ITOCY Itochu Corp (PK)

Extract Resources Ltd. (EXT.AU) said Wednesday it has begun talks with potential lenders to its US$1.66 billion Husab uranium project in Namibia, in a major test of financiers' appetites to support new mines in the wake of Japan's nuclear crisis.

Perth-based Extract has approached several financing agencies and banks to support its plans to process 15 million tons of ore annually at Husab, which would make it one of the world's largest uranium mines.

"Extract intends to finance the development of Husab with a combination of debt and equity," Chief Executive Jonathan Leslie said in the company's annual report.

Spot uranium prices continue to trade near lows reached soon after radiation leaks and explosions at the Fukushima Daiichi nuclear power plant in Japan raised fresh concerns about nuclear safety. Long-term contract prices are also down nearly 12% since just before the earthquake and tsunami struck Japan on March 11.

Although analysts predict the spot uranium price could fall as low as US$45.95 a pound over the next 3-6 months from US$52.75/lb currently, reflecting market concerns about weak demand for the nuclear fuel in Japan and Germany, the long-term contract price is expected to stay in a US$60-US$75/lb trading band.

"This level should support development decisions at a number of advanced uranium development projects, particularly in Namibia, such as the large-scale Husab project of Extract Resources," Sydney-based Resource Capital Research wrote in a report this month.

In February, Extract said it was talking with Rio Tinto PLC (RIO) about the potential to develop Husab jointly with Rio's neighboring Rossing uranium mine, which is already in production.

However, Leslie reiterated Wednesday that Extract is "confident that the fundamentals underlying the project will support standalone financing".

These fundamentals include a mine life of over 20 years, competitive cost structure, and a robust long-term uranium market as China, India and South Korea build new nuclear reactors, he said.

Extract remains in talks with potential buyers over long-term offtake and partnership deals supportive of equity and debt financing, he said.

Japanese trading house Itochu Corp. (8001.TO) last year built a 10.3% stake in Extract, while Leslie said Extract remains in talks with Namibia's state mining company Epangelo about its potential involvement in Husab.

In August, Extract said uranium reserves within Husab's zones 1 and 2 are now estimated at 280 million metric tons, 37% larger than previously thought, and the ore grade was also better than expected.

-By David Winning, Dow Jones Newswires; +61-2-82724688; david.winning@dowjones.com

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