This report could be available on the web site tomorrow.
In the meantime some extracts:
"Summit Resources Ltd (SMM) INITIATING COVERAGE & VALUATION OF SMM S URANIUM DEPOSITS + EXPLORATION POTENTIAL KEY POINTS 77m/lb (35,000t) U3O8 Resource largest outside Rio Tinto & BHP Billiton Controls 7,000km2 of the Western Succession of the Mount Isa Inlier Assumed production by FY2010 A$420m capex for 4Mt pa plant Existing infrastructure and potential workforce nearby at Mt Isa Conservative valuation of A$853m or A$3.65ps fully diluted SMM are one year in a two year, seven million dollar, 30,000 metre drill-program targeting a number of advanced uranium projects with existing resources (e.g. Valhalla) as well as advanced exploration targets (e.g. Mirrioola). With recent drilling there is now sufficient information to commence geological modelling and to calculate a new resource estimate on the Valhalla, Andersons, Skal, Bikini and Mirrioola uranium deposits.
The SMM valuation is based on projected net cash-flows from a total minable resource of 69,250t of U3O8. Each JORC-compliant deposit (e.g. Valhalla, Skal & Andersons) was increased by 50% to account for extensional drilling success. Furthermore, three other Skaltype tonnage and grade deposits were included to account for the likelihood of a number of advanced projects into viable resources. Although this may seem a large increase in minable resources, we contend that based on our observations, this increase in estimation is still conservative with little meaningful uranium exploration occurring since the mid to late 1960 s.
SMM has control over a whole, well-endowed uranium province. The main risks to the company are in fact more political rather than financial. The uranium project appears to be relatively robust, with a five percent variation either in the U3O8 price, the exchange rate or the metallurgical recovery - having only a nine percent variance on the companies NPV.
The project is, however, subject to regulatory approval from the Queensland Labor Party. Recent comments by various Labor Party leaders (e.g. Kim Beazley, Martin Ferguson, Mike Rann) strongly suggest that the policy banning future uranium projects will be reversed.
We have assumed that there will be a change in Labor Party policy at the next bi-annual conference in April 2007, with the Queensland Labor Party taking a further six months to ratify the decision. Construction of a 4Mt per annum (pa) plant is estimated to take 18 months after that decision, with a two-year production ramp-up to design capacity.
Production estimated to be 2.5Mt pa (FY10), 3.25Mt pa (FY11) rising to an eventual 4Mt pa (FY12).
Production is estimated to continue at 4Mt pa until FY22, dropping to 1.65Mt pa in FY23, ceasing completely at the end of FY26.
Based on a 4Mt pa operation, for an extractable resource of 69,250t we have valued SMM at an after-tax NPV12% of A$797m or A$3.35ps fully diluted.
Incorporating an exploration coupon for controlling 7,000km2 of the most prospective base-metal province in Australia, a further A$56m or A$0.30ps fully diluted results in a final appraised value of A$3.65ps".
SMM Price at posting:
0.0¢ Sentiment: None Disclosure: Held
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(20min delay)