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Xtract Resources boss outlines exciting growth strategy

Earlier this month we were lucky enough to catch up with Jan Nelson, boss of Xtract Resources. In this interview he tells Jeremy Naylor how the group plans very quickly to become cash generative, which will help fund a business that has significant short and long-term potential.

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Jeremy Naylor: Shares in London listed Xtract Resources (LON:XTR) are nudging near seven month highs as the recently appointed chief executive, Jan Nelson, continues to grow the company’s portfolio. Jan joins us now on the phone. 

Jan Nelson: Hi, Jeremy. Good to talk to you guys as well.

Jeremy Naylor: It’s been a busy time I know for you since your appointment in May, an event which itself took shares up to one year highs. Explain what you’ve been doing.

Jan Nelson: I think the first thing is we had a change in the strategy. Previously the company was focused on the oil and gas. We were looking at what resources would be in high demand in the future.  

From that we formulated a strategy that we wanted to be in the base and precious metal sector. We also decided that we wanted to identify assets that were in production or very close to production and could generate cash flow.

So, we defined that strategy, we had a few targets in mind and we then pursued tying those targets down. I think we’ve now announced to the market that we’re in the process of executing on that strategy.

Jeremy Naylor: Just briefly run through the assets now.

Jan Nelson: Well, first of all we’re in the process of securing the Chépica copper-gold mine, subject to shareholders approval in January.

That is a copper-gold mine in Chile that’s currently generating revenue from development but will start stoping in about a month’s time. Then it should generate in the order of about a million dollars in profit per annum, which is quite good for us; it gives us cash flow.

On top of that we are completing our due diligence on the Namakwa uranium deposit in South Africa. If we like the outcome of the due diligence, that could be in production in about 18 months from now. It's a surface, open pit uranium deposit. It only needs a plant to be built on it, which we can project financed and that will come into production.

Then we also have the Mejillones phosphate deposit in Chile. We need to do quite a bit of work on that, but there are some preliminary reports on it and it’s a huge phosphate deposit. That could be a real company maker.

So, I think we've got a nice pipeline of projects and the mine obviously gives us cash flow, and we can also put a team in place.

Jeremy Naylor: Yes, I was going to talk about the production as well. Is this all the funds that you need coming through from production to go into these new assets, or are you having to look for other funds?

Jan Nelson: We’ve secured the funds because you know the mine needs to be capitalised properly. If you're going to run the mine, the mine has got a good plant but there is a lot of money that needs to be spent on mine health and safety, development and also getting the right people in. 

We believe with the money that we’ve now secured we can capitalise the mine properly but it also gives us cash for other projects. Then subsequent to that we won't have to come back to shareholders for money again. 

The group will be properly capitalised and the mine will generate enough cash flow that we don’t have to come back to shareholders.

Jeremy Naylor: So, what's the message then for shareholders as we look out to 2014?

Jan Nelson: Well, I think it’s going to be a very exciting year. I think shareholders in Xtract have - a lot of these shareholders have come in at a much higher price than we are now. The previous strategy obviously, in terms of where the company wanted to focus in oil and gas, didn’t work out.

I think it’s an exciting year for them. There's a clear defined strategy. I think that they can see that we're delivering on that strategy. I think there's a good management team with a proven track record.

I think what they can look forward to is that we're actually going to grow the company in a very sustainable way. Cash flow within the next three months, no dilution and if we execute on the pipeline of projects, the share price will grow. Not only will it grow, I think we can also look towards a dividend in the future if there's sufficient cash in the company.

So, I think a real turnaround and I also think that Xtract will stand out from other smaller resource companies because of the fact it will cash flow.


Quick facts: Xtract Resources PLC

Price: 1.12 GBX

LSE:XTR
Market: LSE
Market Cap: £6.95 m
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