comsec initiates coverage, page-7

Extract Resources Limited: Initiation of coverage
EXT: 16/8/07 Last Traded: $0.50 Sector: Basic Materials Market Cap: $100m
Summary of previous report date 15/8/07
EXT: ACCUMULATE / OUTPERFORM Valuation: $0.88
CommSec’s base case valuation of 88c is based on
1. Assumed $65 uranium price, while current price is $105
2. sales of 2.0Mlb a year
3. cash operating costs of US$ 23/lb
4. cap.ex $A 225m
5. Resource 45Mt at 0.03% and recovery of 85%.
EXT’s resources are in Namibia, next to RIO’s Rössing mine to the north, Paladin’s
(PDN) Langer Heinrich mine to the east, Bannerman Resources’ (BMN) to the west,
Nova Energy (NEL) / Toro Energy (TOE) / Oxiana Resources (OXR) to the southwest
as well as Forsys (TSX : FSY) and Uramin (AIM : UMN, under bid from Areva)
nearby.
CommSec expects EXT to begin production at the end of 2010, which offers
significant potential to secure prices better than CommSec’s forecast as the market
for uranium oxide concentrate is still expected to be in deficit at that time.
There is significant upside potential from extra resources :
• EXT expects Ida Dome to be larger than CommSec’s assumed 45Mt
• At Rössing South, which appears to be a 15km extension of the RIO mine; and
• Hildenhof, which appears to be an extension of BMN’s (market cap $210m)
Goanikontes project.
CommSec’s base case valuation is risk weighted with only 75% of the DCF of the Ida
Dome project included in our valuation.
CommSec initiates coverage of EXT with an Accumulate recommendation,
recognising the significant risks in our valuation.