Resource Capital Research
September Quarter 2009
EXT's scoping study indicates Rossing South mine (14.8mlbpa) could dwarf neighbour Rossing (2008: 9.1mlbpa; RIO 69%). Shares are reasonably valued on project NPV, but upside is likely from further exploration success and corporate intrigue involving RIO.
EXT’s exploration for uranium in Namibia has exceeded expectations as the world class potential of the major Rössing South discovery (located immediately South of the RIO’s Rössing uranium mine) becomes more evident. Exploration is advancing rapidly towards 300mlb U3O8 and beyond. The recently released scoping study targets a 14.8mlbpa operation (production 2013?) which if operating today would be the world’s second biggest uranium mine (with 60% higher output than Rossing itself!). Rossing South Project – Resource Status: EXT has identified extensive strongly mineralised high grade alaskite which is undoubtedly a major southern extension of the Rössing Mine (RIO 69%) orebody (previously concealed beneath Namib desert cover). EXT has identified two initial mineralised zones (Zones 1 and 2) covering a combined 6km strike length out of a total target zone of 15km.
Zone 1 (2.4km): 3 Rigs (1 RC and 2 core) are currently engaged in resource definition drilling on 50 x 50 m spacings (~80,000m to date) – an upgraded Indicated & inferred JORC resource for Zone 1 of 147mt @ 449ppm for 145mlb contained U3O8 was announced in July ’09. Further drilling is proceeding which is expected to further increase the resource size and upgrade the JORC classification. Zone 2 (2.0km): EXT has completed ~58,000m of an on going intensive resource definition drilling program, using 3 RC rigs drilling on 100m x 100m centres. The maiden Zone 2 JORC inferred resource of 122mlb @ 543ppm was confirmed in Jul ’09 - well in excess of target 106mlb and impressive grades– better than Zone 1. Zone Extensions: All zones drilled to date are open at depth and along strike. EXT’s initial drilling ~2.8km S of Zone 2 intersected uraniferous alaskite with handheld spectrometer results indicating better results than Zone 1 discovery holes. Very encouraging for resource extensions beyond Zone 2 This anomaly is being drilled, as well as broader reconnaissance drilling on 1.6km spaced lines.
Further major resource upside beyond 300mlb seems assured based on this work. Rossing South Scoping Study Cost Estimates: GRD Minproc has completed preliminary
cost estimates based on a 15mtpa operation, conventional acid leach with 92% recovery, head grades 487ppm, for 14.8mlb/year U3O8 production. Capex estimate is US$704m, opex US$23.60/lb which confirms Rossing South to be very low on the global cost curve. A more detailed PFS is underway with a heap leaching alternative also being considered.
Ida Dome Project: The Ida Dome resource is ~20km south of the Rössing S. A JORC resource of 25.1mlbs U3O8. was defined before Zone 1. This is now low priority, additional resource potential is high.
Corporate: Rothschild has been engaged by EXT as a corporate advisor, with project financing in mind. Boardroom stoushes now resolved with significant shareholders RIO and Polo Resources appointing Directors, and major shareholder Kalahari to appoint new MD after Peter McIntyre retires Sep ’09.
Investment Comment: EXT shares have continued their spectacular run, and have pushed through the A$7.50 – A$8.00 target we set in our last Review. Now that we have scoping study cost data, our preliminary modeling (based on 10% discount rate, US$60/lb long term U price and fairly severe 30% discount applied to scoping study NPV) indicates assessed value around A$7.20 (~US$4/lb for current RS resource). This suggests the RS project as scoped is fully valued at current share price. That notwithstanding, we expect further share upside (~20-30%) with on-going corporate intrigue (RIO stake) a factor (Forsys takeover took place at ~US$7.50/lb for an inferior grade resource), and the very high probability of further major exploration upside.