some thoughts on the future..., page-2

A critique of my posting by another person "Marben" from another site:

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In Reply To: BeerBaron's post @ Today, 12:14 AM

Hi BB,

QUOTE
However, Rio has an ace up their sleeve - the capital investment already extant at their Rossing plant. If some of this can be used to mine Extract's findings, then instead of a new mine requiring $1,000 m in capex, Rio would only need to spend on the capital required in addition to the existing plant at Rossing. ENDQUOTE


I disagree about the value of the existing plant. There are two problems with it:

1. It's too small. I reckon we need a plant about twice as big.
2. It's in the wrong place. It's up on top of the Rossing ridge. In the long run, it would be highly inefficient to haul Husab ore up there (consider also that the Khan river lies in between).

Hence, I see the main use of the Rossing plant as a stopgap: it could get us into production a bit quicker, whilst plans along the lines suggested in recent presentations are implemented, with our plant being located to the south of zone 2 (see slide 15 from the Indaba presentation) - where it can serve not only production from zones 1 and 2 but also is well located to process production from future, more southerly zones.


However, there could be value in combining Extract and Rossing Uranium:


1. We'd have immediate production and cashflow from the Rossing pit & plant (8Mlb gross U3O8 production in 2010, per Rio's Q4 ops report).
2. It may be possible to get Husab into production sooner (and certainly with lower risk) by processing Husab ore at Rossing, whilst the Husab plant is built.
3. Once the Husab plant is built, it may be possible to augment capacity by moving components from the Rossing plant to the Husab location (if it's no longer cost-effective to continue mining Rossing).

OTOH, I see Iran's stake in Rossing Uranium as a potential political obstacle.


The problem for a counter-bidder may be that Rio & Itochu could block them. Adding direct and indirect stakes (via Kalahari), I calculate that - following Kalahari's placing but before Extract's placing - Rio and Itochu will have 18.83% and 15.5% respectively of Extract: 34.33% combined. Directly, they have 11.52% and 13.76% of Kalahari (25.3% combined) and 14.24% and 10.01% of Extract (25.24% combined). Just as a matter interest, I also calculate that APAC and M&G now have stakes of 14.79% and 10.76% respectively in Kalahari (25.55% combined), equivalent to 5.90% and 4.29% of Extract (10.2% combined).

If Monday's resolution is passed, that will reduce Rio and Itochu's indirect holding in Extract and increase APAC and M&G's.[edit]Oops - that's wrong: it will increase the value of ALL the indirect holdings, though it dilutes the direct holdings.[/edit]

Cheers,

Mark

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Apologies - the % figures I calculated in my prevous post are incorrect, because I used the number of Extract shares that would be in issue if the placing completes, rather than the number that are in issue.

The corrected figures are (before Extract's placing):

Rio direct: 14.66%; Kalahari: 11.52%; Direct+Indirect: 19.39%
Itochu direct: 10.31%; Kalahari: 13.76%; Direct+Indirect: 15.96%
APAC Kalahari: 14.79% Indirect: 6.07%
M&G Kalahari: 10.76% Indirect: 4.42%

So Rio+Itochu's combined direct+indirect = 35.36%; APAC+M&G's combined indirect = 10.49%


For completeness, if the resolution passes, these figures become:

Rio direct: 14.24%; Kalahari: 11.52%; Direct+Indirect: 19.16%
Itochu direct: 10.01%; Kalahari: 13.76%; Direct+Indirect: 15.90%
APAC Kalahari: 14.79% Indirect: 6.33%
M&G Kalahari: 10.76% Indirect: 4.60%

and Rio+Itochu's combined direct+indirect = 35.06%; APAC+M&G's combined indirect = 10.93%


I will also observe that Rio+Itochu's indirect stakes only give them limited influence, at present, and will probably not control how Kalahari votes or acts on Extract's Board. However, being over 25% combined, they are "blocking stakes" and can prevent special resolutions from being passed at Kalahari. That, in turn, makes it hard for another bidder to win a battle for Kalahari, which I see as a prerequisite for winning control of Extract.

Were the companies to combine, however, then those indirect holdings would become direct ones and Rio and Itochu's combined power and influence over Extract's Board would be very considerable.

This is highly complex and subtle - and note that my figures still may not be right, so readers would be advised to check them themselves!

Mark

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Just a further thought on my earlier post...



QUOTE
Once the Husab plant is built, it may be possible to augment capacity by moving components from the Rossing plant to the Husab location (if it's no longer cost-effective to continue mining Rossing).ENDQUOTE


I should think the Namibian govt would oppose that idea, because they wouldn't want Rossing abandoned until as much of the economically minable ore as possible has been extracted, to make full use of the country's resources. Keeping Rossing going also increases overall employment.

Cheers,

Mark