1. Uranium Sector
November 15, 2013
David A. Talbot / (416) 350-3082
dtalbot@dundeecapitalmarkets.com
Aaron Salz / (416) 350-3371
asalz@dundeecapitalmarkets.com
Flurry of Supply Disruptions As U3O8 Price Starts Creeping Higher;
Loud Signal as EFR to Buy Spot Uranium to Sell into Term Contracts
We may have seen the bottom in uranium prices. Prices are starting to move quickly, up $0.65/lb U3O8 this week and
$1.50/lb over the past two weeks to ~$36.00/lb - and now some stocks are starting to follow suit. The uranium stock peer
groups on average are essentially trading sideways but most producers are up - Uranium Participation (U-T: BUY, C$7.50
target), Cameco (CCO-T: BUY, C$24.50 target), Ur Energy (URE-T: BUY, C$2.30) and developers like Denison (DML-T: BUY,
C$2.00). Surprise, these are the names Dundee likes and have been talking about for some time. We also believe that the big
money sitting on the sidelines will first enter some of the larger names as we see continued U3O8 price momentum.
You tack on some significant uranium industry news lately:
•
•
•
•
•
•
•
•
•
HEU Agreement is over. This takes 24 MM lbs of secondary supply offline (net 12 MM lbs given LEU and underfeeding)
The Russians said they would stop development of uranium projects including Mkuju River this week. This could take at
least 4-7 MM lbs annually offline from Mkuju alone.
The Kazakhs said they were going to stop future development last week - that could be 13 MM lbs +, perhaps more
depending how many ramp ups of existing operations are affected. We see the southern deposits in the country as being
higher cost, more technically challenging anyways.
Japan is shelving emissions reductions - citing Fukushima. This will likely anger work governments and
environmentalists and could help wake up the world to the importance of nuclear as part of a sustainable energy mix.
Japan is the world’s 3rd largest economy and 5th largest greenhouse gas emitter.
More Japanese reactors (2) began review. More applications (2) were made to undergo review to allow restart.
The US Government renewed import duties on French Low Enriched Uranium into the US. While this is more localized,
it still impacts the world’s largest fleet of nuclear power plants so this should be good for uranium producers.
Cameco delayed Cigar Lake start up in September. Start up at this world class mine was delayed by six months.
Uranium Participation is trading above par and is up 7% this month. This physical uranium holding company trades at a
2% premium to its NAV. We use this stock as a proxy for market sentiment - this suggests slightly positive sentiment.
Energy Fuels to buy uranium on the spot market for sale into its higher prices term contracts. This isn’t new supply!
We believe that Energy Fuels (EFR-T: BUY, C$17.00 target) quarterly report released overnight sends a strong signal and may
even reverberate throughout the industry. Looking beyond the numbers (reported loss of $70.9 MM, although removing
one-time items (including $61.5 MM in write-downs), a loss of $5 MM is slightly below what we were looking for at nil). This
company is a microcosm of what is happening in the sector. It opportunistically sold pounds (into term contracts) to pad its
balance sheet. Operating costs are coming down quickly. There were write downs at almost every asset due to low uranium
prices. It deferred construction at one mine, with plans to put another on care and maintenance in the new year due to low
uranium prices. This would likely mean a shutdown of the conventional side of its mill - meaning only its low cost (we
estimate ~$27/lb) alternate feed will be produced. Probably the most interesting point - Energy Fuels is buying at spot and
selling into term contracts. Its sales will be ~800,000 next year - and 300,000 will be purchased at spot. We believe the
market will take notice to this - that it’s cheaper to buy on spot than to operate the only conventional uranium mill in the US.
But bottom line, further production impacted due to low uranium prices suggesting prices must go higher. Buying at spot
and selling into term is not a source of new supply! We already expect 2020 demand at 240-260 MM lbs and supply at 200
MM lbs, although with all these recent events that threaten future supply, we see it as an even greater challenge to meet
this goal. Dundee's long term uranium price remains US$65/lb U3O8.
………………………..…………………………………………………………………………………………………………………………...…….continued on page 2
Please see Disclosures and Disclaimers at the end of this report.
A division of Dundee Securities Ltd.
Dundee Capital Markets is a registered trademark of Dundee Corporation, used under license.
2. Uranium Sector
November 15, 2013
We favor defensive names right now at these low uranium prices. However as we expect uranium prices to rise, we also
look to those with leverage to rising uranium prices and that have an ability to execute.
Our Top Picks include:
Uranium Participation (U-T, Buy, High Risk, C$7.50 Target) - Vehicle for pure uranium exposure; trades on positive sentiment;
large cap and liquid; trading at 2% premium to its NAV suggesting to us investors are pricing in a somewhat higher uranium
price than spot.
Cameco Corp. (CCO-T, Buy, High Risk, C$24.50 Target) - Defensive play and exposure to producer uranium class; blue-chip,
liquid and large cap; industry leader with world class assets; vertically integrated; Cigar Lake delayed but should enter
production early 2014; trades at $8.94/lb vs. $3.26/lb for peers, and 0.94x NAV vs. 0.53x for peers.
Energy Fuels (EFR-T, Buy, High Risk, C$17.00 Target) - Leverage to rising uranium prices; high priced contracts and effectively
100% hedged right now; acquisitive management team; massive expansion potential; cost profile coming down; trades at
$0.64/lb vs. $3.26/lb for peers and 0.36x NAV vs. 0.53x for peers.
Ur-Energy (URE-T, Buy, High Risk, C$2.30 Target) - Commissioning right now; low cost production; innovative mine design;
uranium sold forward at premium to spot; exciting development pipeline; financing risk largely absolved; trades at $3.43/lb vs.
$3.26 for peers and 0.50x NAV vs. 0.53x for peers.
Denison Mines (DML-T, Buy, High Risk, C$2.00 Target) - Advanced explorer in the Athabasca Basin; 158 MM lbs in global
resources; Prime takeover candidate; near-term cash flow generation from Cigar Lake toll milling; 60% ownership of Phoenix,
the world's third highest grade deposit; trades at $3.68/lb vs. $0.72/lb for peers and 0.57x NAV vs. 0.30x for peers.
Honorable Mentions include:
Paladin Energy (PDN-T, Buy, High Risk, C$1.20 Target) - Leverage to rising uranium prices (wild card); continued cost cutting
success at both operations; debt trimming with net debt down to US$545 MM; operations are performing well and even
above capacity; disciplined expansion approach; Paladin has been in the doghouse with unexpected equity raises and a
strategic alliance initiative underway that is taking longer than expected. We believe this is important as its successful
implementation could help provide cash and a third party valuation for its largest operation. PDN trades at $1.65/lb vs.
$3.26/lb for peers and 0.32x NAV vs. 0.53x for peers.
Uranium Energy Corp. (UEC-US, Buy, High Risk, US$3.20 Target) - Underperformance and now discount valuation suggests
buying opportunity (down -27% over last month compared to +3% for producer peers); Palangana slow down and Goliad push
back are characteristic with essentially other industry players; UEC has been a first mover in a bullish market; Goliad should
ramp up much quicker than Palangana and be lower cost (expected Q1/14); Burke Hollow is undergoing permitting and two
large Paraguayan projects could be monetized; Buy UEC for its pipeline and 100% ownership of its central Hobson ISR facility;
trades at $1.64/lb vs. $3.26/lb for peers and 0.52x NAV vs. 0.53x for peers.
DUNDEE CAPITAL MARKETS Page | 2
3. Uranium Sector
November 15, 2013
Table 1: Uranium peer comparison table separated by stage of development.
Producers:
EV
Reserves Resources
C$ MM MM lbs MM lbs
8,909.56
465
531
885.04
151
365
146.01
0
70
127.49
0
138
166.84
0
29
2,046.99
Last Price Shares O/S Mkt. Cap
C$
MM
C$ MM
Cameco Corp
19.86
395
7,853.96
Paladin Energy
0.39
963
322.32
Uranium Energy Corp. US 1.67
86
150.18
Energy Fuels
6.08
20
119.30
Ur Energy Inc
1.15
122
140.84
AVERAGE
Cash
C$ MM
272.77
131.28
14.17
13.44
8.00
Debt
C$ MM
1,328.37
694.01
10.00
21.64
34.00
Developers:
Cash
C$ MM
27.80
6.30
11.96
8.62
3.91
24.68
4.04
5.95
22.91
2.11
0.32
15.04
3.04
1.83
2.90
6.10
1.39
0.64
17.50
Debt
EV
Reserves Resources
C$ MM C$ MM MM lbs MM lbs
0.15
498.88
0
129
5.88
66.46
0
18
0.00
60.95
0
86
11.75
86.80
0
74
0.00
28.23
0
122
0.00
17.48
0
61
0.00
36.06
0
125
4.80
25.61
0
62
0.00
1.63
0
45
1.00
56.31
7
0
12.96
23.71
0
27
0.00
6.33
0
43
7.45
19.56
119
94
0.00
10.17
0
17
0.00
15.44
0
61
4.21
5.54
0
119
0.00
2.79
0
41
0.51
13.25
0
23
0.00
53.55
0
54
54.15
Last Price Shares O/S
C$
MM
Denison Mines
1.14
450
Uranerz Energy
0.87
86
UEX Corp
0.32
228
Toro Energy
A 0.08
1,042
D Yellow
A 0.02
1,612
Berkeley Resources
A 0.25
179
Forsys Metals
0.37
110
Laramide Resources
0.37
73
Rockgate Capital Corp
0.21
117
Uranium Resources
US 2.72
20
Strateco Resources
0.06
185
Mega Uranium
0.08
267
Bannerman Resources
0.05
316
Anatolia Energy
A 0.07
226
Macusani Yellowcake
0.12
159
Virginia Energy
0.17
45
European Uranium
0.08
52
Powertech Uranium
0.10
145
Peninsula Energy
A 0.02
3,041
AVERAGE
Explorers:
Fission Uranium
Mawson Resources
Kivalliq Energy
U3O8 Corp
Alpha Minerals
Vena Resources
Pele Mountain
Forum Uranium
Purepoint Uranium
Canalaska Uranium
Bayswater Uranium
Blue Sky Uranium
Uracan Resources
Anthem Resources
Azincourt Resources
NexGen Energy
AVERAGE
Mkt. Cap
C$ MM
526.53
66.87
72.91
A 83.66
A 32.14
A 42.16
40.10
26.76
24.55
US 57.42
11.07
21.37
15.16
A 12.00
18.34
7.44
4.19
13.38
A 71.05
Last Price Shares O/S Mkt. Cap
C$
MM
C$ MM
1.12
152
169.68
0.61
65
39.91
0.19
191
34.98
0.10
162
15.26
5.62
27
152.49
0.09
67
5.74
0.05
165
7.30
0.31
26
5.89
0.05
107
5.34
0.11
22
2.32
0.05
24
1.20
0.05
24
1.18
0.08
29
2.16
0.07
35
2.48
0.28
27
7.35
0.28
83
23.22
Cash Debt
EV
Reserves Resources
C$ MM C$ MM C$ MM MM lbs MM lbs
25.25
0.00
144.43
0
0
6.80
0.00
33.11
0
0
4.40
0.00
30.58
0
43
0.92
0.00
14.34
0
48
19.00
0.00
133.49
0
0
0.07
0.32
5.99
0
36
0.50
0.00
6.80
0
49
2.50
0.00
3.39
0
0
0.50
0.00
4.84
0
0
1.20
0.00
1.12
0
0
0.15
0.00
1.05
0
16
0.65
0.00
0.53
0
0
0.04
0.01
2.13
0
44
5.17
0.00
-2.69
0
0
1.00
0.00
6.35
0
0
6.60
0.00
16.62
0
0
25.13
Total
Compliant
MM lbs
996
516
70
138
29
Historical
Resource EV/lb Rating
MM lbs US$/lb
0
8.94
Buy
22
1.65
Buy
20
1.64
Buy
61
0.64
Buy
20
3.43
Buy
3.26
1 mo
9%
-7%
-27%
1%
8%
-3%
Performance
3mo 6mo
-3% -7%
-36% -57%
-32% -6%
-36% -13%
5% 29%
-20% -11%
NAV P/NAV
1yr
19% 21.12 0.94x
-54% 1.20 0.32x
-15% 3.21 0.52x
-24% 17.02 0.36x
49% 2.30 0.50x
-5%
0.53x
Total
Compliant
MM lbs
129
18
86
74
122
61
125
62
45
7
27
43
213
17
61
119
41
23
54
Historical
Resource EV/lb Rating
Risk
Target
MM lbs US$/lb
C$ 1 mo
6
3.68
Buy
High
2.00 10%
4
2.97
Buy
High
2.65 -7%
0
0.71
Buy
High
1.70 -9%
0
1.17
Buy Speculative n/a
0%
0
0.23
Buy Speculative n/a
0%
0
0.29
Buy
High
0.85 9%
0
0.29
-9%
Not Rated
3
0.39
Buy
High
2.00 -19%
0
0.04
Buy
High
1.35 11%
101
0.52
2%
Not Rated
10
0.64
-8%
Not Rated
0
0.15
14%
Not Rated
0
0.09
Not Rated
0%
0
0.58
3%
Not Rated
0
0.25
92%
Not Rated
0
0.05
-24%
Not Rated
4
0.06
-30%
Not Rated
1
0.55
Buy
High
0.45 19%
0
1.00
-4%
Not Rated
0.72
3%
Performance
3mo 6mo
-9% -5%
-33% -31%
-41% -35%
-6% -2%
-40% -48%
-11% -12%
-24% -40%
-34% -48%
35% 20%
-25% 19%
20% -8%
-11% -27%
-17% -9%
9% 24%
77% -4%
-43% -53%
-56% -68%
12% 58%
-20% -4%
-11% -14%
1yr
8%
-27%
-42%
-25%
-70%
-40%
-42%
-52%
-56%
-15%
-71%
-43%
-29%
44%
15%
-62%
-10%
-47%
-31%
Historical
Resource EV/lb Rating
Risk
Target
MM lbs US$/lb
C$ 1 mo
0
Restr.
Restr.
n/a
1%
0
Buy Speculative n/a 49%
0
0.71
Buy Speculative n/a -23%
0
0.30
Buy Speculative n/a -5%
0
-6%
Not Rated
0
0.17
13%
Not Rated
0
0.14
-18%
Not Rated
0
-7%
Not Rated
0
0%
Not Rated
-5%
Not Rated
0
0.07
11%
Not Rated
0
-9%
Not Rated
0
0.05
50%
Not Rated
0
0%
Not Rated
0
22%
Not Rated
0
Buy
Venture
n/a -14%
0.24
4%
Performance
3mo 6mo
-16% 104%
15% 9%
-23% -38%
-21% -34%
-18% 70%
0% -29%
-18% -10%
-9% -22%
-33% -17%
-5% -25%
-29% -38%
11% 25%
25% 42%
0% 27%
8%
-7%
-30% -18%
-9% 2%
1yr
-46%
-49%
-65%
389%
-45%
0%
-48%
-23%
-38%
-44%
-55%
0%
-52%
30%
-32%
-5%
Total
Compliant
MM lbs
0
0
43
48
0
36
49
0
0
0
16
0
44
0
0
0
Risk
High
High
High
High
High
Target
C$
24.50
1.20
3.20
17.00
2.30
NAV P/NAV
2.00
2.65
1.70
n/a
n/a
0.85
0.57x
0.33x
0.19x
n/a
n/a
0.29x
2.00 0.18x
n/a
n/a
0.45 0.21x
0.30x
NAV P/NAV
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Source: Company Reports, FactSet, Dundee Capital Markets
DUNDEE CAPITAL MARKETS Page | 3
4. Uranium Sector
November 15, 2013
Disclosures & Disclaimers
This research report (as defined in IIROC Rule 3400) is issued and approved for distribution in Canada by Dundee Securities
Ltd. (“Dundee Capital Markets”), an investment dealer operating its business through its two divisions, Dundee Capital
Markets and Dundee Goodman Private Wealth. Dundee Capital Markets is a member of the Canadian Investor Protection
Fund, the Investment Industry Regulatory Organization of Canada and an investment fund manager registered with the
securities commissions across Canada. Dundee Capital Markets is a subsidiary of Dundee Corporation.
Research Analyst Certification: Each Research Analyst involved in the preparation of this research report hereby certifies that:
(1) the views and recommendations expressed herein accurately reflect his/her personal views about any and all of the
securities or issuers that are the subject matter of this research report; and (2) his/her compensation is not and will not be
directly related to the specific recommendations or views expressed by the Research Analyst in this research report. The
Research Analyst involved in the preparation of this research report does not have authority whatsoever (actual, implied or
apparent) to act on behalf of any issuer mentioned in this research report.
U.S. Residents: Dundee Securities Inc. is a U.S. registered broker-dealer, a member of FINRA and an affiliate of Dundee Capital
Markets. Dundee Securities Inc. accepts responsibility for the contents of this research report, subject to the terms and
limitations as set out above. U.S. residents seeking to effect a transaction in any security discussed herein should contact
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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 are not intended for the use of any person or entity.
UK Residents: Dundee Securities Europe LLP, an affiliate of Dundee Capital Markets, is authorized and regulated by the
United Kingdom’s Financial Conduct Authority (No 586295) for the purposes of security broking & asset management.
Research prepared by UK-based analysts is under the supervision of and is issued by its affiliate, Dundee Capital Markets.
Dundee Securities Europe LLP is responsible for compliance with applicable rules and regulations of the FCA, including Chapter
12 of the FCA’s Conduct of Business Sourcebook (the “FCA Rules”) in respect of any research recommendations (as defined in
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General:
This research report is provided, for informational purposes only, to institutional investor and retail clients of Dundee Capital
Markets in Canada. This research report is not an offer to sell or the solicitation of an offer to buy any of the securities
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The information contained in this research report is prepared from publicly available information, internally developed data
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Capital Markets makes no representations or warranties with respect to the accuracy, correctness or completeness of such
information and they should not be relied upon as such. All estimates, opinions and recommendations expressed herein
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does not accept any obligation to update, modify or amend this research report or to otherwise notify a recipient of this
research report in the event that any estimates, opinions and recommendations contained herein change or subsequently
becomes inaccurate or if this research report is subsequently withdrawn.
Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is made
regarding future performance of any security mentioned in this research report. The price of the securities mentioned in this
research report and the income they produce may fluctuate and/or be adversely affected by market factors or exchange rates,
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DUNDEE CAPITAL MARKETS Page | 4
6. Uranium Sector
November 15, 2013
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Watchlist companies. The companies will have recommendations and risk ratings as per our regular rating system, see Explanation
of Recommendations and Risk Ratings for details. Risk ratings will be either Speculative or Venture. Speculative Risk rated
companies are those companies that have published National Instrument 43-101 or JORC compliant resources or reliable historic
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system, see Explanation of Recommendations and Risk Ratings for details. Risk ratings will be either Speculative or Venture.
Speculative Risk rated companies are those companies that have published National Instrument 51-101 or SPE compliant
resources or reliable historic resources and/or economic evaluations for material project(s) that could reasonably form the
basis of a discounted cash flow analysis. Venture Risk rated companies are those companies that are generally at an earlier
stage of exploration and/or development, where no material resource estimate exists, or there is significant uncertainty with
respect to firm drilling timing and prospects. No price targets will be set for Oil & Gas Exploration Watchlist companies as
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Total returns expected to be materially lower than the overall market. TENDER: The analyst recommends tendering shares to
a formal tender offer. UNDER REVIEW: The analyst will place the rating and/or target price Under Review when there is a
significant material event with further information pending; and/or when the analyst determines it is necessary to await
DUNDEE CAPITAL MARKETS Page | 6
7. Uranium Sector
November 15, 2013
adequate information that could potentially lead to a re-evaluation of the rating, target price or forecast; and/or when
coverage of a particular security is transferred from one analyst to another to give the new analyst time to reconfirm the
rating, target price or forecast.
Risk Ratings: risk assessment is defined as Medium, High, Speculative or Venture. Medium: securities with reasonable liquidity
and volatility similar to the market. High: securities with poor liquidity or high volatility. Speculative: where the company's
business and/or financial risk is high and is difficult to value. Venture: an early stage company where the business and/or
financial risk is high, and there are limited financial metrics upon which to base a reasonable valuation.
Investors should not deem the risk ratings to be a comprehensive account of all of the risks of a security. Investors are
directed to read Dundee Capital Markets Research reports that contain a discussion of risks which is not meant to be a
comprehensive account of all the risks. Investors are directed to read issuer filings which contain a discussion of risk factors
specific to the company’s business.
Medium and High Risk Ratings Methodology: Medium and High risk ratings are derived using a predetermined methodology
based on liquidity and volatility. Analysts will have the discretion to raise but not lower the risk rating if it is deemed a higher
risk rating is warranted. Risk in relation to forecasted price volatility is only one method of assessing the risk of a security and
actual risk ratings could differ.
Securities with poor liquidity or high volatility are considered to be High risk. Liquidity and volatility are measured using the
following methodology: a) Price Test: All securities with a price <= $3.00 per share are considered high risk for the purpose of
this test. b) Liquidity Test: This is a two-tiered calculation that looks at the market capitalization and trading volumes of a
company. Smaller capitalization stocks (<$300MM) are assumed to have less liquidity, and are, therefore, more subject to
price volatility. In order to avoid discriminating against smaller cap equities that have higher trading volumes, the risk rating
will consider 12 month average trading volumes and if a company has traded >70% of its total shares outstanding it will be
considered a liquid stock for the purpose of this test. c) Volatility Test: In this two step process, a stock’s volatility and beta are
compared against the diversified equity benchmark. Canadian equities are compared against the TSX while U.S. equities are
compared against the S&P 500. Generally, if the volatility of a stock is 20% greater than its benchmark and the beta of the
stock is higher than its sector beta, then the security will be considered a high risk security. Otherwise, the security will be
deemed to be a medium risk security. Periodically, the equity risk ratings will be compared to downside risk metrics such as
Value at Risk and Semi-Variance and appropriate adjustments may be made. All models used for assessing risk incorporate
some element of subjectivity.
SECURITY ABBREVIATIONS: NVS (non-voting shares); RVS (restricted voting shares); RS (restricted shares); SVS (subordinate
voting shares).
Dundee Capital Markets Equity Research Ratings
77%
68%
% of companies covered by Dundee Capital Markets
in each rating category
66%
55%
44%
% of companies within each rating category for which
Dundee Capital Markets has provided investment
banking services for a fee in the past 12 months.
34%
28%
33%
25%
22%
11%
4%
0%
0%
Buy
Neutral
Sell
As at September 30, 2013
Source: Dundee Capital Markets
DUNDEE CAPITAL MARKETS Page | 7
