We conducted a site visit of the Husab Uranium Project in Namibia following our attendance at Indaba. We continue to believe that the project holds strategic importance in the uranium sector being the fifth largest uranium resource in the world. We believe that Extract could attract a takeover offer following the grant of its mining licence expected as early as the first half of this year. However, at the same time we have identified a number of risks/obstacles which Extract will need to overcome some of which could erode value for shareholders. At this stage based on our valuation the stock appears fully priced and as such we are downgrading our rating to HOLD with a $10.43/sh price target.
Husab Uranium Project of Strategic Importance: The Rossing South asset represents the worlds nearest term large scale option for nations/companies looking to secure uranium supply for their nuclear reactor growth plans. This has the potential to occur based on the trend of emerging nations (China, Japan, India, South Korea and Russia) making strategic investments to secure supply. We believe EXT has the potential to be acquired by a consortium of players given: 1) RIO has a blocking stake in the company and has the most synergies and ITOCHU has 10.3% 2) The +$1b to develop the project. Several Obstacles Remain Which Could Erode Value for Shareholders: We have identified several risks/Obstacles which have the potential to erode the value of the Husab Uranium project which we discuss in more detail in this report. These obstacles include: 1) Black Economic Empowerment; 2) Delays to DFS 3) Delays to Mining Licence Grant 4) Water availability 5) Capital Cost Increases 6) Shareholder Disagreements. Catalysts: (1) 10am Monday, February 21 Shareholders meeting to vote on Kalahari Placement; (2) 1H/2011 Mining Licence Grant; (3) Q2/2011 DFS Study; (4) Q2/2011 Resource Update (5) Progress on infrastructure (6) mid-2011 Orders for Long-Lead Time items.
EXT Price at posting:
$9.57 Sentiment: Buy Disclosure: Held
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