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

Uranium Canada Research | Page 55 of 87Once the acquisition closes, Ur-Energy plans to begin the process of amending existinglicenses to support a potential ISL satellite facility at SB. As described earlier in this report,our model reflects full design-capacity utilization at Lost Creek (2 Mlbs/year) by 2019E.Good Jurisdictions. Lost Creek is located in Wyoming – ranked 4 th of 93 global miningjurisdictions in the Fraser Institute’s latest policy potential survey. We also highlight thatthe US, despite having the world’s largest fleet of reactors at 104 and the highest levelof annual uranium consumption at ~50 Mlbs/year (and this excludes a major nuclearpowerednaval fleet), produces only 4 Mlbs/year (2011A). The remainder comes fromlocal secondary supplies and other countries, including the 24 Mlbs/year HEUagreement expiring in 2013. Accordingly, it makes sense to us that the US will remainsupportive of domestic uranium production long into the future, in order to maintainsecurity of supply.Strong Management. Ur-Energy is led by a conservative group of professionals withsignificant experience in mining and uranium, including Wayne Heili (President and CEO;>19 years in US uranium); Jeff Klenda (Chairman; Aura Silver, Galahad Metals, financebackground); and Jim Cornell (CEO of NuCore), who has been instrumental in securingagreements with US utilities.Further Consolidation Potential. We also highlight Ur-Energy as a potential consolidatorof other projects in the region, particularly once Lost Creek is ramped to original designrates There are numerous junior-owned, sandstone roll-front deposits that the companycould potentially process at its Lost Creek plant (where the back-end is over-designed at2 Mlbs/year capacity, vs. max. projected output of 1.1 Mlbs/year in the PEA). Forexample, Uranium One’s immediate plans for the Jab and Antelope properties, locatedjust to the north of Lost Creek, remain unclear and are excluded from the company’sdisclosure. Two recently announced acquisitions – Uranium One’s LC East and West inFebruary 2012 and Areva’s Pathfinder in July 2012 (as outlined above) – underline Ur-Energy management’s willingness to go the M&A route.Takeout Candidate. Alternatively, Ur-Energy could itself be a takeout target, given thecompany has nearly completed the arduous US uranium permitting process, is on theverge of breaking ground and is trading near trough valuations. With that in mind, wenote that in April 2012, Wildhorse Energy sold highly prospective, nearby ground (onstrike,to the SW and contiguous with the Lost Creek property) to a ‘major miningcompany’, who we suspect is Rio Tinto, owner of the nearby Sweetwater mill complex.Potential ConcernsSmall Mine Plan. The main hurdle facing the company beyond a smooth and timelystart-up is expanding the mineable reserve at Lost Creek. In February 2012, thecompany was able to add 3.4 Mlbs on immediately adjacent ground via an assetexchange with Uranium One. On July 24, 2012, Ur-Energy announced the acquisition ofAreva’s 14.7 Mlbs Pathfinder projects at only US$0.90/lb. Further such ‘low hangingfruit’ acquisitions are unlikely, in our view. Fortunately, the acquired ground hostssignificant potential and further bolsters Ur-Energy’s dominant land position in theregion, suggesting the company should be able to bulk up pounds via an increased focuson exploration.We believe the best areas to add pounds are at the recently acquired Shirley Basinproject, as well as on the East Mineral Trend (EMT), one of the areas acquired fromUranium One and where Ur-Energy plans to drill during 2012E. The EMT areas includein-fill and postulated extensions of redox fronts at LC East and into LC South.Additionally, the main LC mineral trend appears open to the west, where it extends ontoRaymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2