1. September 22, 2011
Industry Update
URANIUM REACTION
Japan “determined” to restart nuclear plants, why isn’t Germany?
JAPANESE PRIME MINISTER DETERMINED TO RESTART NUCLEAR PLANTS
Japanese Prime Minister Yoshihiko Noda has stated that it is “impossible” for Japan to get by economically
without nuclear power or under a quick phase out plan. Noting that a power shortage, “could bring down Japan’s
economy”, Noda indicated that “if we want [nuclear power] to go down to zero, development of alternative
energy must be advanced considerably ... it’s still too early to say if we can get to that stage”.
Exhibit 1. Japanese Prime Minister Yoshihiko Noda
Equity Research
Source: Wall Street Journal
The statement by the Japanese Prime Minister follows an estimated 30,000 citizen protest against nuclear power
in Tokyo. Noda intends to restart Japan’s idled reactors during the spring to summer period of 2012. Since the
events of March 11, nuclear reactors that were shut down for routine maintenance have been prevented from
restarting and fewer than a dozen of Japan’s 54 reactors are currently in operation. At the current rate, all nuclear
power reactors in Japan will be shut down by May 2012.
Anti-nuclear critics have contended that Japan managed pretty well this past summer while many nuclear power
plants were idled. Indicating that the situation is not as dire as the Prime Minister asserts. However, Chief Cabinet
Secretary Osamu Fujimura has noted that Japan only had a 2.7% power supply shortfall during peak electricity
demand this past summer. However, a power deficit of about 10% is projected for next summer if all reactors are
shut down.
Noda also noted that the reactors at Fukushima Daiichi are expected to achieve cold shutdown by the end of the
year, which would be a month ahead of schedule.
Rob Chang
rchang@versantpartners.com
(416) 849-5008
(866) 442-4485
Sales/Trading — Montreal: (514) 845-8111, (800) 465-5616; Toronto: (416) 363-5757, (866) 442-4485
See disclosure and a description of our recommendation structure at the end of this report.
2. Uranium Reaction September 22, 2011
The strong pro-nuclear statement by the new Japanese Prime Minister is a sober
approach to the nuclear power issue. The economic reality is that it would be
prohibitively expensive to replace nuclear power with conventional power
sources such as liquefied natural gas (“LNG”) or coal. It is estimated that it
would cost approximately US$60.5 billion in capital costs to construct the
necessary LNG capacity and between US$93–$151 billion to construct the
necessary coal-fired capacity to replace the amount of power provided by the
country’s current fleet of nuclear reactors. Ongoing operation of these
conventional sources of power would be very expensive as it would annually
cost Japan about US$27 billion and US$17 billion to import the necessary
volumes of LNG and coal to fuel the plants, respectively.
Replacing nuclear power with alternative energy sources will also be very
challenging as it would require a 49-fold increase in capacity from wind, solar
and geothermal sources. The cost to replace current nuclear power with solar
(US$688 BILLION) or wind (US$334 BILLION) would be astronomical.
Moreover, Japan is estimated to have only 23.5 GW of geothermal potential,
which is shy of the 70.3 GW in expected electricity demand in 2030.
We wonder aloud what these numbers look like for Germany and whether a
country dealing with a weak eurozone is equipped to make the expensive
commitment of exiting nuclear.
FINLAND PUSHES AHEAD WITH NUCLEAR POWER
Finland’s supreme administrative court has overruled appeals of a nuclear
reactor project. The ruling follows a Finnish parliament vote in July 2010 that
supported the construction of two new nuclear reactors, which will increase the
country’s total to seven.
Supporters of the nuclear program point to the country’s harsh winters that
require high energy consumption. The country’s steel making and forestry
industries also rely on cheap power. Anti-nuclear activists have mentioned that
they will take their efforts to the European Union.
ROSSING TO BE HIT BY A STRIKE ON FRIDAY
About 1,200 workers representing 75% of Rossing’s workforce may go on
strike on Friday, September 23 at 6:00 GMT. The Mineworkers Union of
Namibia (“MUN”) is protesting differences in bonuses paid to workers and
management. Workers are demanding 30,000 Namibian dollars (US$3,877) each
on top of N$11,000 they have already received. In response, Rossing
management has filed a Labour Court motion seeking a ruling that would block
workers from going on strike.
The Rossing uranium mine is located in Namibia and is 68.6%-owned by Rio
Tinto (RTP-NYSE). It is one of the world’s largest uranium mines and it produced
about 8 M lbs of U3O8 in 2010.
Rob Chang, (416) 849-5008 2 of 6
3. Uranium Reaction September 22, 2011
POSITIVE METALLURGICAL TEST RESULTS AT LAGUNA
SALADA
U3O8 Corp. (UWE-TSXV) reported positive alkaline leach results from the
Guanaco area of its Laguna Salada project, which is located in Argentina’s
Chubut province.
Management reports that recoveries of 94% for uranium and 51% for vanadium
were achieved from the upgraded fine component of the gravels. Interestingly,
the best extraction results occurred only four hours of leaching – indicating that
recoveries may be rapid and lowers potential operating costs.
The uranium and vanadium at Laguna Salada lie within a few metres from
surface in soft, unconsolidated gravel that appears amenable to low-cost mining
techniques without the need for blasting or crushing. Simple screening
separation of the pebbles and coarse sand concentrates the uranium-vanadium
in the fine material and increases uranium grades to approximately 620-670ppm.
Management also updated the regulatory environment in the Chubut Province.
While there is presently an open-pit mining ban in Chubut Province, draft
legislation is reported to propose that open-pit mining be allowed in the central
semi-desert plain of the province. A similar approach, that allows mining in the
central plain, is in effect in the adjacent Santa Cruz Province. Laguna Salada and
several other mining projects are situated in this central plain of Chubut
Province including the Argentinean National Nuclear Authority’s Cerro Solo
uranium deposit and Pan American Silver's (PAA-TSX) Navidad silver project,
both of which are reported to be due for development by open-pit mining
methods.
URANIUM EQUITY BASKET OUTPERFORMS
Our basket of highlighted uranium names had a modestly positive week as its
performance from September 14 to September 21 was up 1.8% on average. It
significantly outperformed the broader S&P/TSX Global Base Metals Index’s
return of -10.9% over the same period.
Since we highlighted the names on August 24, the basket has gained 5.8% and
has outperformed the S&P/TSX Global Base Metals Index’s return of -10.9%.
Exhibit 2. One-Week Performance of Highlighted Uranium Names
Company Name Ticker Weekly Since Inception
Cameco CCO -3.3% -8.8%
Uranium One UUU 5.3% -7.6%
Uranium Participation U 5.3% 8.4%
Fission Energy FIS 15.4% 50.0%
Kivalliq Energy KIV 1.4% 9.1%
Energy Fuels EFR -13.3% -16.1%
Average 1.8% 5.8%
S&P TSX Global Base Metals Index -12.5% -10.9%
Source: Versant Partners
Rob Chang, (416) 849-5008 3 of 6
4. Uranium Reaction September 22, 2011
IF CASH IS KING
Uranium equities trading at the lowest multiples relative to their most recently
reported balance sheet cash positions are the following:
Exhibit 3. Top 10 Uranium Companies - Price to Balance Sheet Cash
September 22, 2011 All figures in $CAD
Enterprise Value Price/Cash Cash Shares
Company Name Stage Stock Price Market Cap (MM)
(MM) (MM) O/S
Continental Precious Minerals, Inc. (TSX:CZQ) Exploration $0.29 15.01 -4.69 0.8x 19.7 51.75
Tigris Uranium Corp. (TSXV:TU) Exploration $0.21 11.90 -0.85 0.9x 12.75 56.68
Australian American Mining Corporation Limited (ASX:AIW)
Pre-Feasibility $0.14 9.29 2.03 1.3x 7.26 66.34
Macusani Yellowcake, Inc. (TSXV:YEL) Exploration $0.18 19.40 4.91 1.3x 14.49 107.78
Alliance Resources Ltd. (ASX:AGS) Development $0.16 54.59 17.33 1.5x 37.26 341.17
Tournigan Energy Ltd. (TSXV:TVC) Pre-Feasibility $0.11 21.31 8.94 1.7x 12.37 193.73
Energia Minerals Limited (ASX:EMX) Exploration $0.09 6.26 2.65 1.7x 3.61 69.50
Powertech Uranium Corp. (TSX:PWE) Pre-Feasibility $0.12 12.40 14.17 1.8x 6.86 103.30
Uranium North Resources Corp. (TSXV:UNR) Exploration $0.15 12.68 5.87 1.9x 6.81 84.52
Strathmore Minerals Corp. (TSX:STM) Feasibility $0.52 46.77 31.56 2.1x 22.2 89.94
Source: Versant Partners and Capital IQ
IMPLIED EV/LB VALUATION
Applying the concept of mean reversion, a market-implied valuation can be
derived by applying the average EV/Lb value to the valuation of each
constituent company to determine its value if it reverted to the mean.
Exhibit 4. EV/Lb Averages by Development Stage
Global
# of 43-101/JORC
Stage Resource
Constituents EV/Lb Avg
EV/Lb Avg
Producer 7 $6.35 $7.94
Developer 4 $2.58 $2.37
Feasibility 7 $0.48 $0.44
Pre-Feasibility 10 $1.11 $0.95
Exploration 32 $1.41 $1.36
60 $1.63 $1.74
*Results higher than three standard deviations are removed from the calculation of averages
Source: Versant Partners
Rob Chang, (416) 849-5008 4 of 6
6. Uranium Update September 22, 2011
DISCLAIMERS AND DISCLOSURES
Disclaimers
The opinions, estimates and projections contained in this report are those of Versant Partners Inc. (“Versant”) as of the date hereof and
are subject to change without notice. Versant makes every effort to ensure that the contents have been compiled or derived from sources
believed to be reliable and that contain information and opinions that are accurate and complete; however, Versant makes no
representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions which may be
contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this report or its contents.
Information may be available to Versant that is not herein.
This report is provided, for informational purposes only, to institutional investor clients of Versant Partners Inc. Canada, and does not
constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would
be prohibited. This report is issued and approved for distribution in Canada, Versant Partners Inc., a member of the Investment Industry
Regulatory Organization of Canada ("IIROC"), the Toronto Stock Exchange, the TSX Venture Exchange and the CIPF. This report is
has not been reviewed or approved by Versant Partners USA., a member of FINRA. This report is intended for distribution in the
United States only to Major Institutional Investors (as such term is defined in SEC 15a-6 and Section 15 of the Securities Exchange Act
of 1934, as amended) and is not intended for the use of any person or entity that is not a major institutional investor. Major Institutional
Investors receiving this report should effect transactions in securities discussed in the report through Versant Partners USA.
Potential conflicts of interest
The author of this report is compensated based in part on the overall revenues of Versant, a portion of which are generated by
investment banking activities. Versant may have had, or seek to have, an investment banking relationship with companies mentioned in
this report. Versant and/or its officers, directors and employees may from time to time acquire, hold or sell securities mentioned herein
as principal or agent. Although Versant makes every effort possible to avoid conflicts of interest, readers should assume that a conflict
might exist, and therefore not rely solely on this report when evaluating whether or not to buy or sell the securities of subject companies.
Disclosures as of September 22, 2011
Versant has provided investment banking services or received investment banking related compensation from Kivalliq Energy and
Energy Fuels within the past 12 months. Versant has not received investment banking related compensation from Cameco, Fission
Energy, Uranium One, Uranium Participation and U3O8 Corp.
The analyst responsible for this research report does not have, either directly or indirectly, a long or short position in the shares or options
of Kivalliq Energy, Energy Fuels, Cameco, Fission Energy, Uranium One, Uranium Participation and U3O8 Corp.
The analyst responsible for this report has visited the material operations of U3O8 Corp, Uranium Energy Corp, Uranerz Energy and
Kivalliq Energy. The analyst responsible for this report has not visited the material operations of Cameco, Uranium One, Uranium
Participation, and Fission Energy.
Analyst certification
The research analyst whose name appears on this report hereby certifies that the opinions and recommendations expressed herein
accurately reflect his personal views about the securities, issuers or industries discussed herein.
Definitions of recommendations
BUY: The stock is attractively priced relative to the company’s fundamentals and we expect it to appreciate significantly from the
current price over the next 6 to 12 months.
BUY (Speculative): The stock is attractively priced relative to the company’s fundamentals, however investment in the security
carries a higher degree of risk.
NEUTRAL: The stock is fairly valued, lacks a near term catalyst, or its execution risk is such that we expect it to trade within a narrow
range of the current price in the next 6 to 12 months. The longer term fundamental value of the company may be materially higher, but
certain milestones/catalysts have yet to be fully realized.
SELL: The stock is overpriced relative to the company’s fundamentals, and we expect it to decline from the current price over the next
6 to 12 months.
TENDER: We believe the offer price by the acquirer is fair and thus recommend investors tender their shares to the offer.
UNDER REVIEW: We are temporarily placing our recommendation under review until further information is disclosed.
Member-Canadian Investor Protection Fund.
Customers' accounts are protected by the Canadian Investor Protection Fund within specified
limits. A brochure describing the nature and limits of coverage is available upon request.
Rob Chang, (416) 849-5008
![September 22, 2011
Industry Update
URANIUM REACTION
Japan “determined” to restart nuclear plants, why isn’t Germany?
JAPANESE PRIME MINISTER DETERMINED TO RESTART NUCLEAR PLANTS
Japanese Prime Minister Yoshihiko Noda has stated that it is “impossible” for Japan to get by economically
without nuclear power or under a quick phase out plan. Noting that a power shortage, “could bring down Japan’s
economy”, Noda indicated that “if we want [nuclear power] to go down to zero, development of alternative
energy must be advanced considerably ... it’s still too early to say if we can get to that stage”.
Exhibit 1. Japanese Prime Minister Yoshihiko Noda
Equity Research
Source: Wall Street Journal
The statement by the Japanese Prime Minister follows an estimated 30,000 citizen protest against nuclear power
in Tokyo. Noda intends to restart Japan’s idled reactors during the spring to summer period of 2012. Since the
events of March 11, nuclear reactors that were shut down for routine maintenance have been prevented from
restarting and fewer than a dozen of Japan’s 54 reactors are currently in operation. At the current rate, all nuclear
power reactors in Japan will be shut down by May 2012.
Anti-nuclear critics have contended that Japan managed pretty well this past summer while many nuclear power
plants were idled. Indicating that the situation is not as dire as the Prime Minister asserts. However, Chief Cabinet
Secretary Osamu Fujimura has noted that Japan only had a 2.7% power supply shortfall during peak electricity
demand this past summer. However, a power deficit of about 10% is projected for next summer if all reactors are
shut down.
Noda also noted that the reactors at Fukushima Daiichi are expected to achieve cold shutdown by the end of the
year, which would be a month ahead of schedule.
Rob Chang
rchang@versantpartners.com
(416) 849-5008
(866) 442-4485
Sales/Trading — Montreal: (514) 845-8111, (800) 465-5616; Toronto: (416) 363-5757, (866) 442-4485
See disclosure and a description of our recommendation structure at the end of this report.](https://image.slidesharecdn.com/20110922versantonuranium-110922211733-phpapp02/85/20110922-versant-on-uranium-1-320.jpg)
