fundamentals analysis

I spent the long weekend going over everything I have on EXT. This included looking at every drill report and putting all data into a large spreadsheet for analysis. I wanted to check all information for myself, to make an estimate of Zone 2 resources, and to look at each asset of the company and come to a conclusion on its fair value.

All work is my own, and I am not an expert. So you should not use this information at all without consulting an expert.

Zone 2 Estimate

The area assumed for the zone is shown in the figure below. Holes on the edge of the zone were assumed to have ore extend a further 20 m beyond the boundary. A specific gravity of 2.65 was used, the same as that used in the NI 43-101 Report on Zone 1. Corrections were made to account for drilling angle.



The result of the calculations shows a resource estimate of 157 Mt at a grade of 392 ppm, resulting in 136 M lb of U3O8.

I don't know how that compares to earlier estimates by others on HC - too many useless posts to wade through - but I would be interested to know.

EXT Value Estimate

Starting with Zone 1, I used a value of US$10 per lb of uranium. This is a high premium over recent previous purchases, but is warranted by the fact that Zone 1 is much larger than previous purchases, it is a JORC resource, has exceptionally high grade, is easy (cheap) to recover with little over burden, is close to existing facilities, and is eagerly sought by several buyers. I am also factoring in a probable increase in uranium prices over the next 5-10 years which should provide a boost. This is a world class resource and will command a higher price.

Next to consider was Ida Dome. This is a much smaller resource with lower grades. Although comparable to other companies in the area, it seems unlikely that Ida Dome would be mined by an owner that already has Zone 1 and 2. It's not valueless - it might be sold off separately, for example - but compared to Zone 1 and 2 it's price should be less. I assumed US$5/lb.

Zone 2 is not yet JORC defined and is deeper, requiring more over burden to be removed. However it is even larger than Zone 1 and in the centre has exceptionally high grades. A lower price of US$7.50/lb was assumed based mostly on current uncertainties over the exact extent of the resource (and my own calculations, for example). Further drilling definition may allow this to be raised.

Lastly there is the further 9 km that is yet to be explored between Zone 2 and Ida Dome. There is a very good chance that some uranium is there, as the same geological structure continues from Rossing through Rossing South Zones 1 and 2 down to Ida Dome. However it may not be economical to recover, or there may be other problems. OTOH, it could be even larger and better than Zones 1 and 2. I assumed a 50% chance that the resource would be of the same quality as Zones 1 and 2, and then halved that again (becoming 25%) to arrive at a price of US$2.50/lb on what might conceptually be there. To determine what might be there I assumed that the 9 km unexplored area would have resources (per km) similar to Zones 1 and 2, which extend over 6 km. Note that it is unlikely that this area will be fully explored for many years, probably only enough to show the presence and continuation of the uranium orebody(s). Therefore the exact extent of this area will be subject to much guesswork. As confirmation comes in that uranium exists in this area, the price might rise, but is unlikely to become the same as that for Zones 1 and 2 without extensive definition.

Lastly there are assumptions on exchange rate and number of shares, and cash held by the company.

I have presented this information firstly without any account taken for Zones 3+ further south, then Zones 3+ are added at the end.

Exchange Rate AUD$0.70 = US$1.00
Number of shares 233 million

Ida Dome 25 Mlb @ 213 ppm @ $5/lb = $0.77 p/share
Zone 1 108 Mlb @ 430 ppm @ $10/lb = $6.64 p/share
Zone 2 136 Mlb @ 392 ppm @ $7.50/lb = $6.25 p/share
Cash $30 million = $0.13 p/share
Total $13.79 p/share

Zone 3+ 366 Mlb @ 411 ppm @ $2.50/lb = $5.62 p/share
Total including Zone 3+ $19.41 p/share

IMPORTANT: Any calculations such as this must then include a healthy discount to account for the uncertainties in the assumptions made, and also because a takeover and/or joint venture has yet to be announced, and may never eventuate. A discount of 50% might be considered by some to be prudent; others may prefer a greater discount.

At the current share price of $3.95, the share price is at a 71% discount (ignoring Zones 3+) or at a 80% discount (including the possibility of further zones below Zones 1 & 2).

The Baron