discussion on takeover price, page-2

Where I see EXT heading for the rest of the year. A reply to a query on another forum:

xxxx, I'll have a go at setting out how I see EXT progressing over the rest of the year. You can make up your own mind then as to whether your nerves are settled or not. Please note that I am quite conservative in my outlook and forecasts (at least I think I am).

Firstly, I'd have to say that your situation is not unique. There are plenty of us who've seen EXT rise and rise, and now fall and fall, and we too wonder every day what to do next. I think most of us wish we had a time machine, to sell a few more at the top and to buy up now, but that is investment reality.

Today's share price action shows once again how strong the $7.00 level is as a support. There are few sellers willing to go below that level, but buyers are there to soak up any offers. Fingers crossed, I see $7 as a very strong resistance and I do not expect the share price to be below that. I think, and hope, we have seen the bottom.

Looking at the big picture from the market's viewpoint, EXT has a JORC resource of 292 Mlb of uranium, released about 10 months ago. Since then there has been more drilling but no news for a busy trader or analyst. EXT has plenty of cash and a strong drilling program, so they probably have an expectation of an upgrade sometime, but it is not enough to excite them right now.

The company has announced a target of an extra 185 to 285 Mlb - taking the total to a range of 477 to 577 Mlb. My own analysis of the drilling so far is a total of 442 Mlb, based upon drill reports already released. I expect that there is a good two months of drilling reports we have yet to see (due to the time it takes to bag the sample, fly it to Perth, assay, and write up the report). The new JORC should be released 3Q this year (ie July, August or September) according to the company. Consequently, my expectation is that we will be on the high side of the estimate, and in fact my personal opinion is that we will exceed it slightly, say 550 to 600 Mlb.

Back to the analyst/trader perspective. There is almost certainly a premium put into the share price currently for a resource upgrade, but I estimate this premium is based upon an upgrade of no more than 50% to say 450 Mlb. So anything higher should move the share price. If I am right and we get say 600 Mlb when the market expects 450 Mlb, in theory the share price should move up by at least a third. So my expectation is that the share price should be at least $10 after the JORC upgrade (assuming a share price of about $7.50 before the upgrade).

The JORC upgrade, if it exceeds expectations, should focus attention once more on EXT. We will probably see increased speculation about possible takeovers, and an increased awareness that the size of EXT has barely been uncovered. At 600 Mlbs (again, if I am right) EXT will be the largest purely uranium resource in the world. More attention will be paid to the expected cost to extract the uranium, and with the DFS due in the 4Q of this year I can see that the share price will hum along quite nicely for the rest of the year.

We may also see a confluence of events in the uranium market that should highlight EXT's financial advantages. The current low uranium price has made many mines uneconomic (witness the implosion in Bannerman's share price) and if EXT's costs are as low as expected it will show that Rossing South can be mined profitably in good times and in bad. The heavy tax impost on Australian resources should see speculation about whether BHP's Yeerilie and Olympic Dam expansion will go ahead, and Rio may put plans to expand production at ERA on hold. Even if the tax is modified eventually the damage has been done to Australia's sovereign risk and international investors will look elsewhere for projects. Australian companies that have resources entirely overseas, such as EXT, should remain unaffected.

One of the concerns you mentioned was that a low ball offer of $8-$10 would be accepted by desperate investors. I see no chance of that occurring. EXT will only be taken over if the price meets the expectation of Rio Tinto (holding 15% of EXT) and Kalahari (holding 40%). They know the score and will not allow a rival to takeover EXT on the cheap. In any case, our own Board would not be doing their job if they didn't point out how much more uranium there is in Rossing South, and how a low ball offer could not be recommended.

At the end of the day, Rossing South is a phenomenal find that will produce uranium for decades longer than any other uranium mine, at a price that is very much at the lower end for extraction. It is my opinion that the share price will be in excess of $10 by the end of the year, and of course if there is any movement on the takeover front I expect it will be much higher.