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

Uranium Canada Research | Page 31 of 87On a NAV basis, Cameco’s sensitivity is further reduced by vertical integration –profitability of fuel services and electricity divisions are not directly linked to U3O8 spotprices. Exhibit 48 shows our NAVPS at changing discount rates and price decks (LT pricesshown; RJL assumes US$70/lb).Exhibit 48: CCO NAVPS Sensitivity to Changing Discount Rates and Uranium PricesU3O8 Price (US$/lb)-40% -30% -20% -10% RJL LT +10% +20% +30% +40%###### 42 49 56 63 70 77 84 91 9815% 9.66 10.21 11.99 12.93 13.76 15.23 16.15 17.72 18.6312% 10.80 11.42 13.64 14.76 15.75 17.54 18.64 20.55 21.6310% 11.75 12.44 15.04 16.30 17.44 19.50 20.75 22.95 24.188% 12.92 13.68 16.75 18.19 19.50 21.92 23.34 25.90 27.31Discount Rate5% 15.20 16.10 20.12 21.91 23.56 26.67 28.46 31.73 33.503% 17.19 18.22 23.10 25.20 27.14 30.88 32.98 36.91 39.000% 21.22 22.47 29.16 31.88 34.43 39.47 42.24 47.50 50.27Source: Raymond James Ltd.Potential CatalystsPotential growth-related milestones include:• Pre-feasibility at Kintyre in mid-late 2012E;• Feasibility at Millennium by year-end;• Permits allowing Inkai expansion to 5.2 Mlbs/year by year-end;• Further clarity on timing and approvals for the Key Lake Extension (expansion ofDeilmann TSF) by year-end and for the McArthur River Extension (ramp-up to 22Mlbs/year) in 2013E;• Progress on development at Cigar Lake over the coming months will also be critical.The Quarter AheadWe expect 2Q12E sales to be at 7.3 Mlbs, weaker than 8.1 Mlbs in 1Q12A, givenguidance that uranium sales will be lowest of any quarter this year. For comparison,sales were 8.4 Mlbs in 2Q11A. We note Cameco guides that 4Q12E will comprise aboutone-third of this year’s sales, similar to last year. On the production front, the secondquarter is often a maintenance period for McArthur (we expect 3.8 Mlbs) and wetypically a see a 30% – 40% drop in annualized run rates, albeit, this should be offset byhigher output in other areas. For example, we expect a rebound in output at SmithRanch-Highland on receipt of permits for a new wellfield earlier in the year (0.38 Mlbs,from 0.2 Mlbs in 1Q12A). On balance, we see 4.9 Mlbs produced (up from 4.8 Mlbs in1Q12A, but down from 5.7 Mlbs in 2Q11A).As guided post-1Q, a US$30 mln charge for a terminated sales contracted is expected in2Q12 statements. Given this uranium is likely to be placed at a higher price, we view thisevent as immaterial to full-year earnings and intend to adjust our quarterly estimatesfollowing the release of Cameco’s 2Q12 results. Our bottom line forecasts for 2Q12E areC$106 mln in net earnings or C$0.27/share (CFPS of C$0.39).Financial and operational results are slated to be released before markets open on July27, 2012, with a conference call at 1:00 pm ET.Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2