There's something that's been troubling me for some time and...

There's something that's been troubling me for some time and I've yet to hear anyone else raise it.As we've been informed, Karoo is to be sold as soon as a buyer can be found at the right price, whatever that may be. There seems to be a lot of commentary here that suggests people are expecting this to a something of a windfall for the company or at worst a non-event if the proceeds are meagre.

My issue is that unless something has happened that I‘ve missed, we were to pay $50 million dollars for this prospective mine to ARSA. There was an initial payment of 1 million dollars in shares with a further $4 million being payable when certain regulatory mining approvals were granted. The remaining $45 million was due on completion of a Bankable FS and the securing of 50% of debt funding for building the mine. In actual fact I believe I seem to recall the terms being an escalation factor (interest) of LIBOR + several percent applying after January 2016.

I’m concerned about what happens to these obligations now that Karoo is to be sold. I’d have thought that if we weren’t going ahead, the rather sketchy details of the arrangement seemed to suggest we would forfeit the mine, handing it back having not completed the conditions under which we’d have ownership. Given that we appear to be trying to sell the mine, it is suggested to me the terms are such that we may actually own the rights and the accompanying liability to ARSA.

I can’t see any way the contract could be written whereby we would be the beneficiary of whatever proceed may come from the sale of the Karoo tenements. At best we’d be handing the money back to ARSA. At worst we’d be expected to clear the debt with ARSA (currently at around $53 million at a guess) from the proceeds and be left owing any shortfall. I don’t believe we’d get a serious offer anything like this in the current market given sovereign risk profile of South Africa at this point combined with the Uranium market sentiment. With Cameco putting mines with cheaper likely production costs than Karoo into care and maintenance at this point I can’t see how it could be sold for real money at all.

Maybe we can get a “buyer” who’d be willing to take over the current contract themselves (i.e. adopt the mining leases and the debt to ARSA in the event they ever push ahead with mining) with the escalation factor not being thought a particular problem. That would be a good outcome in the circumstances I think but I can’t see how any money would change hands for the privilege. At least not in our direction.

Any other thoughts, opinions ?