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

Uranium Canada Research | Page 51 of 87Ur-Energy Inc. July 26, 2012URE-TSX | URG-AMEXDavid Sadowski | 604.659.8255 | david.sadowski@raymondjames.caMining | UraniumWell-Positioned in Wyoming - Production Next YearEventWe are resuming research coverage of Ur-Energy Inc. with a $1.50 target and aStrong Buy rating.RecommendationWe recommend Ur-Energy on its near-term permitting milestones, transition todevelopment at Lost Creek, minimal capital requirements, lowest quartile opex,and attractive valuation.AnalysisNear-term Production. Only one major permit is remaining at Ur-Energy’s100%-owned Lost Creek (LC), WY – the US Bureau of Land Management’s(BLM) Plan of Operations. A record of decision is expected in 3Q12E, withcommencement of construction shortly thereafter. We anticipate productionstart-up in 2H13E.Minimal Lost Creek Financing Requirements. At Mar-31-12, Ur-Energy heldC$36.5 mln in cash and equivalents. After corporate overhead and up-front LCcapex (we model US$36 mln), we forecast a C$14 mln funding shortfall starting in2Q13E. The company will also need a further US$13.25 mln pending successfulclose of its acquisition of Pathfinder (announced Jul-24-12, close expected in1H13E). Ur-Energy is considering debt financing to meet some of these needs.Growth Potential. We see potential for production to grow beyond the mineplan’s current 1.1 Mlbs/year (we model 2.0 Mlbs/year peak output).Exploration upside on Ur-Energy’s existing ground or at deposits elsewhere inWyoming (i.e., M&A) could provide additional material for the LC plant, in ourview. The back-end of the plant is over-designed at 2 Mlbs/year capacity.Attractive Valuation. Ur-Energy currently trades at 0.33x P/NAV, a discount vs.its one-year pre-Fukushima average of 0.60x and peer Denison Mines, currentlyat 0.68x. On an EV/lb basis, the company trades at US$1.67/lb 43-101resources or US$0.59/lb (inclusive of historic and disclosed ‘potential’ pounds),vs. US-focused uranium equities averaging US$1.38/lb.Poised to Execute. Following our site visit last week, we came away impressedwith the company’s level of mechanical innovation and the rigour with whichmanagement has approached development planning. Although permittingdelayed the original timeline, we now view Ur-Energy as the best-positionedcompany with near-term uranium production in the US.ValuationOur target is based on a 0.7x P/NAV applied to the project component of ourC$2.02 NAVPS (8%). Please see our Valuation & Recommendation section forfurther details.EPS 1Q 2Q 3Q 4Q Full Revenue NAVPSMar Jun Sep Dec Year (mln)2011A C$(0.04) C$(0.04) C$(0.03) C$(0.04) C$(0.16) C$0Old 2012E (0.02)A NA NA NA NA NA NANew 2012E (0.02)A (0.02) (0.02) (0.02) (0.07) 0 2.02Old 2013E NA NA NA NA NA NA NANew 2013E (0.02) (0.02) (0.02) (0.01) (0.07) 4 NASource: Raymond James Ltd., Thomson OneCompany ReportRating & TargetOld: Under Review New: Strong Buy 1Target Price (6-12 mos): Old: UR New: C$1.50Current Price ( Jul-18-12 )C$0.67Total Return to Target 124%52-Week RangeC$1.63 - C$0.65Market DataMarket Capitalization (mln) C$81Current Net Debt (mln)-C$37Enterprise Value (mln) C$45Shares Outstanding (mln, basic) 121.110 Day Avg Daily Volume (000s) 156Dividend/Yieldnm/nmKey Financial Metrics2011A 2012E 2013EP/Enm nm nmP/NAV0.3x NACFPSOld C$(0.13) NA NANew C$(0.13) C$(0.06) C$(0.05)Working Capital (mln)Old C$23.0 NA NANew C$23.0 C$11.6 C$5.4Capex (mln)Old C$(0.2) NA NANew C$(0.2) C$(20.0) C$(15.3)Long Term Debt (mln)Old C$0.0 NA NANew C$0.0 C$0.0 C$0.0Production (Mlbs)Old 0.0 NA NANew 0.0 0.0 0.1Cash Costs (US$/lb)Old US$0.0 NA NANew US$0.0 US$0.0 US$31.5Company DescriptionUr-Energy is an exploration/development companyfocused primarily on uranium projects in the U.S. Thecompany's flagship asset is its 100%-interest Lost CreekISR project in Wyoming.Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2