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Mike Magrum of Xemplar Speaks to Proactiveinvestors

If you would like to listen to this interview and read at the same time, please click here.

So Mike, thank you very much for joining us for this interview.

Not a problem; my pleasure to be here.

Mike, it's unusual for a company listed in Canada to be interested in Uranium in Namibia.  What's the attraction of Namibia?

The attraction is a very large Uranium deposit.  And the three most prospective areas in the world to be looking for Uranium that have the potential to hold the very largest deposits are Canada, Australia and Namibia.

The Namibia landscape is very positive in that you can get a mining permit in Namibia in a matter of two years.  Where in Canada and Australia you'd probably be looking at 10 to 15 years to get the same permit.

So when we were assessing where in the world we wanted to be looking for Uranium, it wasn't just a matter of finding the very large Uranium deposits.  It was also the matter of finding Uranium deposits that can be put into operation very quickly and thereby be more valuable.

Please give us a brief introduction to Xemplar Energy and its business strategy Mike.

Well, our business strategy is obviously to find Uranium deposits, and when we first went to Namibia, it wasn't just a matter of finding a deposit that could turn into a mine.  We were more interested in finding an entire district that had the potential to hold many mines; whether half a dozen, a dozen.

We wanted large deposits and we wanted to control a very large land area, like I said, that would have the potential to hold a number of deposits.

At the present time Xemplar is the largest holder of nuclear fuel permits in Namibia.  So when we first went into Namibia we were looking for the big elephant.  We didn't want to be saying "Oh, maybe we have an extension of somebody else's deposit."  We wanted to go in, hopefully find very large deposits, but also have the potential to find a large number of them.

Unfortunately, when we started working in Namibia, we were going through government files and low and behold, the government had identified a new area that had potential pre-Uranium. We went out and flew an airborne survey, which is an aircraft flying over the ground trying to detect radioactivity which is a sign for Uranium.

They found this in spades, and luckily for us nobody had ever bought a copy of that particular map.  It was one of the things the government did a great job on, the price of the Uranium was low, and because it was out of the spotlight, nobody paid any attention to it.  And I'll say it was partly good work but more importantly a lot of good luck on our part, that let us discover this information and capitalise on it.

Xemplar has identified five zones of mineralisation at Aluriesfontein on the Warmbad prospect and three zones of mineralisation on Big Yellow at Warmbad.  What progress has been made with drilling Mike?

We're very aggressive in our drilling programme.  The company owns and operates 11 drills of its own, and having acquired these drills we can now drill for half the cost that a contractor would charge us.

Now, when we've outlined five zones at Aluriesfontein and three at Big Yellow, we've only scratched the surface.  We've only really explored about 20% of our property and are in the process of looking for more.

So, you know, we've got these eight zones outlined that we're drilling, and to put it in perspective, when I first went to Namibia and went onto the property, I had never seen anything like this.  I was walking across hundreds of metres of mineralisation.

The instrument we used for checking for radioactivity is a Spectrometer, and it's screaming away, and I'm going "Wow, this is one of the most beautiful situations I had ever seen."  And what really makes it nice is that as we drill, we are confirming what we're seeing on surface and you know, when I had mentioned earlier that Namibia is one of the places where you're going to find large Uranium deposits, it's nice to be able to see the signs on surface, drill underneath, confirm what you've seen on surface and say "Yes, this has the potential to be a large Uranium deposit, and I'm one of the guys doing it."

What else has the Warmbad prospect got going for it Mike?

Well, first of all I always want to emphasise that it's got the potential to hold large Uranium deposits.  But it has a couple of other advantages also.

Namibia is a country where the usual problems for developing a mine are a supply of water and a supply of power.  In our case, our project is situated adjacent to the Orange River, which is one of the large rivers in Africa, water flows year round.

And secondly, the National Power Grid runs right through our property.  So, even though there are shortages of water and power, to a large extent these problems are not a big issue for us.

What is the situation with the other 6,000 square kilometres of prospect that Xemplar has following on behind the Warmbad prospect Mike?

We're carrying out exploration on most of the project.  Our northernmost project is in a park, and we don't have permits in hand yet.  We've completed all of our environmental reports and have submitted them to the government, and I'll actually be meeting with the Mines Minister in about two weeks to review all of this.

Our second project that we are working on away from Warmbad is the Cape Cross, and this is in what's called the Uranium Corridor, where all of the large Uranium mines in Namibia are found.

We've done some preliminary work on the property, we've got some outstanding targets and our only problem is prioritising between that and Warmbad. You know the old expression "My cup runneth over”; here I am with super targets and I've got an internal quarrel on which is the most super of the targets.

So, you know, we're in good stead here, we're obviously moving forward on it, but the Warmbad is our first priority.  The last project away from the Warmbad is the Aus-Garub.  There we've also done preliminary work.  It's part of a process and in our business you never want to fall in love with the first nice target that you find.

You have to keep your research and development going.  You never know, you might find something that's 10 times as good than what you've already got.  So, aggressive work on Warmbad and a steady stream of generation of zones on all of our projects.

What is Xemplar Energy's financial situation Mike?

We're in very good shape financially.  We've got about C$14.5million in the Treasury, and we're spending about $500,000 per month on exploration.  As I mentioned earlier, we own our own drills, so we're probably doing C$1million worth of work for C$500,000, and at our present burn rate we've got enough money for at least two years of exploration.

What can investors expect from Xemplar Energy over the next 12 to 18 months Mike?
Well, I'm very confident in saying that we'll keep producing outstanding drill results as we have been doing.  The game plan over this period is to carry out three-pronged exploration on Warmbad.

The first is to generate new zones, and by a zone I mean something that has huge size potential.  The second prong of our approach obviously is to do wide-space drilling to show that the targets have the potential to be of huge size, and when I say huge size, we have to keep in mind that the grades of the Uranium mines in Namibia are quite low, in sort of the 1 to 300 parts per million range.

Our numbers are in the sort of 100 to 180 parts per million, and I think that a minimum sized deposit in Namibia would be in the order of 50million pounds.  So we have to be quite selective to show that whatever we want to work on has size potential.

So, as we develop the zones, that's the criteria that I need, and once we've shown that the size potential is there, the next step is to do closer space drilling to define a resource.

So in the next 12 to 18 months the game plan is start coming up with numbers that can be put on paper and show that we potentially have a deposit.

One of the things that's really moving in our favour at the moment, and has been reflected in the market just in the last week, is the fact that the Uranium commodity price has finally stabilised and started moving up. And, you know, unfortunately for people in the business, everybody pays attention to the start price of Uranium, which is currently in the low forties, where the long-term price that is the number that mines deal with, the actual price is about $70 per pound.

But, as we know, perception is everything, and it looks like the worst of the rout in our business is over.  So Uranium prices moving up are a very positive development for us.

Mike, tell us about Xemplar Energy's capital structure.

The company has 120million shares outstanding, or I should say approximately 120million outstanding, and fully diluted – we're a little over 130million.  By fully diluted I mean shares that are available under stock option plans and warrants from previous financing.

The majority of these options and warrants range between $1.15c and $3.75c.  So we don't have any big overhang of cheap stock that's overhanging the market.  We're presently trading in the 35c to 45c range.  I've been travelling, I think we closed at 39c yesterday but I'm not sure, so in the high 30c/40c range.

Does the Xemplar team have the right depth and blend of experience to make the company a success Mike?

Absolutely.  We're an exploration company and all of our people are either exploration or business backgrounds.  Two geologists on the Board of Directors, myself and Dr. Mel de Quadros.

In the field we have 17 geologists.  Two of the most senior geologists are South African and each of them has 30 to 40 years experience looking for all commodities, but particularly Uranium, in Southern Africa.

So, not only the technical know-how, but also knowing how to work in Africa.

Are community relations an issue in Namibia?

Only from a very positive sense.  The area that we're working in is basically very poor farm country.  So the local people that come to us have an opportunity for a job, for training and for a good lifestyle in the camp.

Traditionally these people would be working as labourers on a farm for next to nothing in wages and room and board.  Working for us, their wages go up probably by a factor of at least 10 times as a starting wage and the food in our camp is much better than they'd get working anywhere else.

Is Namibia well understood as a place to be in the mining business by investors in North America and Europe and what would you want better understood about Namibia?
Basically, Namibia is, you know, for those in the know it's described as the Switzerland of Africa.  But in a North American perspective it's not very well understood, and in Europe it's mainly German tourists that travel to Namibia, it being an ex-German colony.

But it's often lumped in with South Africa and it has the same mining potential as South Africa, but more importantly the country has a very small population, only 2million people.

So, even though you have the disparities between the rich and the poor, you don't have the gigantic shanty towns that you have in other parts of Africa.  Because of that, any economic development, including Uranium mines, is viewed as a very positive economic development.

The country has a history of Uranium mining.  The Rossing Mine, which is controlled by Rio Tinto, has been a huge contributor to the Namibian economy, has never had any environmental problems.  Because of that everybody looks at us very favourably because here's a positive industry that the country wants to support and sees it contributing to the local economy.

What are your thoughts on the medium and long term prospects for Uranium Mike?

I really think that as a commodity Uranium has the brightest future of all commodities.  In the present situation, the nuclear reactors are consuming twice as much Uranium as is being produced.  The shortfall has been made up from inventories for utility companies and from highly enriched Uranium from Russia, which is being downgraded into nuclear fuel.

The Russian supply is expected to end very soon and, you know, just as an example of how much Uranium you need, Arriva, the large French nuclear company, has bought a Uranium deposit in Namibia for $2.5 billion.  Subsequent to that, they sold four nuclear reactors to China and the Chinese are now asking for an assured fuel supply over the life of the reactors.

So Arriva was willing to commit a 20 year supply of Uranium, but they had to commit one third of this deposit that they had just paid $2.5 billion for.  Keeping in mind that longer term China intends to build at least a couple of, lets say 200 nuclear reactors, you can see the potential.

I just noticed in the news that China has 24 reactors under construction and announced the expansion to add five more to that.  So I'm just mentioning the potential for China without, you know, taking into account India and all of the other countries that want to be building nuclear reactors.

I think that once the current financial crisis is over and the lending markets open up, I think they'll be a lot more nuclear reactors announced.  There will be very much a shortage of pounds in the ground that they will need to support these reactors.  So I see a real booming business for us explorers in the Uranium field.