report dated 11 jan 2008 from far east capital

Available on the company website:

11 January, 2008 Analyst: Warwick Grigor
This research is provided in good faith from sources believed to be accurate and reliable. Far East Capital directors and employees do not accept liability
for the results of action taken on the basis of the information provided or for any errors or omissions contained therein. There are no recommendations to
deal in the stocks mentioned herein. Readers should consult their professional financial advisors before acting on information herein.


COMMENTARY
Uranium Sector
ASX Release
The Mining Investment Experts

Contact Uranium Ltd (“CTS”)

“Impressive Cash Flow Potential From High Tonnage/Low Grade
Heap Leach Option”

Update Following Discussions with the Company

It seems that the market didn’t like the ASX of 28/11/07, judging by the way the shares were sold
down. At the time, we released an initial assessment, which is in blue print at the end of this
update. We have had discussions with the Company to clarify our thoughts. The main points to
come out of it were;

• The use of the 30 ppm cut-off grade – there is no geological boundary with Corachapi
which results in a natural, physical cut-off that is appropriate. Rather, the mineralisation
gradually diffuses into the country rock. The idea of a 30 ppm calculation was to get an
idea of the boundaries of the mineralisation rather than work to an economic cut-off. This
may have confused the market into thinking that it had suddenly become a low grade
deposit.
• The appropriate cut-off grade is yet to be determined. Is it better to have a high cut-off
grade, and a smaller richer mine with conventional milling, or a much larger larger heap
leach operation? Various studies will be conducted during 2008 to answer this question.
• We have run our own estimates for a 2.5 mtpa heap leach operation with a head grade of
400 ppm. The numbers look very impressive. The gross cash margin on today’s uranium
price suggest cash generation of better than 80¢ a share (pre-dilution for capital
expenditure of $50m). Cash operating costs would be less than US$20/lb.
• A summary of the parameters;
• Capital Cost A$50m
• Cash Operating Cost US$18/lb
• Method Open pit (rippable), heap leach
• Head Grade 400 ppm
• Recovery Rate 80%
• Annual Production 800 tpa U3O8
• First Production 2011
• Uranium Price US$90/lb
• Royalty 5%
• AUD/USD 88¢

Comment : Investors were wrong to be spooked by the earlier announcement. There
was no downgrade implicit in the release. At these prices the shares look very good
value. They should be re-rated once the market gets its head around the real issues.


The following paragraphs will appear in the updated uranium paper, scheduled to
be released next week.

“CTS is in the middle of a 180 hole drilling program at Corachapi in Peru, where it
has previously announced a 3.79 mt resource at 1,150 ppm. This figure was based
on a zone autunite mineralisation in a tuffaceous material with a 2.5 km strike, up to
106m in width and 20m in thickness. This was based on one drill hole, trenching and
three adits at 20-40m depth.
On 28th November, CTS reported the results from the first line of holes at the lower
grade, north end of project. A cut-off grade of 50 ppm was used in order to get an
idea of the size of the system. It is important to note that there is no geological
boundary at Corachapi. The grade just weakens as you go further out into the
boundaries. This means that CTS will have the flexibility to select a mining cut-off
grade to suit a variety of styles of operation.
It seems that CTS may go for the heap leach route and aim for a large tonnage low
grade resource. A 2.5 mtpa operation with a head grade of 400 ppm could be
possible, with a mine life in excess of seven years. This could enable lower capital
costs of about US$45m. Operating costs could be kept to $10-15 pt due to the ore
being easy to mine – rippable with little or no drill and blast. A project of this scale
could produce 800 tpa U3O8 at cash costs of approximately US$22/lb. At recent
uranium prices this would give a cash generation ability of approximately $130m or
80¢ a share i.e. a cash generation multiple of 0.5x.
CTS has conducted bulk sampling on the Kamushanovskoe uranium project in the
Kyrgyz Republic, taking five 30 kg samples from pits adjacent to drill holes. The
average grade of the samples was 480 ppm. Uranium recovery from the peat ore
ranged from 77% to 89%, depending on acid concentrations and temperatures.
Snowden calculated an inferred resource of 426 t and an indicated resource of 349
t, all at a grade of 370 ppm, using a zero cut-off grade. Most of the resource is
within 5m of the surface over an area 6.5km x 0.5km. A further 240 holes are to be
drilling in 2007.
On the basis that CTS could use the Karabalta plant, approximately 100 km by road
from site, a treatment rate of 120,000 tpa could see production of 52 tpa U3O8 at a
cash cost of less than US$20/lb. The cash flow would be modest at $10m p.a., but it
would be a useful adjunct and technically simple.
Investment Perspective: The potential numbers on a heap leach operation at
Corachapi look simply stunning and suggest the shares are very cheap at these
prices. We should look forward to a rising share price as further drill results
confirm the size of the resource and as investors become more comfortable with the
heap leach concept. A multiple of the current share price should reasonably be
expected. (Disclosure: The author and associates own shares and options in
Contact).”


Assessment of Corachapi Drill Results
Released 28 November 2007


Total Drill Program 180 holes (10,000m)
Type HQ diamond drill holes
Rigs Two diamonds rigs, and third due to arrive soon

Holes Drilled 37 holes for 2,360m (average depth 63m)
Assays Received 16 holes (i.e. only 9% of the program)
Assay Method down hole gamma probe, 50 ppm cut-off


Observations
• The intersections are much wider than any previous information suggested, but the
extension are at a much lower grade. The width of four holes have been 34-54m,
and the grades 260-560 ppm; good grades but modest to low grade. These are
essentially outcropping.
• Note that a 50 ppm cut-off grade has been applied, which is very low. A 100 ppm
cut-off is used by some, like Bannerman, for an alaskite orebody that will have a
mine grade of 200-300 ppm. Most other orebodies would be using a 300 ppm cut-
off.
• The report seem to be saying that the top 20m of the zone, which hosts the
previously announced higher grade tonnage, is as expected. The lower grades seem
to be deeper down.
• Some narrow high grade intercepts were recorded, including 2m at 4,250 ppm and
2.2m at 1,190 ppm.
• Samples are being sent to Australia for XRF assays.

Conclusions
• After the first line of holes, we can say the depth extensions suggest the system is
much bigger than previous stated
• We would like to see what the intercepts are like metre by metre down hole. What
would be the intercepts if a 100 ppm cut-off was used?
• There were meaningful results in about 7 holes, the rest were too low grade to
worry about.
• The high grade core focuses on a 100m wide zone to the west. Then there is a bald
patch of 130m going east, followed by another 75m wide zone of better grade. To
the east of this it seems barren.
• Whilst the Company describes the results as “excellent”, I would be inclined to say
they are positive and encouraging. A large low grade system would be good at high
uranium prices, but the higher grade core is the key. There is a distinct advantage in
having the high grade zone near the surface as that would justify the development
and provide very strong cash flow, early. The deeper, lower grade material could be
mined later, after the mine has achieve capital payback.
• Remember that this is the first line of holes and only constitutes 9% of the program.
It is too early to draw conclusions other than to say this is a bigger system than thought, and it offers flexibility in terms of cut-off grades. Shareholders should be
pleased that this is a real project.