On May 29, 2008 Eric Zaunscherb of Haywood Securities initiated coverage on Extract Resources (EXT: TSX)
Company Profile
Extract Resources Limited is based in Perth, Western Australia. The Company's primary business focus is in the African nation of Namibia, in which it has a large land position of 2653km2 over several licenses. While the projects have various mineral occurrences, Extract's main objective is based around the potential of the uranium (U3O8) rich provinces in Namibia, particularly within the alaskite belt that hosts the world class Rossing Mine.
Takeaways From The Event
Zaunscherb writes that Extract’s 100% owned Husab project combines scale, exploration, technical upside and is a must own for investors and growing uranium producers. The Husab project is located in Namibia: “one of the best jurisdictions for uranium development” says Zaunscherb. Namibia is table, democratic and pro development. Extract has made a discovery in the Rössing South project, south of the world class Rössing mine. The Husab prohect is scheduled to deliver an initial resource based on 30,000 metres of drilling in July from the Ida Dome prospect but by year end Zaunscherb expects “resources from both Ida Dome and the new Rössing South prospect trending towards our modelled resource of 115 million pounds of U3O8 in all categories.” In October 2007, a scoping study on the Ida Dome prospect highlighted the potential for an open pit mine with robust economics; “producing an average 2.9 million pounds U3O8 per annum at a cash cost of US$29 per pound, life of mine.”
With regards to valuation, Zaunscherb estimates a ‘conservative’ project NAV of $242 million “with considerable uncaptured upside from an exploration, technical and financial perspective.” Zaunscherb writes that Extract is trading at approximately “0.8x project P/NAV as compared to 0.9x for development peers.” Assuming, a resource of 115 million pounds of Uranium, Exta=ract is trading at an “Adjusted Enterprise Value per pound of resource of $4.01 vs. a mean of $7.35 for peers – the Company’s exploration success at Rössing South remains insufficiently recognized by the market.”
Investment Risks
Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.
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