-owned Rossing mine in Namibia.

Extract is hoping to delineate up to 198 million pounds of resources grading around 260-300 parts per million uranium at the project and has an even higher aim – to begin work on a mine within the next three years.

At a time when raising cash has become almost impossible, the company has around $A30 million in the bank and is merging with its London-listed major shareholder, Kalahari Minerals.

And with Rio on the register the company’s chances of actually getting a project up and running are higher than for many of its compatriots.

MacIntyre told journalists and investors yesterday that Rio’s buy-in wasn’t completely unexpected but the fact the purchases happened on-market was surprising.

Rio bought the shares from London-based RAB Capital in September, which proved good timing – RAB has subsequently been hit hard by the credit crunch – and the investor interest created by Rio’s move has shielded Extract from some of the worst of the recent market volatility.

Extract’s share price fell to a low of 52c last year, rose to a high of $1.32 this year but subsequently dropped back to 82c at the start of October.

However, the company has not suffered in the same way as some of its Namibian counterparts such as Bannerman Resources, which has fallen from a high of almost $4 to under 30c as the uranium spot price has ebbed to its lowest level in years.

According to uranium price tracking website Trade Tech, spot uranium is sitting at $US45 a pound.

However, much of the sell-off has been blamed on an outgoing rush of speculative money from the spot market and the long-term indicators are much higher, at around $US80 per pound.

MacIntyre is unsurprisingly hopeful Extract will be able to tap into Rio’s experiences at Rossing as well as potentially take advantage of Rossing’s infrastructure – including roads, power, water, rail and port, and a potential acid plant that may be built at the mine.

MacIntyre said Extract could potentially also see some sort of deal emerging with Rio where any uranium produced at Rossing South could be marketed through Rossing’s existing channels.

However, he said that while Extract’s board had met with Rio, he would not speculate whether the buy-in was a prelude to further corporate action from the major.

“We have a fairly active dialogue going … [but] I can’t comment on Rio’s aspirations,” he said.

Extract hopes to have resources for Rossing South’s Zone 1 by January and Zone 2 by the middle of next year.

Shares in Extract were last trading at 95c.