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

Canada Research | Page 66 of 87UraniumPotential CatalystsPotential catalysts for Uranium One could include:• Clarity on terms of Mitsui’s exit from the Honeymoon project (and potentially a 49%boost in Uranium One’s stake) with 2Q12E results on August 8, 2012;• Definitive feasibility study (DFS) at Mkuju River during 3Q12E;• Results over the coming months from on-going litigation between ARMZ and theTanzanian Revenue Agency (TRA);• Production ramp-up at Kharasan (Kazakhstan), Honeymoon (Australia), and WillowCreek (Wyoming) throughout the year;• Decision from Uranium One on potential acquisition of Mantra (Mkuju River) fromARMZ by June 7, 2013E, with minority shareholder approval to follow.The Quarter AheadFor 2Q12E, we expect a slightly weaker quarter to 1Q12A, with net earnings of US$11.0mln or US$0.01/share (vs. adjusted earnings of US$12.7 mln or US$0.02/share lastquarter). We see production of 2.8 Mlbs (unchanged q/q) and sales of 1.9 Mlbs (+7%q/q), in-line with guidance that sales will be heavily weighted to 2H12 this year. Ourhigher revenue line is offset by increased costs, particularly at Akbastau as Uranium Onebrings on more staff (for plant construction) and on an uptick in higher cost Willow andHoneymoon production. That said, our 2012E cash costs are US$17/lb – below thecompany’s US$19/lb.We expect 2Q12 results to be released on August 8, 2012.Valuation and FinancialsWe have an Outperform rating and $3.60 target on Uranium One. Our target is based ona 50/50-weighting of (i) 1.0x P/NAV applied to our C$3.43 NAVPS (8% discount; seeExhibit 77) and a 10x P/CF applied to our 2013E CFPS of C$0.35. Our P/NAV multipleplots conservatively against our pre-Fukushima average P/NAV of 1.5x, while our P/CFmultiple reflects our historical producer trading range of 7.7x – 29.9x (dominated byCameco; adjusted for higher Uranium One risk).Uranium One currently trades at 0.72x P/NAV and 7.0x 2013E P/CF, a discount toCameco (1.15x and 9.9x) and a discount, on a CF basis, to Paladin (0.63x and 15.4x). OnEV/lb resources, Uranium One trades at US$8.25/lb for the company’s 323.3 Mlbs intotal resources vs. our global producer peers at US$4.74/lb. We believe a major reasonfor this latter premium is the company’s large Russian historic resources, which are notreflected in our metric.Raymond James Ltd. | 2200 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2