Toll Cross Industry Note: Uranium Update (July 24, 2013)

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  • 1.                       Industry  Research                                                               24  July  2013                                                                                 TOLL  CROSS  INDUSTRY  NOTES:   Tom  Hope,  P.  Eng   Tom.Hope@tollcross.ca   416.365.1960     URANIUM  UPDATE                                                                                               WHY  IS  THE  SPOT  PRICE  DROPPING  DESPITE  THE   POSITIVE  JAPAN  UPPER  HOUSE  ELECTION  RESULTS?   Current  Prices             U3O8 *   Spot/lb     US$   36.50     U3O8 *   Term/lb     US$   57.00   U-­T   Delta  to   NAV     +6.5%       Recently  there  has  been   no  shortage   of  positive   news   on  the   demand   side   of   the   uranium   industry.   This   past   week   Prime   Minister   Shinzo   -­‐nuclear   coalition   government   308   spot   price   has   fallen   to   $36.50,   its   lowest   price   since   early   2006.   Why   are   uranium   spot   prices   continuing   to   fall,   despite   the   positive  news?     Possible   factors   include   unaccounted   for   selling   in   the   secondary   market,   such   as   if   Japan   is   quietly   selling   its   contracted  long-­‐ inventory   has   grown   to   approximately   90M   lbs.   or   a   5   year   supply  compared  with  a  75M  lbs.  or  4.1  year  supply  prior  to   2011.  If  ultimately  40  out  of  50  reactors  restart,  an  inventory   of  less  than  60  M  lbs.  would  be  adequate.  But,  Japanese  utilities   have  in  place  long  term  supply  contracts  for  approximately  18   M  lbs.  per  year  from  various  sources.  They  also  face  financial   pressure   to   sell   extra   supplies   from   their   need   to   buy   costly   replacement  hydrocarbon  fuel.       We   believe   it   is   very   possible   that   discrete   and   unreported   transactions  are  tak trading  houses.  Who  could  be  the  lucky  discount  buyer?  China   is   an   obvious   candidate   as   it   needs   to   grow   its   inventory   to         ENTHUSIASM   GROWS   FOR   EXPLORATION   IN   CANADA S   ATHABASCA  REGION.       Despite   the   currently   depressed   uranium   spot   price,   there   is   continued   faith   in   the   forecasted   supply   deficit   expected   to   grow   after   2020.   Many   are   looking   in   the   prolific   Athabasca   basin  for  the  new  supplies  needed  to  fill  the  projected  gap.  The   richest  mines  in  the  world  are  located  in  the  northeastern  part   of  the  basin,  containing  grades  of  up  to  20%  U3O8.     Now   the   focus   has   turned   to   the   southeast   corner,   including   the   area   surrounding   Patterson   Lake,   after   Alpha   Minerals   (TSXV:AMW)   and   Fission   Uranium   (TSXV:FCU)   discovered   near   surface   high   grade   deposits.   Patterson   Lake   is   now   surrounded  by  claims  and  multiple  companies  are  conducting   exploration  work  there.                               Figure  One:  U308  Spot  vs  U-­T    Share  Price             Figure  Two:  Difference  as  a  percentage  between  Market  Cap  and   Net  Asset  Value  of  Uranium  Participation  (TSX:U).                
  • 2.         Recently   Skyharbour   Resources   (TSXV:SYH),   Athabasca   Nuclear   (TSXV:ASC),   Lucky   Strike   Resources   (TSXV:LKY)   and   Noka  Resources  (TSXV:NX)  signed  a  $6M  joint  exploration  plan   on  their  southeastern  Athabasca  properties.  Other  properties   are  owned  by  Nexgen  Resources  (TSXV:NXE),  Aldrin  Resources     (TSXV:ALN),   Forum   Minerals   (TSXV:FDC)   and   Lakeland   Resources   (TSXV:LK).   Both   UEX   (TSX:UEX)   and   Cameco   (TSX:CCO)  also  have  property  in  the  area.       When  we  began  publishing  our  Uranium  Update  in  mid  2005   the   spot   and   term   price   had   risen   to   $29.50   per   lb.,   from   a   mere  $10  per  lb.  in  2002/3.  At  that  time  we  listed  a  total  of  33   of   26   early   exploration   companies   with   the   uranium   spot   at   $36.50   per   lb.   and   a   term   price   of   $57   per   lb.   Obviously   the   faithful  still  believe.           Please  see  important  disclosures  on  the  last  page  of  this   report.                              
  • 3.                 * simple aggregate composite index, base point 1 Jan '13 Uranium Index & Price Performance - Period ending 23 July 2013 Production EquitiesIndex Company Tick YTD Comp Index 52 wk H 52 wk L M arket Cap (C$ M M ) (aggregate) NAV ($MM) M C delta to NAV YTD % Return 52 wk % Return Production Composite Index 110.84 Advanced Exploration Composite Index 96.09 Exploration, with a Resource Comp Index 61.72 Early Stage Exploration Comp Index 202.17 Uranium Participation U 5.29$ 5.80$ 4.69$ 562.6$ 528$ 6.49% -1.30 -6.327 Global X Uranium ETF URA-US 18.65$ 25.02$ 15.90$ 144.9$ -5.58 -14.153 U3O8 Spot Price ($US) Ux Sp 36.50$ U3O8 Long Term Price ($US) Ux Trm 57.00$ Production EquitiesIndex Company Tick L. Px 52 wk H 52 wk L M arket Cap (C$ M M ) U3O8 NI 43-101 (lbs. MM) M C/lb$ YTD Return 52 wk Return Cameco Corp. CCO 21.86$ 23.49$ 16.50$ 8,787.7$ 996.10 8.82$ 16.18 1.83 Paladin Energy PDN 1.07$ 1.52$ 0.75$ 782.2$ 500.18 1.56$ -5.46 -14.75 Energy Fuels Inc. EFR 0.18$ 0.24$ 0.13$ 18.7$ 71.00 0.26$ 2.86 28.57 Uranium Energy Corp UEC-US 2.52$ 3.02$ 1.40$ 215.5$ 14.58 14.77$ -3.91 25.51 Energy Resources of Australia Ltd ERA-AU 1.62$ 1.66$ 0.95$ 168.5$ 161.05 1.05$ 27.56 6.93 AdvancedExploration andDevelopment EquitiesIndex Company Tick L. Px 52 wk H 52 wk L M arket Cap (C$ M M ) U3O8 NI 43-101 (lbs. MM) M C/lb$ YTD Return 52 wk Return Denison Mines Corp. DML 1.34$ 1.68$ 1.04$ 499.8$ 131.37 3.80$ 11.38 3.01 Ur-Energy Inc. URE 1.35$ 1.38$ 0.64$ 141.8$ 25.32 5.60$ 66.27 102.94 Uranerz Energy Corp. URZ 1.36$ 1.82$ 0.92$ 106.1$ 18.36 5.78$ 2.92 3.68 UEX Corporation UEX 0.41$ 0.84$ 0.38$ 89.8$ 82.51 1.09$ -28.81 -31.15 Peninsula Energy (AUS$) PEN-AU 0.03$ 0.06$ 0.02$ 91.5$ 103.80 0.88$ -20.51 3.33 Laramide Resources Ltd LAM 0.61$ 1.10$ 0.47$ 45.8$ 61.20 0.75$ -25.61 -21.80 Forsys Metals Corp FSY 0.48$ 0.89$ 0.47$ 41.8$ 112.30 0.37$ -40.00 -43.53 Mega Uranium Ltd. MGA 0.10$ 0.22$ 0.07$ 29.9$ 43.03 0.70$ -12.50 -43.24 Strathmore Minerals Corp. STM 0.25$ 0.34$ 0.14$ 25.5$ 34.27 0.74$ -9.43 -7.69 Bannerman Resources Ltd. BAN 0.05$ 0.14$ 0.05$ 12.7$ 273.78 0.05$ -41.18 -61.54 Macusani Yellowcake Inc YEL 0.06$ 0.18$ 0.06$ 9.6$ 39.40 0.24$ -58.62 -53.85 Strateco Resources Inc RSC 0.07$ 0.33$ 0.04$ 9.6$ 28.70 0.33$ -67.50 -79.03 Khan Resources Inc KRI 0.15$ 0.21$ 0.09$ 8.4$ 66.70 0.13$ 25.00 3.45 Exploration, with a Resource Company Tick L. Px 52 wk H 52 wk L M arket Cap (C$ M M ) U3O8 NI 43-101 (lbs. MM) M C/lb$ YTD Return 52 wk Return Kivalliq Energy Corporation KIV 0.24$ 0.46$ 0.23$ 28.9$ 43.30 0.67$ -27.78 -22.39 Rockgate Capital Corp. RGT 0.17$ 0.67$ 0.14$ 18.0$ 45.25 0.40$ -69.44 -45.00 U3O8 Corp. UWE 0.14$ 0.45$ 0.13$ 13.1$ 47.60 0.28$ -35.56 -57.97 Vena Resources Inc. VEM 0.09$ 0.42$ 0.07$ 10.8$ 18.61 0.58$ -53.49 -75.00 Continental Precious Minerals Inc. CZQ 0.13$ 0.26$ 0.09$ 8.2$ 10.98 0.75$ -33.33 -47.62 Crosshair Exploration & Mining CXX 0.03$ 0.24$ 0.02$ 4.8$ 4.61 1.04$ -71.43 -85.00 Powertech Uranium Corp PWE 0.06$ 0.17$ 0.06$ 3.4$ 22.80 0.15$ -48.00 -43.48 Bayswater Uranium Corporation BYU 0.09$ 0.15$ 0.01$ 2.1$ 28.91 0.07$ 0.00 -15.79 Silver Spruce Resources Inc. SSE 0.01$ 0.07$ 0.01$ 1.4$ 2.22 0.62$ -50.00 -66.67 Deep Yellow Ltd. DYL-AU 0.04$ 0.10$ 0.03$ 1.3$ 119.30 0.01$ -32.79 -19.61
  • 4.                 EarlyExploration Company Tick L. Px 52 wk H 52 wk L M arket Cap (C$ M M ) U3O8 NI 43-101 (lbs. MM) M C/lb$ YTD Return 52 wk Return Fission Uranium Corp FCU 0.96$ 0.96$ 0.52$ 143.5$ - -$ Alpha Minerals Inc. AMW 5.28$ 5.23$ 0.20$ 110.0$ - -$ 202.31 1207.50 NexGen Resources NXE 0.35$ 0.40$ 0.15$ 30.4$ - -$ International Inexco Ltd. IEC 0.26$ 0.70$ 0.24$ 10.1$ - -$ -53.64 -52.78 International Inexco Ltd. IEC 0.26$ 0.70$ 0.24$ 10.1$ - -$ -53.64 -52.78 Abitex Resources Inc ABE 0.05$ 0.35$ 0.04$ 6.7$ - -$ -40.00 -70.00 Athabasca Nuclear Inc. ASC 0.15$ 0.20$ 0.04$ 6.8$ - -$ 141.67 20.83 Purepoint Uranium Group Inc. PTU 0.07$ 0.13$ 0.05$ 6.2$ - -$ 0.00 -6.67 Forum Uranium Corp. FDC 0.38$ 0.83$ 0.28$ 6.2$ - -$ -6.67 -41.67 Pancontinental Uranium Corp. PUC 0.08$ 0.13$ 0.03$ 4.8$ - -$ 7.14 -25.00 Pacific Ridge Exploration Ltd. PEX 0.07$ 0.45$ 0.04$ 4.6$ - -$ -67.50 -83.75 Athabasca Uranium Inc. UAX 0.10$ 0.16$ 0.07$ 5.1$ - -$ 38.46 -40.00 Blue Sky Uranium Corp. BSK 0.04$ 0.18$ 0.04$ 3.9$ - -$ -60.00 -63.64 Aldrin Resources ALN 0.11$ 0.16$ 0.03$ 4.5$ - -$ 83.33 -21.43 Lucky Strike Nuclear LKY 0.09$ 0.19$ 0.03$ 2.6$ - -$ 41.67 -15.00 Noka Resources NX 0.20$ 0.23$ 0.10$ 2.7$ - -$ 0.00 Skyharbour Resources SYH 0.08$ 0.09$ 0.04$ 2.8$ - -$ 66.67 7.14 CanAlaska Uranium Ltd. CVV 0.11$ 0.32$ 0.09$ 2.6$ - -$ -51.35 -70.00 Pacific Bay Minerals Ltd. PBM 0.04$ 0.09$ 0.04$ 2.4$ - -$ -72.00 -72.00 Uravan Minerals Inc. UVN 0.07$ 0.32$ 0.03$ 2.8$ - -$ 0.00 -65.00 Lakeland Resources Inc. LK 0.13$ 0.14$ 0.03$ 2.9$ - -$ Anglo-Canadian Mining Corp. URA 0.03$ 0.09$ 0.02$ 1.6$ - -$ -33.33 -25.00 Aben Resources Inc. ABN 0.02$ 0.08$ 0.01$ 2.1$ - -$ -60.00 -81.82 International Montoro Resources IMT 0.03$ 0.05$ 0.02$ 1.6$ - -$ 0.00 Ashburton Ventures Inc. ABR 0.06$ 0.12$ 0.04$ 0.8$ - -$ 71.43 Acme Resources Inc. ARI 0.05$ 0.11$ 0.05$ 0.5$ - -$ -35.71 -52.63
  • 5.                     Toll CrossSecuritiesInc. Toronto St. Suite 200 Toronto, Ontario M5C 2V6 telephone: (416) 365-1960 facsimile: (416) 365-1962 email: toronto@tollcross.ca website: www.tollcross.ca Institutional Sales Rodger Gray rodger.gray@tollcross.ca James Massie james.massie@tollcross.ca Ed Pennock ed.pennock@tollcross.ca Institutional Trading Russ Minor russ.minor@tollcross.ca Tom George tom.george@tollcross.ca PrivateClient Group Rodger Gray andrew.beach@tollcross.ca Andrew Beach rodger.gray@tollcross.ca EquitiesResearch Eleanor Barker International Oil & Gas eleanor.barker@tollcross.ca Deniz Tura-Matten Energy Analyst deniz.tura-matten@tollcross.ca Jacques Kavafian Airlines & Aerospace jacques.kavafian@tollcross.ca Don DeMarco Mining &Minerals don.demarco@tollcross.ca Investment Banking Marc Bouchard Communications/Tech marc.bouchard@tollcross.ca Tom Hope Communications/Tech tom.hope@tollcross.ca Randall Blom Investment Banking Analyst randall.blom@tollcross.ca
  • 6.             IMPORTANT  DISCLOSURES     Analyst'sCertification All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. TCSI compensates its research analysts from a variety of sources. The research department is a cost centre and is funded by the business activities of TCSI including, institutional equity sales and trading, retail sales, and corporate and investment banking. Since the revenues from these businesses vary the funds for research compensation vary. No one business line has greater influence than any other for research analyst compensation. Dissemination of Research TCSI endeavours to make all reasonable efforts to provide research simultaneously to all eligible clients. TCSI equity research is distributed electronically via email and is posted on our proprietary websites to ensure eligible clients receive coverage initiations and ratings changes, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax or regular mail. Clients may also receive our research via a third party. Toll Cross Securities Inc. research dissemination policies and procedures may be found on our website, www.tollcross.ca, in the Research Distribution Policy section. Company SpecificDisclosures: 1, 2, 3, 4, 5, 6,& 7 SeeCompany Specific DisclosureKey below for explanations. Company SpecificDisclosureKey TCSI uses the following Company Specific Disclosure Key. Please refer to the Company SpecificDisclosuressection above for specific disclosures applicable to the issuer(s) discussed in this report. 1 On the last day of the month preceding the date of this report TCSI and its affiliates held an aggregate of less than 5% of the outstanding shares (of any class of equity securities) of companies discussed or listed in this report. 2 The research analyst(s) and/or associates (or their household members) who prepared this research report directly or beneficially own common stock of CCO. 3 TCSI has not managed or co-managed an initial public offering of equity or equity-related securities for any company discussed or listed in the past 12 months, the closing date of which was at least 40 calendar days prior to the issuance of this report. 4 TCSI has not managed or co-managed a secondary offering of equity or equity-related securities for any company discussed or listed in the past 12 months, the closing date of which was at least 10 calendar days prior to the issuance of this report. 5 TCSI has not provided services to any company discussed or listed for remuneration other than normal course investment advisory or trade execution services during the preceding 12 months. 6 TCSI has not received compensation for investment banking services from any company discussed or listed during the preceding 12 months. 7 No employee of TCSI is an officer or direct of any company discussed or listed (or servesin an advisory capacity to theissuer). Other Disclosures For Canadian Residents this report and its dissemination in Canada. Canadian clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of TCS. For US Residents tion in the United States. This report is intended for distribution in the United States only to certain institutional investors. US clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of TCS USA.   Every  province  in  Canada,  State  in  the  U.S.,  and  most  countries  throughout  the  world  have  their  own  laws  regulating  the  types  of  securities  and  other  investment   products  which  may  be  offered  to  their  residents,  as  well  as  the  process  for  doing  so.  As  a  result,  some  of  the  securities  discussed  in  this  report  may  not  be  available   to  every  interested  investor.  Accordingly,  this  report  is  provided  for  informational  purposes  only,  and  does  not  constitute  an  offer  or  solicitation  to  buy  or  sell   securities  discussed  herein  in  any  jurisdiction  where  such  would  be  prohibited.  Neither  TCS  nor  its  affiliates  accepts  any  liability  whatsoever  for  any  loss  arising  from   any  use  of  this  report  or  its  contents.