Kalahari confident Extract Resources will secure project finance for Rössing South

Coming away from a meeting with Mark Hohnen, Executive Chairman of Kalahari Minerals (LON:KAH), one can’t help feel optimistic about the company’s outlook over the next twelve months.

The prospects for Extract Resources’ (TSX:EXT, ASX:EXT) - whom Kalahari own a 40.9% stake in – Rössing South continue to look better by the day.  The next expected resource update in September, with both the size and grade of the deposit expected to increase, will solidify the project as the largest undeveloped uranium deposit in the world.

Indeed, just today Extract held their General Meeting, and reiterated the company’s rapid evolution due to the significantly large and high grade Rössing South uranium deposit. Stephen Galloway, Chairman of Extract, suggested “with expected production levels of 15 million pounds of uranium oxide per year, Extract is in a unique and privileged position, with the development of Rössing South on track to become one of the largest, stand alone uranium mines in the world”. He also confirmed that despite some recent speculation in the press, “dialogue between the Namibian government, Namibian stakeholders and Extract Resources, remain open and positive”.

Kalahari still expect the latest drill results to show the deposit has the potential to be one of the largest uranium projects in the world, and reiterated their expectations that the resource will be “north of 500 million pounds of uranium”. The last drilling update from the Rössing South project, released in February this year, already indicated some very upbeat numbers in both size and grade for the deposit, including 146 metres grading 663 parts per million (ppm) and 21 metres grading 2,003 ppm in Zone 1, while in Zone 2 it reported an astonishing 129 metres grading 1,415 ppm. These higher grade intersects have been emanating from the western flanks of Zone 1 & 2, where the mineralisation is also notably shallower. Hohnen admitted that the higher, shallower results had even surprised management, and also opened up an entirely new range of options for the project.

Since then, Extract has expanded its drilling and exploration programme, bringing the number of rigs at the Rössing site up from fifteen to nineteen, with additional exploration south of Zone 2 demonstrating outstanding grades and widths. Zone 3 is also emerging with further possible zones along strike and with an additional new high grade Zone of mineralisation south of Zone 3 discovered, supporting the potential for a Zone 4 with grades and widths “at least on a par with Zones 1 and 2”. 

Indeed, the potential for Rössing South is becoming so large, Hohnen hinted to Proactiveinvestors that not only is the company confident they can secure project development finance, they are even considering the possibility of two mines – one covering Zone 1 & 2, with the second operating in Zone 3 & 4.

This optimistic outlook for the project has not gone unnoticed by Kalahari, who have slowly been adding to their stake in Extract over the past few months, taking their holding from around 40.4% in February to a current 40.9%. Indeed Kalahari seem to be of the view that dips in the price of Extract offer buying opportunities for them to push their stake higher, and at least to date, show no signs that their appetite for additional Extract holdings are waning.

In addition to the optimistic view surrounding their Extract holdings, Kalahari have seen some interesting moves in their own shareholder directory of late. Most recently, Kalahari completed the second tranche of the sale agreement with APAC Resources (HK:1104), who bought 11.2 million Kalahari shares from Kalahari’s wholly owned subsidiary Coronet, increasing their shareholding to 21.585m shares, representing 9.55% of the company.

Mark Hohnen reiterated the significance of this to Kalahari, saying “APAC has a venerable track record in the natural resource sector, with its CEO, Andrew Ferguson, bringing a wealth of experience of the London mining arena from his six years as co-fund manager at City Natural Resources High Yield Trust”. He also noted that "APAC's strategic investment in Kalahari provides the company with an entry point to the Asian resource industry and in particular access to China, which I believe strengthens our position as we work together with Extract to develop the Husab uranium project”.

This follows on from the move by ITOCHU Corp. (TYO: 8001) earlier in the year, who purchased a 15% stake in Kalahari through its wholly-owned subsidiary Nippon Uranium Resources, from then significant Kalahari shareholders, including Emerging Metals (LON:EML) and Regent Pacific (HKG:0575). This brought about similar strategic links for Kalahari in the Asian market, specifically Japan, as that of APAC in the Chinese market. Looking forward, one could certainly be of the opinion that these links open up financing opportunities for Kalahari and Extract when required, allowing them to broaden any reliance away from Europe and into the Asian giants.

Rössing South is also favourably located directly south of the Rio Tinto’s (LON:RIO, ASX:RIO, NYSE:RTP) Rössing Mine, one of the longest running uranium mines in the world.  It is worth noting that Rio Tinto has been watching Extract Resources' progress with great interest, building a direct 14.7% stake in Extract, and indirectly through a 12.5% stake in Kalahari. Although Rio Tinto’s representative director, Chris McFadden, resigned from the Extract board in April, one could still be of the opinion that going forward into the second half of the year, Rio Tinto will be watching developments at Rössing South very closely.