I have taken the liberty to copy this comment below, it was...

I have taken the liberty to copy this comment below, it was posted by a very very smart EXT holder. I think it is inline with the current dicussion...........I was blown out when I read it. I only wish I was capable of writing such a monster of a post

GET YOUR TEETH INTO THIS

Harlee



A few alternate thoughts.

Recent statements from EXT management indicate that a number of parties have expressed potential interest in participating in the development of Rossing South deposit. It was also stated that the company is “studying a wide range of development and funding options”. Thus, it would appear EXT is seriously considering developing RS deposit perhaps alone or in a joint venture. I realize that many of you have previously stated that this is an unlikely scenario as Dattels and Hohnen (including their companies’ shareholders) preference is to “auction the company to the highest bidder”, and no doubt this is an attractive proposition for them, as profits achieved from the sale would obviously be used to fund their respective core activities including acquisitions and further new investments “whilst these still remain relatively cheap”. Secondly, both Dattels and Hohnen have a track record as good deal makers, I personally don’t think they want to get involved in ‘long run’ asset development (4 - 5 years) dealing and managing the complexities and intricacies associated with a large scale mining project development.

However, what if the mine development is the better option? Let’s take a moment and assume that Rothschild comes up with a very strong case for the stand alone/JV mining operation, convincing Dattels and Hohnen that EXT will unlock its maximum value for its shareholders if it becomes a mining company. The big question therefore is: what could the EXT share price be say in, 4 – 5 years time?

One back of envelope approach is to simply multiply reserves by potential takeover price in $/lb. Recent transaction for operating or close to production mines have been quoted to be around US$13-14/lb – Mitsui acquiring a 49% stake in Honeymoon and Uranium One’s acquisition of 50% of Karatau. Please note that full takeover price is likely to be at least 20% – 30% higher (i.e. US$16 – $17/lb). Assuming that all capital for development of the mine comes from a JV partner in exchange for guaranteed off-take rights etc., the share dilution may only be minimal (say 260M shares). I expect that in 3 – 4 years time when Rossing South is fully drilled out, its uranium reserves would be somewhere around 600Mlbs+ ( M. Hohnen stated that EXT reserves will exceed 500Mlbs). Hence, the projected market capitalization could be about US$9.6 Billion (600Mlbs x US$16/lb), valuing its share price at about AU $46 (US$9.6B/260M/0.8).



Yet another quick alternate approach to arrive at future potential share price is to compare EXT against peer uranium mining companies such as Cameco and Paladin. Both of these have relatively large U reserves. Cameco is an established uranium producer whilst PDN t is in the process of getting into full production (i.e. at the stage where EXT may be in 3 – 4 years). Some of the key data for Cameco are:

1) Current U reserves of ~500Mlbs. These reserves come from 13 different mines of which Cigar Lake accounts for 113Mlbs – please note that I don’t believe that Cigar Lake will ever come into full production (see below).
2) Cameco’s U production over next few years is expected to be about 7,200t/annum. This is in line with production target set by EXT (~15Mlbs/a).
3) Number of shares ~393M
4) Cameco’s current market capitalization is about A$12.9 Billion of which uranium mining I understand accounts for >80% (i.e. say A$10.5 Billion). Note that in addition to uranium mines, Cameco is also a supplier of uranium processing services, it manufactures and sells the fuel bundles used in Candu reactors, serving nuclear utilities in Canada and has 31.6% stake Bruce Power nuclear power station.
5) According to some broker/media reports the projected capitalization for 2010/2011 is about A$18 billion.

Taking the conservative scenario and assuming EXT market capitalization at full production of ~A$11 Billion (similar to Cameco) then, the share price should be around $42 ($11B/260M). One thing we should not forget is the ongoing dividends and the impact of EXT defining additional U reserves from RS and other leases. On the optimistic side, if we assume market capitalization of say A16 billion ($18B x 0.8), then the share price would be somewhere around $55 ($18B x 0.8/260M).

When making similar comparison against Paladin Energy one needs to take the following into consideration:
1) 2009 U production ~1,200 tonnes (i.e. 1/6th that of Cameco’s).
2) Number of shares ~640M(fully diluted)
3) Total U reserves are approximately 360Mlbs (in 8 separate deposits). Note that Valhalla and Skal deposits need changes in QLD government U policy and Oobagooma may never be developed as it may be too small deposit. Hence, the effective reserves available for mining over next few years are likely to be limited to about 200Mlbs (i.e. Langer Heinrich and Kayelekara).
4) Projected U production for 2011 is 3,800tonnes
5) Current market capitalization is ~3.2 Billion
6) According to some media reports the projected market capitalization for 2011 (i.e. when both Langer Heinrich & Kayelekara are in full production) is +$6.5 Billion. This would give EV of about $18 - $19/lb of uranium reserves.

Hence potential market capitalization of EXT can be calculated by multiplying its reserves of 600Mlbs x $19/lb = $11.4 Billion. This would give share price of ~$44. Alternatively, one can simply assume that EXT will be producing about twice as much uranium as PDN and therefore its capitalization should be twice that of PDN (i.e. about $13B) - giving a share price of about $50.

In summary, it seems that whichever scenario one selects, the EXT share price after reaching full production could between $45 - $55 (i.e. 700% – 800% return on current share price). Considering recent media and WNA (world nuclear association) predictions of forthcoming uranium shortage around 2014/15 and beyond 2017 particularly if Cigar Lake is abandoned, this share price target is not un-realistic and probably conservative. I realize, there is likely to be some hiccups along the way and some weak hands and short termers will sell out – somewhat depressing the share price during development stage, but a strong and dedicated team would bring such project into fruition which I think this was Peter Mc’s vision from the outset.

One thing I need to emphasize is that all EXT current U reserves are in the one area unlike Cameco’s and PDN’s which in 13 - 8 separate mine locations, this is a huge operational advantage in terms of capital and operational costs. The RS mine life span is also likely to be in excess of 40 years (600Mlbs /15Mlbs per annum). Other advantages include geopolitical stability and government that is keen to develop their uranium resources (i.e. lesser regulatory/permit related issues - should allow quicker mine development).

Please note that above should not be taken as accurate valuation attempt of EXT future share price as it fails to consider properly discounted cash flows and NPV including tax implications.


Now, regarding my reservations on the Cigar Lake ever coming into full production. The main reasons for these doubts are (2007 mineweb report):

1) The soils and rocks above the orebody are highly permeable. The clay above the orebody is succeeded upwards by a highly heterogeneous, highly permeable zone from 20 m to 50 m thick consisting of variable soft to moderately indurate sandy clay, unconsolidated sand, and variably altered sandstone. The uranium deposit and above strata/overburden are highly fractured. This post-mineralization fracturing controls the hydraulic conductivity in above strata and, where it transects the otherwise impervious clay-stone core of the deposit, fracturing acts as conduits for water, sand, and soft clay. Hence, the primary geotechnical challenges from day one of constructing the mine have been control of groundwater, and ground support in areas of weak rock.

2) To address the support of the weak rock associated with the orebody and to minimize the potential for a large inrush of water while mining, the mine engineers have resorted to ground freezing. Whilst controlled ground freezing for mining and construction applications has been in use for over a century it still remains more of an art than a science. The present ground freezing technology used worldwide by most ground freezing companies is based on quick freezing using circulating brine or, in some cases, liquid nitrogen. These methods are fast but very expensive and utilize large equipment with high electrical requirements. In any ground freezing scenario, the presence of flowing water can significantly delay or even prevent the development of ice due to heat addition by the moving water. The uncertainty of the pre-evaluation of potential ground water inflow rates in underground mines results in difficulty in planning and costing the water-related activities of the mines.

3) There is no way anybody can absolutely characterize the water flow pattern in a highly permeable strata. It is inherently unpredictable. However, this does not mean the ore cannot be mined. The key issue is how much it will cost. If it costs lots, they will succeed and the mine will go into production provided U prices stay high. And if it cost too much, they will shut it down and leave the uranium to nature, I understand, that even without all the water flooding problems, the expected operating costs for Cigar Lake were estimated to be around $40 - $45/lb. Having worked in the mining industry now for over 20 years, I found actual operating costs to be always higher then those estimated in feasibility studies.

In summary, the projected supply of 7,000tonnes/annum from Cigar Lake in my opinion is HIGHLY UNLIKELY. I believe that both Cameco and Areva are well aware of this and as a result have recently stepped up their efforts to find alternative sources of U supply. Not having replacement deposit with at least similar size reserves as Cigar Lake, could have significant implication on these companies share price. Certainly their shareholders will be very unhappy when they learn that after spending hundreds of millions of dollars, mining of Cigar Lake deposit is uneconomical. Having alternative deposit however may cushion the effects of moving the Cigar Lake into care and maintenance mode. I also want to emphasize that AREVA have stated on several occasions that their aim is to become “World Uranium Energy Champion” - hence loosing Cigar Lake (or 2,500t/a of uranium supply – 37% shareholding in Cigar Lake) would be a significant set back in their aspirations.

Could Areva and Cameco jointly become EXT JV partners?? This is pure speculation however, what ever transpires in the next 12 months, we can be confident that EXT will be a U MONSTER (as Harlee) puts it.