September 3, 2009 / 4:17 AM / 9 years ago

DEALTALK-Mine find, Rio bid chatter propel Extract shares higher

(For more Reuters Dealtalks, click on [DEALTALK/])

* Shares have risen 635 percent since Jan

* Rio Tinto may eye bid in the future -sources

By Joseph Chaney, Asia Resources Correspondent

HONG KONG, Sept 3 (Reuters) - Investor enthusiasm over a recent find in Namibia by uranium miner Extract Resources EXT.AXEXT.TO and speculation of a takeover linked to the find have sent the company’s shares up more than seven-fold this year.

Rio Tinto (RIO.AX)(RIO.L) owns 15 percent of the company, and investment bankers familiar with Rio’s ambitions say the global giant may one day want to own the whole thing.

Shares of Extract traded at A$1.31 on December 31. On Wednesday the stock closed at A$9.63.

That extraordinary gain comes as Extract and other uranium experts say its Rossing South project could be one of the largest uranium deposits in the world, and analysts say speculation is mounting that a deal with a larger competitor may be in the pipeline.

Though Rio Tinto may ultimately bid for the whole company, bankers and analysts say, it would not happen immediately given that Rio has its hands full with its BHP Billiton (BHP.AX)BLT.L iron ore joint venture.

In its 2008 annual report, Rio said that Rossing Uranium — 68.6 percent controlled by Rio — will seek a joint venture agreement with Extract on the Rossing South project.

Kalahari Minerals Plc KAH.L, holds a 40 percent stake in Extract. Rio, in turn, has a 15.8 percent stake in Kalahari.

“There’s obviously a game that will be played out for Extract,” Paul Adams, head of research at DJ Carmichael told Reuters.

“In my view it is unlikely that Extract will be the miners of this project. It’s getting to a size where other parties are definitely going to be interested and that’s what we’ve seen. The battle of control for Extract is all around that.”

Last week the company, which has a market cap of roughly $1.8 billion, raised A$91 million for exploration — but the miner needs much more than that.

Regarding Extract, an Australia-based investment banker told Reuters: “Well, I wish I’d put ten grand in that a while ago.”

“I’d hazard to guess the project will cost somewhere around $500 million to build,” the banker added. “You’ve got a chunk of that already, but you’ve got some money there to rustle around for. Some sort of offtake financing deal will probably be the most likely.”

Extract itself says it needs more than $500 million. Last month the company estimated the Namibia-based deposit indicates annual production of 14.8 million pounds of uranium oxide (U3O8), with capital costs of $704 million and operating costs of $23.60 per pound of U3O8.

The investment bankers declined to be named because they were not authorised to speak publicly about the matter.

“We know that Rio is interested in a joint venture which they published in their annual report months ago,” said Richard Henning, a spokesman for Extract.

“We are not in a position to comment on any deals,” he added. “Any talk of Rio taking over the company is purely speculative.”

Rio Tinto did not return calls seeking comment.


In July, Extract said the Zone 2 inferred resource for Rossing South was 122 million pounds of uranium oxide (U3O8) at a grade of 543 parts per million (ppm), taking the combined Rossing South resource estimate to 267 million pounds at 487 ppm.

Including its Ida Dome project, Extract now has a resource of more than 290 million pounds of U3O8.

“These are incredible results,” Kalahari Chairman Mark Hohnen said at the time. “The 82 percent increase in the resource at Rossing South and the grade quality mean this project is truly world class.”

In addition to Rio Tinto, China may also be interested in Extract as it seeks to fuel the growth of its nuclear energy industry, one of the bankers said.

Australian uranium miner Paladin Energy (PDN.AX)PDN.TO, which has operations in its home country and Africa, is in talks with Chinese companies to strike a joint venture deal worth up to $450 million, its CEO told Reuters last week. [ID:nHKG150715]

Rio Tinto’s Rossing and Paladin’s (PDN.AX) Langer Heinrich uranium mines are also located in Namibia.

“There is no question there is a tremendous appetite for uranium and nuclear energy, in China in particular, but also in India in a nascent sort of way,” said one of the investment bankers.

“There’s a lot of dancing going on.” (Editing by Muralikumar Anantharaman)

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