Hi,This is my first post on this forum but am a regular on iii &...

Hi,

This is my first post on this forum but am a regular on iii & Advfn here in the UK. I have a sizable position in FTE and fellow Uranium plays Marenica (MEY) and Polo resources

I posted this yesterday on iii which I hope is of some interest.

All the best

D

## THE VALUATION OF FORTE - FAR TOO CHEAP? ##

Its been a pretty terrible fortnight for both stockmarket and Forte Energy investors and its very easy to get dishearted and take a short term view when asset prices are on the slide.

I thought I would take this opportunity to review the Broker notes from Matrix & Hanson Westhouse to try an demonstrate the potential 'longer term value here. In my view much of the recent fall has been due to impatience & disapointment surrounding the delayed assay results. The sell off in global equity markets has not helped either. When the drilling results are finally recieved and i firmly believe the share price will recover significantly from currently levels and Bonobos view of 60-100% appreciation is by no means wide of the mark.

Lets have a look at Matrix's most recent valuation report (Nov 2009):
'Forte is targeting a total combined resource for Firawa and Bir En Nar of 30Mlbs by the end of the year which would, based on the US$5.9 per lb valuation, be worth 110.38m. Based on this and allowing for cash expenditure our six month forecast is 19.3p per share'.

In their July 2009 report they took a much more gloomy view using an ultra conservative US$4 per lb (for approx 25Mlbs of resource) to value the business to arrive at a sum of the parts valuation on 11.43p. So lets use this and look at the sum of the parts in more detail:

11.6Mlbs at Firwana = 4.77p
13Mlbs at Bir En Nar = 5.35p
ITM Options/warrants = 0.27p
Cash = 0.79p
Other assets* = 0.25p

Point 1: The Firwana value is VERY conservative given that the deposit is likely to be upgraded to at least 20Mlbs during 2010.

The 11.6m JORC for Firwana based on a very conservative density figure of 2.2m/t. The company (and Matrix) believes that the true density is likely to be closer to 2.5-3m/t with some samples taken returning even higher density figures. Samples are currently at the Labs to increase this density figure (forming part of the delay results we are waiting for), but once received the Firwana resource will almost certainly be upgraded.

The density tables provided in the Matrix report (July 2009 ,p10) illustrate how increased density can dramaticlly increase the resource estimate. For example an upgrade from 2.2m/t to 2.5m/t would see the Fiwana resource increase to from 11.6Mlbs to 13.2Mlbs. If upgraded further it could be 15.8Mlbs (3.0m/t) or 18.5Mlb (3.5 m/t). Remember also that the Firwana deposit is 5km in length and only a 2.5km central section has been drilled to date and to only depth of only 90m. It therefore remains open at depth and alone strike in both directions hence why Matrix believe 'the Firwana resource will be at least 20Mlb and ultimately could host up to 40Mlbs)

Using a conservative $US4lb valuation, 20Mlbs would equate to 8.22p (11.6m = 4.77p). Throw in the current cash per share (0.79p) and this would take us to around 9p.

In Hanson very conservative 11.43p per share valuation, they ignore virtually all the other assets and attribute a value of only 0.25p. In Hansons (and Matrixs) conservative valuations are accurate, at current prices (9.5p) the share price attributes the value of other assets at only 0.5p!!!

Point 2: At current prices the market is virtually ignores the value/potential of many FTE assets.

So lets have a look at these assets in more detail:

Guinea Assets:
- their are 3 exploration licences at Bohoduo & 2 at Sesse which are only at 'grassroots' exploration stage. Most of FTE efforts to date have been focused on 3 Firwana licences to establish the initial JORC resource. Note Forte own 100% of all licences and has no agreement with Areva on any of them!

In Mauratania:
- Bir Moghrien (Management believe this is larger than Bir En Nar)
- the potential monster 'Leg Beija' (a 10km long x 500m wide Calcrete deposit with sampling returning very high grades of up to 18,000ppm). Compare this with Firwana structure which is 5km long and in narrow veins.

- Anomaly 68 (where trench samples have returned very high grades of 9800 ppm),
- Beso and 7 other active anomalies/prospects in Mauratania
- the 'intangible value' of the strong relationship with Areva
- What price a strong board (Lady Judges contacts) and a good management team

Given the future potential largely igonred by the current valuation, the potentailly very lucrative carrot of a JV with Areva/significant cash injection from Areva over the next 18 months, the increasing interest in nuclear power across the global, the postive dynamics for the Uranium industry as countries scamble to secure good grade U308 resources etc etc etc etc and its very easy to build a case to support why FTE are good value at these levels even when one takes into account the wider stock market turbulence, lack of infrastructure in Africa, environmental challenges & poltical risks.

Broker Valuation Summaries:
Using the very conservative valuation of $4lb and ignoring most of the future potential in Mauratania, Hanson believe the shares are worth 11.43p. If FTE establish a 30Mlb resource (and using a more realistic $5.9 per lb) they estimate net asset value is 19.3p per share.

In the Matrix (July 2009) report they place a price target of 12.7p assuming 20mlb at Firwana and using $5 per lb. They also said at the time: 'we see potential for the company to have 40mlbs [bythe year end 2009] in which case an 24p traget could be justfied.

Finally, in 2007 Areva $US 2.5bn acquistion of Uramin was completed at a price of US$16 per lb (note that prevailing uranium prices were double todays levels). Many though Areva overpaid at the time but they have since proved otherwise. Paying a high price to secure supply is essentially a 'loss leader' as Areva needed to confirmed a U308 feed source before finalising/securing more lucrative contracts to build nnew reactors.

What value would someone attribute to FTE if the confirm a signifcant resource across their many promising prospects?

Uranium exporation is a high risk area and their is no guarantee of determining resources large enough and of sufficenly high grade to make make mining economic. However management are communicating well with us and their is no reason to believe that the delayed results will not be with us soon and in line with previuos management guidance.

Even using $5 or $6lb valuation metric across the potential projects and it is easy to see how FTE could be a multi bagger for patient investors with a longer time horizon than a few months. 9.5p looks an excellent entry point. You could be greedy and hold out for 8-9p if current panic continues but I firmly believe this strategy has more downside risks. Markets will recover and assay results will be recieved. Both could happen Monday!