Clock - Uranium Supply Crunch and Critical ... - Andrew Johns

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Canada Research | Page 20 of 87UraniumExhibit 26: US$EV/lb Resources - Global ProducersUS$ EV/lb (Total Inventory)10.008.006.004.002.000.000.252.142.876.718.248.25ERA UEC PDN AREVA CCO UUUInf M&I 2P avg.Source: Raymond James Ltd., Company ReportsGrowth MetricsWe forecast Paladin and Uranium One to have the best cash flow and earnings growthin the group, while Ur-Energy’s bottom line should benefit from Lost Creek once it startsup in 2H13E. Cameco’s flat earnings in the medium-term are a key overhang.Exhibit 27: US$EV/lb Resources - Global Developer/ExplorersUS$ EV/lb (Total Inventory)2.502.001.501.000.500.000.000.020.070.070.100.100.110.120.240.260.310.450.470.490.510.550.590.620.700.850.961.011.241.271.381.651.72CZQEFRTUURCACBSTMGEMBANYELMEYSHEGGGEMAURREPWEDYLBKYUREMGAFSYLAMUWEPENUEXRGTKIVRSCDMLURZInf M&I 2P avg.Source: Raymond James Ltd., Company ReportsExhibit 28: CFPS (2011A-2015E) Exhibit 29: EPS (2011A-2015E)3.402.802.201.601.000.400.600.400.200.00-0.201.941.672.262.292.34CFPS('11-'15)-0.05-0.06-0.04-0.040.00-0.14-0.100.070.150.210.180.320.350.500.60-0.13-0.06-0.05-0.40CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports0.210.272.001.751.501.251.000.750.50 0.250.25 0.150.05-0.05-0.15-0.25-0.351.281.241.731.691.62EPS('11-'15)-0.13-0.07-0.05-0.04-0.01Each of our producers has strong production growth profiles, including Cameco with afour-year CAGR of 5.8%, Paladin at 10.8%, and Uranium One at 9.1%. On cash costs, wesee Paladin optimizing over the next few years, while we believe Uranium One’s costsshould remain some of the lowest in the industry on efficient Kazakh ISL operations.Cameco’s costs rise through 2015E on reduced sales of low cost Russian HEU and CigarLake start-up, but should return to ~US$31/lb in 2017E. Ur-Energy also impresses in thelow-US$20s per lb once steady-state is reached.Exhibit 30: Production Profile (2011A-2015E)Mlbs U3O830252015105022.421.822.624.128.1Production('11-'15)0.45.76.98.18.68.610.711.612.914.015.10.10.81.1CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports-0.08-0.060.010.080.150.110.130.170.280.36-0.16-0.07-0.07CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company ReportsExhibit 31: Cash Costs Profile (2011A-2015E)US$/lb403530252015105025.028.830.135.637.4Cash costs('11-'15)to add29.534.534.331.229.528.114.516.919.519.719.931.5CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports4.540.130.1822.121.0Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Uranium Canada Research | Page 21 of 87Our EV/lb production provides some insight on current market valuation of futureproduction. Cameco’s premium reflects, in part, significant steady output andcontribution of other business arms. Paladin and Uranium One are fairly close, withPaladin receiving a slight discount over each of the next four years. Meanwhile Ur-Energy trades at only US$42/lb 2015E production – lowest of the group. On EV/EBITDA,Cameco’s reliable cash flows and dominant market position justify a premium.Exhibit 32: EV/lb Production (2011A-2015E)1,4001,2001,000800600500 400400US$/lb30020010001,140EV/lb production('11-'15)404415400376322277229196183183254233209194179866CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports5342Exhibit 33: EV/EBITDA (2011A-2015E)350x340x330x320x 15x310x 13x300x 10x8x5x3x0x11.4x12.4x9.8x9.7x9.5xEV/EBITDA('11-'15)nm339.3x10.9x6.5x5.2x8.5x7.9x5.6x4.1x3.6xCCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports1.9x1.2xProfitability MetricsUranium One’s ramping ROE is a function of its earnings growth and increasing leverage.Paladin’s rising margins stem from our view of improving cost control at Langer andKayelekera – one of the main hurdles for the company moving forward. Uranium Onemaintains consistently high margins at its low cost ISL projects.Exhibit 34: Return on Equity (2011A-2015E)25%23%20%18%15%13%10%8%5%3%0%9%9%ROE('11-'15)12%10%9%nm3%6%4%5%7%10%12%CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports16%23%Exhibit 35: Operating Margins (2011A-2015E)80%70%60%50%Operating Margins40%('11-'15)30%20%to add10%0%CCO DML PDN UUU URE2011 2012 2013 2014 2015Source: Raymond James Ltd., Company Reports44%42%44%42%41%74%73%69%68%72%74%31%34%44%53%58%48%64%67%Financial Risk MetricsWe view Cameco as having the best balance sheet amongst our producers, with C$1.8bln in working capital and zero future capital shortfalls. Paladin has significant debt (seebelow), and on Uranium One we model US$410 mln in additional debt to fund thepurchase and development of Mkuju River project. We believe fund UPC can last ~3years without an influx of new capital (assuming no other transactions), while we modela modest funding shortfall for Ur-Energy (C$14 mln) in 2013E. We also project a shortfallfor Denison in 2013E – a more vulnerable position, given no significant near-termRaymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
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Clock - Uranium Supply Crunch and Critical ... - Andrew Johns

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