Exploration Insights by Robert Tyerman

Uranium continues to fascinate the market, especially the quadrille around Namibia’s potentially world-class Rossing South deposit and its owner, Aussie-quoted Extract Resources. Our old favourite Kalahari Minerals, with 40 per cent of Extract, has lately been testing new highs in the region of 142p, nearly ten times our first recommendation at 15p three years ago and perhaps now a case for partial profit taking.

Less favoured as yet has been Polo Resources with nine per cent of Extract and chaired by Stephen Dattels, who masterminded the sale of Namibian uranium play UraMin’s sale to the French Areva group for £1.6 billion. Dattels is now on the board of Extract, which has already announced an estimated 267 million-lb U3O8 resource at 487 parts per million, with an increase to 500 million lbs seen as plausible, making Rossing South an important deposit, next to mining giant – and 15 per cent Kalahari shareholder – Rio Tinto’s long-established Rossing mine.

With heavy corporate manoeuvres under way, Polo’s managing director Neil Herbert suggests a sovereign wealth group approach for Extract might make sense, at a time when it is being suggested that utilities should consider securing their raw material supplies by direct investment. Among Polo’s other uranium-linked holdings is a stake in Down Under-quoted Berkeley Resources, with a £19 million option on a Spanish uranium mine with U3O8 resources of up to 18 million lbs, which could be producing two million lbs annually from 2011, or four million lbs if heap leaching were introduced.

British Virgin Islands-registered Polo also has significant holdings in fast-growing producer of Australian coal Caledon Resources, now 53.5p on AIM, and risky but potentially exciting Bangladesh coal play GCM, formerly Asia Energy, at 83p.

Despite current economic uncertainties, the long-term outlook for uranium and coal in some parts of the world is likely to hold up relatively well, but the stock market remains cautious. At 3.88p, well off their 12-month high of 8.63p, Polo shares could repay a recovery punt for the brave.

Nighthawk raises £22.4m
US-focused oil hopeful Nighthawk recently raised £22.4 million at 35p to drill at Jolly Ranch in Colorado and elsewhere. The AIM-quoted company says the money – more than a fifth of its present market value – will underwrite a 22-month development programme, which will include drilling 20 wells and building production facilities at Jolly Ranch.

Nighthawk has an estimated 1.46 billion gross barrels of oil in place at its Jolly Ranch and Craig Ranch fields. At 43p, against a 12-month high of 87.75p and a low of 22p, Nighthawk, though obviously speculative, might bounce further if its luck holds.

Medusa still growing
Australian gold play Medusa Mining increased second-quarter gold output from Co-O in the Philippines 25.5 per cent to 16,009 oz and has increased its planned Phase 1 production expansion to 60,000 oz a year ‘ahead of schedule’. The company estimates that costs, before capital expenditure and finance, are down to $198 an ounce, against a current gold price of $949.

Medusa says it has doubled its reserve base to 500,000 oz at a respectable grade of 14.9 grammes of gold per tonne of ore and lifted its resource base 60 per cent to 1.38 million oz of gold at 10.8 grammes a tonne. Citing a cash balance of £6.5 million, the company says the second expansion phase to raise gold production further to 100,000 oz a year in early 2010 is ‘on schedule’.

Recommended by Growth Company Investor at 27p three years ago and highlighted recently at 125.5p, Medusa shares have now reached 136p, with analysts expecting earnings to double to 21p a share in the year to next June. Those comfortable with the unavoidable sector risk should hold on for now.