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

Canada Research | Page 18 of 87UraniumProjects worth noting include the low cost of the Olympic Dam expansion, givenuranium is essentially a by-product of much more significant copper production;Jabiluka, though a significant deposit, is unlikely to start-up until the 2020s givenchallenges with traditional landowners; Husab is a near-certainty under Chineseownership and likely to move forward irrespective of the direction of market prices; lessclear is Trekkopje, with uncertainty surrounding the viability of a proposed heap leach ofvery low grade material and Areva’s consequent focus elsewhere (and thus is notincluded in our supply model); and finally, state ownership and significant domesticnewbuild plans compel us to include Russia’s Elkon underground mine in our supplymodel, despite purportedly substantial up-front costs.Uranium Price DeckPrices to Increase through 2015E. Exhibit 21 shows historical uranium prices, as well asour go-forward forecasts through 2017E. Our price deck is substantiated by our view of(i) a three-year supply deficit, starting 2014E and peaking 2015E, two years post-expiryof Russian HEU supply and coincident (ii) ramping demand, particularly inventory buyingand initial cores in China and India, and (iii) the higher prices required to incentivize newsupply by the middle of the decade, as production growth at existing centres slows.We see prices rising through2015E (to US$75/lb) on threeyearsof insufficient supply andhigh incentive costsExhibit 21: UxC Uranium Prices and RJL Price Forecast (US$/lb)1401301201101009080706050403020102014 201572.50 75.00 2016 20172012201370.00 70.0053.5063.0002005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017UxC Spot Price UxC LT Price RJL Price Forecast (Annual Average)Source: Raymond James Ltd., UxCRaymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2