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

Uranium Canada Research | Page 61 of 87Investment OverviewTop Four Producer with Low Cash Costs. In 2011A, Uranium One produced 10.7 Mlbsfrom its six mines in Kazakhstan, one in Wyoming and one in Australia, placing thecompany as the fourth largest producer globally. Low cost ISL operations in Kazakhstanare the core of Uranium One’s business and underpinned industry-low corporate cashcosts of US$14/lb in 2011A (and US$14/lb in 1Q12A).Aggressive Growth. From just 3.6 Mlbs produced in 2009A, the company is targetingoutput of 11.6 Mlbs in 2012 (in-line with our 11.6 Mlbs), 12.5 Mlbs in 2013 (vs. our 12.9Mlbs) and steady-state production rates of 22 Mlbs – 26 Mlbs/year in the latter part ofthe decade (of which Mkuju River is guided to comprise 4.2 Mlbs – 5.7 Mlbs). We seesteady-state of 21.1 Mlbs/year (starting 2017E) on a more cautious view of economicrates feasible in the US and Tanzania (details below). We note Uranium One’s profilecould increase by a further 0.4 Mlbs/year (RJL), depending on terms of Mitsui’s pendingwithdrawal from the Honeymoon project in South Australia (currently a 51%/49% JVoperated by Uranium One). Though we expect cash costs to tick up slightly as highercost centers ramp (Zarechnoye, Willow, Honeymoon), we believe sub-US$20/lb cashcosts should continue, until Mkuju River starts up in 2016E.Exhibit 74: Production and Sales Profile2430222025181620141215108106452-02010A 2011A 2012E 2013E 2014E 2015E 2016E 2017E 2018EMkuju River, Tanzania Willow Creek, U.S. Zarechnoye, Kaz.Honeymoon, Aus. Karatau, Kaz. Akbastau, Kaz.Kharasan, Kaz. South Inkai, Kaz. Akdala, Kaz.SalesCash CostSource: Raymond James Ltd., Uranium One Inc.Production, Sales (Mlb s U3O8)Excellent Earnings Growth. Industry-best sales growth, coupled with our rising pricedeck and preservation of sub-US$20/lb cash costs, underpin strong earnings growth.Our 2012E – 2016E EPS estimates are $0.13, $0.17, $0.28, $0.36, and $0.41.Highest Spot Price Exposure. The company’s contracts are heavily weighted towardsmarket-related levels at the time of delivery, with, in our view, preferential priceprotection. At December 31, 2011, only 5.3 Mlbs were contracted at a fixed price ofUS$69/lb, and amongst market-related contracts, only 2.9 Mlbs have a ceiling –averaging ~US$96/lb – while 14.6 Mlbs have an average floor of ~US$46/lb. This marketrelatedbias increases exposure to a rebound in uranium prices. For every 10% increaseacross our uranium price deck, we estimate a ~$1 increase in NAVPS, making UraniumOne the most leveraged of our covered producers to an upswing and, by the samemeasure, to a downswing (see Exhibit 75).Operating Costs ($USD/lb)Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2