drags great work

Exters,
According to recent press reports it looks like the inspection and expression of interest phase is now nearing completion and it seems that EXT has been inundated with offers of JV and an outright purchase of the RS deposit. Current management stand that RS is not for sale and EXT will develop deposit either on their own or in JV with one of the major industry players is an excellent strategy (smart, although unsurprising . Also appointment of T Green sends clear message that EXT are serious of going alone).

In essence what they told indirectly to the prospective parties is - " here is the information you need to do your homework and when you ready/serious, came back to us with an offer we can't refuse". I suppose the big question is which of these parties are likely to come back and with what types of offers/proposals. To answer this question I thought I will try to evaluate/review the key factors that may drive different parties either toward an acquisition path or the JV with EXT. The potential parties flagged in press reports and on this forum in the past include RIO, Areva, Cameco, Russia, China, India, Japan and South Korea.

Essentially I see three major themes likely to drive these parties to gain interest in the development of RS deposit. These are:

* Achievement of critical mass/scale of economies. This would include the following considerations

- geographic diversification,

- outright growth strategy (short and longer term) and credible project pipeline

- technological diversity (mainly at the mining level)

- diversification of the access to capital

* Security of supply. This would include consideration of supply at a national, supplier and at utility levels.

* Vertical integration. This is primarily relevant to major market participants.

As the list of observations made for each of the above listed parties is quite extensive, I have decided to post it as an attachment. By having it as separate document it can also be used as a framework for others on this forum to update, edit, amend and/or modify on regular basis, as necessary, based on new information coming to light and differences of opinions. By the way if my observations/conclusions turn out to be absolute rubbish, then I would hope the data collected will be of some use to others.

Note that I have assumed US$5 Billion as an ABSOLUTE Minimum takeover bid for Extract at current exploration stage. I do not see or can even contemplate SD and his team selling it for any less (unless they want to be the front runners for a trophy of the worst deal makers of the century). I expect that as EXT resources continue to increase over the next 6 – 12 months, the takeover offers will need to be raised to US$ 7 – $8 Billion range. Even at that level this would be an absolute bargain. As an example, if China is prepared to pay $3.5 billion for Felix resources which is expected to produce about 16 million tones of coal/annum by 2014 - sufficient to power about 4 -5 large thermal power plants how much should then EXT resources be worth if they could power 60 – 70 power plants for the next 50 - 60 years. Note that large coal thermal power plant would generally consume about 10,000 tonnes of coal per day.

I believe that if suitable bids will not arise, then EXT management should take longer term view (and not just a quick buck) and pursue the development of the RS deposit on their own, as there would be many parties interested in JV's and financing of the project. Anyway, whichever path the management will chose it will be huge win for all shareholders. Just consider this, between 2003 and 2007 the Cameco's share price increased 13 times. I'm not saying that we will see similar increases but certainly EXT share price of +$50 in 4 years time is more then likely. We should not forget that S. Galloway already indicated that the company may have two separate operations (I guess his reference to second operation means the UIS lease). I also expect that the production rate from RS to increase to at least 9,000 – 10,000 tonnes/annum. Hence, it is possible that by say 2015/16 EXT could be producing say around 12,000 tonnes/annum.

Since, it is a rather longish report I hope you guys are sitting in a comfortable chair and are able to spare about 0.5 hour.

Best regards to all,
Drag

Attached File(s)
EXT_Bid_or_JV25_09_2009.doc ( 135K ) Number of downloads: 31