Clock - Uranium Supply Crunch and Critical ... - Andrew Johns
Clock - Uranium Supply Crunch and Critical ... - Andrew Johns Clock - Uranium Supply Crunch and Critical ... - Andrew Johns
Canada Research | Page 2 of 87UraniumTable of ContentsTiming is Key ....................................................................................................................... 3Recent Equity Performance ............................................................................................ 3Industry Catalysts............................................................................................................ 4Seasonality ...................................................................................................................... 5Company Snapshots ........................................................................................................... 6Uranium Market Outlook ................................................................................................... 8Overview ......................................................................................................................... 8Supply-Demand Themes ................................................................................................. 9Mine Supply .................................................................................................................. 12Secondary Supply .......................................................................................................... 13Demand ........................................................................................................................ 13Supply-Demand Balance ............................................................................................... 15Scenarios ....................................................................................................................... 16Incentive Costs .............................................................................................................. 17Uranium Price Deck ...................................................................................................... 18Comparing our Covered Equities ...................................................................................... 19COMPANY REPORTSCameco Corp. .................................................................................................................... 25Denison Mines Corp. ......................................................................................................... 35Paladin Energy .................................................................................................................. 42Ur-Energy Inc. ................................................................................................................... 51Uranium One Inc. .............................................................................................................. 60Uranium Participation Corporation .................................................................................. 69Appendix 1: Global EV/lb Comparison .............................................................................. 75Appendix 2: Covered Equity Comparisons ........................................................................ 76Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Uranium Canada Research | Page 3 of 87Timing is KeyRecent Equity PerformanceSince the March 2011 Fukushima accident, many physical uranium buyers have steppedaway from the market given uncertainty surrounding the availability of supply(particularly in Japan). Accordingly, over the past eight months, transaction volumeshave been weak and spot prices have held steady in the US$50/lb – US$52/lb range(US$60/lb – US$63/lb LT). Though spot seems to have found a post-Fukushima floor, theequities have continued to drift lower, despite a historically tight correlation, with only ashort rally during January/February 2012 (see Exhibit 1). As discussed on the followingpages, we expect the downward trend in equity valuations to reverse in 2H12E, asseveral industry catalysts spark additional demand.Exhibit 1: 2-Year Price Performance of RJL Uranium Developer/Explorer and ProducerIndices vs. UxC’s Spot PriceEquity valuations have driftedlower recently – we expect thistrend to reverse in 2H12EPrice Performance350%300%250%200%150%100%50%0%UxC Spot Price (BAP)Developer/Explorer Equity IndexProducer Equity Index120110100908070605040302010030-Jun-1031-Jul-1031-Aug-1030-Sep-1031-Oct-1030-Nov-1031-Dec-1031-Jan-1128-Feb-1131-Mar-1130-Apr-1131-May-1130-Jun-1131-Jul-11UxC Spot Price (US$/lb)31-Aug-1130-Sep-1131-Oct-1130-Nov-1131-Dec-1131-Jan-1229-Feb-1231-Mar-1230-Apr-1231-May-1230-Jun-12Source: Raymond James Ltd., Thomson One, UxCUranium equities have historically traded at premium multiples vs. other metals, givenuranium’s strategic nature, scarcity of investible equities, and significant barriers toentry, as well as highly price inelastic demand. However, P/NAV multiples havecompressed significantly in recent months, with our covered producer group trading at0.83x and developer/explorers currently trading at 0.51x. For reference, our historicproducers, consisting of Cameco, Paladin and Uranium One, averaged 1.33x from January2010 to Fukushima (March 11, 2011), while developers Denison Mines, Ur-Energy, andStrathmore Minerals averaged 0.71x over the same period (see Exhibits 2 and 3).Exhibit 2: RJL Developer Historic P/NAV MultiplesProducers are trading at 0.83x (vs.1.33x historic); developers aretrading at 0.51x (vs. 0.71x historic)Exhibit 3: RJL Producer Historic P/NAV MultiplesHistoric P/NAV Valuations1.60x1.40x1.20x1.00x0.80x0.60x0.40x0.20x0.00xDec-09Feb-10AveragesJan-'10 to Fukushima: 0.7xFukushima to Dec'11: 0.6xCurrent: 0.51xApr-10Jun-10Aug-10Oct-10Dec-10FukushimaFeb-11Apr-11Jun-11Aug-11Oct-11Dec-111201101009080706050403020100Spot Uranium Price (US$/lb U3O8)Historic P/NAV Valuations1.60x1.40x1.20x1.00x0.80x0.60x0.40x0.20x0.00xDec-09Feb-10AveragesJan-'10 to Fukushima: 1.3xFukushima to Dec'11: 0.8xCurrent: 0.83xApr-10Jun-10Aug-10Oct-10Dec-10FukushimaFeb-11Apr-11Jun-11Aug-11Oct-11Dec-11120100806040200Spot Uranium Price (US$/lb U3O8)UXC Spot U Price Developers STD-2 STD-13yr Mean= 0.6x STD+1 STD+2UXC Spot U Price Producers STD-2 STD-13yr Mean = 1.1x STD+1 STD+2Source: Raymond James Ltd., UxC, Thomson One Source: Raymond James Ltd., UxC, Thomson OneRaymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
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Canada Research | Page 2 of 87<strong>Uranium</strong>Table of ContentsTiming is Key ....................................................................................................................... 3Recent Equity Performance ............................................................................................ 3Industry Catalysts............................................................................................................ 4Seasonality ...................................................................................................................... 5Company Snapshots ........................................................................................................... 6<strong>Uranium</strong> Market Outlook ................................................................................................... 8Overview ......................................................................................................................... 8<strong>Supply</strong>-Dem<strong>and</strong> Themes ................................................................................................. 9Mine <strong>Supply</strong> .................................................................................................................. 12Secondary <strong>Supply</strong> .......................................................................................................... 13Dem<strong>and</strong> ........................................................................................................................ 13<strong>Supply</strong>-Dem<strong>and</strong> Balance ............................................................................................... 15Scenarios ....................................................................................................................... 16Incentive Costs .............................................................................................................. 17<strong>Uranium</strong> Price Deck ...................................................................................................... 18Comparing our Covered Equities ...................................................................................... 19COMPANY REPORTSCameco Corp. .................................................................................................................... 25Denison Mines Corp. ......................................................................................................... 35Paladin Energy .................................................................................................................. 42Ur-Energy Inc. ................................................................................................................... 51<strong>Uranium</strong> One Inc. .............................................................................................................. 60<strong>Uranium</strong> Participation Corporation .................................................................................. 69Appendix 1: Global EV/lb Comparison .............................................................................. 75Appendix 2: Covered Equity Comparisons ........................................................................ 76Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
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