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

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Canada Research | Page 56 of 87UraniumLC West (former Uranium One) and LC North. Thus far, most mineralization is hostedwithin HJ and KM horizons, but several other strata are prospective including theshallower FG and deeper horizons. The 2011 exploration program yielded good resultsfrom M and N (~700 ft – 1000 ft), which are not included in the mine plan, but speak toresource expansion potential at depth.The large and comparatively under-drilled EN project is also highly prospective. InAugust 2009, the company stated it saw potential for an additional ’24 Mlbs – 28 Mlbs’at properties adjoining the core LC property at that time. Upside at LC East and Westwas not included in this estimate. In our model, our notional 26 Mlbs LC reserve impliesthe company can double current resources (i.e., add 14 Mlbs, or about half of Ur-Energy’s ‘potential’ range). For the time being, we exclude Lost Soldier (LS) from ourmine plan on our view of comparatively weaker amenability to ISL extraction. That said,a significant portion of LS’ 14 Mlbs in resources is below the water table and could bepermitted relatively easily with an amendment to existing LC licenses.Exhibit 70: Plan Map of Lost Creek and Surrounding Ur-Energy PropertiesSource: Ur-Energy Inc.Permitting Risk. After a highly protracted permitting process that commenced shortlyafter the company went public in late 2005 (the target start date for production at thattime was mid-2008), Ur-Energy appears to be on the final leg of the journey, with onlythe Plan of Operations as the last major permit yet to be received from the US Bureau ofLand Management. Following publishing of the draft EIS, the license moved to a publiccomment period (ended June 11, 2012) and we expect issuance of the license itself in3Q12E.Nevertheless, recent history has substantiated the inaccuracy of guidance from USregulatory offices (notably Cameco, Uranium One, Ur-Energy, Uranerz and others), sowe highlight the potential – albeit, slight – for further delays. Deferring our modeledstart-up by one-year reduces our NAVPS by $0.09 to $1.93 and increases our futurefunding shortfall to $21 mln (from $14 mln).Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Uranium Canada Research | Page 57 of 87Potential CatalystsPotential milestones for the company include:• Receipt of the Plan of Operations – the final remaining permit needed to proceedwith construction at Lost Creek – from the US Bureau of Land Management during3Q12E.• Close of the acquisition of Pathfinder from Areva by mid-2013E.• Start-up of production at the project in 2H13E.Valuation and FinancialsExhibit 71: RJL NAV Summary for Ur-EnergyFunded NAV ValuationFinancial C$mln C$/afd.sh. %Working Capital (1Q12A $36.1 $0.27 14%Options/warrants $4.7 $0.04 2%Future Equity Issue $13.9 $0.11 5%SG&A -$15.0 -$0.11 -6%$39.6 $0.30 15%OperationalLost Creek (DCF; 8%) $227.0 $1.72 85%Net Asset Value: $266.6 $2.02 100%Adj. Fully Diluted Sh. (mln) 132.0Source: Raymond James Ltd.We have a Strong Buy rating and $1.50 target on Ur-Energy. Our target is based on a0.7x P/NAV applied to the project component of our C$2.02 NAVPS (8% discount; seeExhibit 71). We calculate our NAV on a funded basis, inclusive of C$14 mln in futurefunding requirements. Our P/NAV multiple reflects the historical trading ranges ofexplorer/developer juniors and is below our historic, pre-Fukushima average multiple of0.8x.Ur-Energy currently trades at 0.33x P/NAV (vs. Denison Mines at 0.68x), as well asUS$0.59/lb for the company’s 21.2 Mlbs in total resources vs. our globalexplorer/developer peers at US$0.70/lb.Raymond 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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