*.co.uk: comments re merger

http://www.proactiveinvestors.co.uk/companies/news/2912/kalahari-minerals-and-extract-resources-agree-to-merge-2912.html
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Friday, September 05, 2008
Kalahari Minerals and Extract Resources agree to merge
by Ian Mclelland

Kalahari Minerals (AIM: KAH) and Extract Resources (ASX, TSX: EXT) announced this morning that the two companies had agreed to merge.


Kalahari Minerals already hold a 39.11% interest in Extract Resources, and both companies are focused on mineral exploration in Namibia. Both companies also share a number of directors, and considering the current tight environment for fundraising, both companies also share a commonality of having healthy cash balances considering neither is generating any revenues yet.


The announcement this morning stated that Kalahari would issue 1.6 shares for every Extract Resources share, and that the combined company would be listed on the ASX and AIM, implying that Extract would drop its listing on the TSX. The combined company will also start life with approximately £15 million in the kitty and is likely to have a market capitalisation north of £100 million.

So should investor’s be pleased about this update? In a nutshell, yes.


Both companies serve to benefit from this transaction, assuming it goes through unhindered. The two companies overlap geographically, and could save considerable amounts on the corporate and administrative front, not to mention pooling their combined expertise, manpower and cash resources into one company. There are many other benefits too.


While Extract Resources has witnessed nothing short of excellent drill results from the Rossing South Uranium Project in recent months, its sole focus on uranium has influenced the share price, as the price of uranium has pulled back considerably from its peak in 2007. Extract has defined a JORC compliant resource of 25.1 million pounds of U308 at Ida Dome, but recently stated that its “preliminary exploration target” at Rossing South is an impress 126 to 198 million pounds of U308, so the potential is enormous.


Meanwhile, Kalahari, which holds a number of quality assets, particularly copper interests, has arguably been suffering from an identity crisis, as its large investment in Extract Resources has dedicated its own share price movements. Kalahari’s primary goal is to define 250,000 tonnes of copper metal at its Dordabis and Witvlei Projects.


Bring the two companies together, and you diversify away from being essentially a one commodity play, to a multi-commodity play, whose key project has the potential to be a world class uranium project. But while you expand your exposure to uranium, copper, lead, zinc and gold, the group as a whole retains a relatively tight geographical footprint in Namibia.


“We believe that simplifying our corporate structure and combining the resources of both companies will deliver short, medium and longer term benefits to shareholders of both companies” said Mark Hohnen, Executive Chairman of Kalahari.


Dropping the TSX listing probably makes sense too, as the management of the two companies are essentially Australian, but retaining an AIM listing can come in very handy indeed when serious amount of project development capital is required. Based on today’s new release, the combined entity believes that Rossing South will be rapidly moved towards a Full Bankable Feasibility study, which precludes a mine development decision.


“Critically, shareholders of both companies will retain their exposure to the Husab Uranium Project, particularly Rossing South, and Extract's shareholders will gain access to our portfolio of copper and base metal prospects in Namibia. As one of the largest uranium explorers by market capitalisation on AIM post the Restructure, we can look forward to developing all our projects with support and confidence” the company added.


Under AIM Rules, the transaction is considered a reverse take-over for Kalahari, which means the company’s AIM listing will be cancelled, and then the new entity will have to reapply to admission to AIM. Both Kalahari and Extract will also hold AGM or EGM’s to seek shareholder approval for the deal.
Assuming it all goes smoothly; the combined company should be a stronger more determined company with the assets to deliver substantial value.