forte banks $12 million, page-2

here is a summary from a broker report released today

should get a bit of a boost (up 8% in london at the moment)

note the report is UK based so valuations are in pounds

A TALENT FOR DISCOVERY

The company recently released a maiden uranium resource of 11.6Mlbs U3O8 in Guinea. We expect this resource to be increased in the short term and view Firawa as a 20Mlb project now with upside next year. We apply a $5/lb valuation to arrive at our short-term price target of 12.7p per share, roughly twice the current price. A drilling program about to start at the company’s other project in Mauritania is designed to define another JORC resource, and we see potential for the company to have 40Mlbs of resource by the year’s end, in which case an 24p per share target could be justified.

Forte has announced a maiden uranium resource of 11.6Mlbs U3O8 at its Firawa project in Guinea. We see the potential for this to be increased in the short term by recalculation with a new density assumption, and in the medium term by additional drilling. Our assessment of drilling information leads us to believe that 20Mlbs is almost certain at Firawa, and on applying a $5/lb valuation, we arrive at our target price of 12.7p.

The company is about to start drilling at its other high priority project, Bir En Nar in Mauritania, a program which is designed to produce a JORC-compliant resource by the end of this year. Preliminary drilling here has returned very high grades (up to 18,000ppm) over considerable strike lengths, and we regard another 20Mlbs here as highly probable. Forte Energy therefore stands a reasonable chance of holding a combined resource of 40Mlbs by the end of 2009, justifying uplift to 24p per share, over 3.5x the current share price.

In general, we do not favour valuation of mining companies on the basis of in-situ resources; however, we regard uranium as a special case, since major integrated utilities such as Areva could regard project economics as less important than the need to secure supplies to feed downstream businesses. Reactors cannot be built without fuel supplies guaranteed in advance, and a large global reactor order book is currently seeing considerable corporate and market activity in the uranium space.
Our $5/lb valuation is the average for the peer group.

Forte has entered into a cooperative agreement with its largest shareholder, Areva, allowing the latter to negotiate a buy in to the company’s Mauritanian projects if certain size hurdles are met. Under the terms of this agreement, if Forte meets its resource targets, payments to the company could be as much
as US$150m, increasing the possibility that it could get to production without the need for additional equity raisings.