uranium post-fukushima: the impact on equities

INDUSTRIAL METALS, MINERALS & MINEABLE ENERGYINVESTMENT SUMMIT

IRONMONGERS’ HALL, CITY OF LONDON ● THURSDAY, 3 NOV 2011

www.ObjectiveCapitalConferences.com

Uranium post-Fukushima: the impact on equitiesPhilip Macoun – CRU Strategies

Uranium Post Fukushima – the Impact on Equities?

Philip Macoun

Uranium equities - Dumped in March, then it just got worse

CRU | THE INDEPENDENT AUTHORITY 3

Continuing lack of interest – volumes are minimal


Even less interest in physical U3O8


Presentation Outline

• Introduction to CRU• A brief look at the fundamentals• Mining costs• Will uranium attract sufficient investment to meet future

supply needs?• Summary


pmacoun

Line at the top - An Overview of CRU Non Ferrous Capabilities ? not required ?The slide has too much fine detailAll the text below the > points should be taken out. You don't want the audience focusing on the screen trying to read it all (which they will try to do). Better that they listen to you than try to read it all.They wouldn't remember it all anyway.Keep it in for any versions of this that you might send to people, but leave it out for the Presentation


Published reports and consulting assignments

In Uranium.....

Short term impact of Fukushima on demand is significant; longer term a reduction of around 3-4% per annum. Net Primary Demand, pre-Fukushima forecast vs. preliminary post-Fukushima numbers


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Pre-Fukushima Preliminary Post-Fukushima

Short-term down10-20% per annum

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Mine supply has the potential to outstrip demand in the short-term...


Almost 6% growth per annum in potential supply

Our five year balance: Short-term downward pressure on price; we are still short of uranium in 5 years time


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China Strategic stockpiling

Balance mostly taken up by reduction in supply and Chinese strategic stockpiling





pmacoun

You need to make Mining costs Bold to highlight where you are up to

Costs at ISL mines are more exposed to consumable prices; conventional mines are more sensitive changes to labour rates.Cost breakdown 2010, by input and mine type, weighted average according to 2010 production


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ISL Open pit Underground

Labour Energy Consumables Services and Maintenance Capital

Averaging almost 80% H2SO4

Sulphuric acid prices have risen considerably since 2009 increasing costs at ISL mines particularly in Kazakhstan


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FOB Vancouver

Sulphuric Acid Sulphur

The commodities boom has lead to a severe shortage of skilled labour in the mining industry – uranium is no exception...

CRU | THE INDEPENDENT AUTHORITY19

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...US dollar depreciation has compounded the problem in Australia and Canada, reducing competitiveness...


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its not easy to work out which line applies to each currency. It might be worth just putting the currency symbol at the end of each line i.e AUD, ZAR, CAD etc.Who knew the Zambian currency was call "Kwacha"

...however steep rises in wages are expected in the developing world.


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Average costs in US Dollars are up more than 20% in 2010 compared to 2009Business Costs Curve 2010


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Cumulative Production (tonnes U3O8)

The project pipeline: lower grades and a smaller resource base on average...


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...over the long term we still expect that a price over $60 will be required to attract sufficient new supply.Economic Costs Curve, 2030, 90th percentile


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Cumulative Production ('000 tonnes U 3O8)

LRMC at $97/lb, or $63/lb in real terms

Breakdown of uranium supply Uranium supply, by source type and by country

Primary Supply

Secondary Supply Reprocessed material from surplus nuclear weapons or used fuel

Mined uranium

Data: CRU

Even after the impact of Fukushima on the demand outlook, the supply of primary uranium will need to nearly double by 2020

What is happening to primary supply ?

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Even after the impact of Fukushima on the demand outlook, the supply of primary uranium will need to nearly double by 2020

What is happening to primary supply ?

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Primary supply must

increase by 98% !


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Uranium Oil Aluminium Copper Lead Nickel Tin Zinc

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Base Metals Uranium

The uranium price has outperformed all base metals over the last decade... Base metals index: Aluminium, Copper, Lead, Nickel, Tin and Zinc

...however prices have tracked much more closely over the last five years


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Compared to other mined commodities uranium prices are expected to perform well over the next 5 years...


Tin, Zinc, Uranium, Nickel, Aluminium, Molybdenum, Vanadium, Alumina, Cobalt

Manganese, Copper, Lead, Palladium

Platinum, Potash, Iron Ore, Finished Steel (HRC)

Met Coke, Phosphate Rock, Tungsten, Gold Ammonia, Coking Coal, Urea, Sulphuric Acid,

Silver, Sulphur

Arid (+15%)

Tropical(0 to +15%)

Temperate(0 to -15%)

Polar(-15%)

Source: CRU Note: * 2016 annual outturn price forecast (Nominal US$ or benchmark) versus Sep 2011 spot

However, from an investors perspective the ideal commodity is NOT all about price!


Supply Constraints is there a scramble emerging?

Resource availability

Producer consolidation

Supply response

Demand Issues the market now and in the

future

Consumption growth

Substitution

Recyclability

Regional issues – what are the risks?

Entry opportunities

Attitude to mining

Synergy issues

Uranium has been scored against a number of other commodities...


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Consumption growth 1 4 4 3 3 3 2 3 3 3 2 4 4 2 3Substitution 1 3 4 4 4 3 2 4 3 3 3 4 4 2 3Recycling 1 4 5 3 2 5 1 5 3 3 3 3 2 1 3Resources 1 3 2 1 4 2 3 5 5 3 4 3 3 2 2Supply Response 1 4 4 4 4 2 2 3 4 2 3 3 4 2 3Producer consolidation level

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Synergy / Technical Match

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...and ranks highly despite a higher risk profile.


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Demand Supply Risk

pmacoun

the two highest rank commodities Potash and Met coal are shown as Temperate and Polar respectively on the price appreciation chart.You might get a question about that from some eagle eyed observer !"Ah Mister Hiscock, why you ranking Met coal so highly when price forecast to fall more than 15% in next 5 years ??"

Conclusions Uranium – Post Fukushima?

• The market impact of Fukushima– Significant in the short-term – to both demand and sentiment– Has not greatly altered the long-term demand– Life is now much more difficult for new projects

• Mining costs have risen above pre-global financial crisis levels...

• ...and are expected to rise further as projects in the pipeline have lower grades and a smaller resource base on average

• But – to meet rising demand, primary supply must double• Prices will need to rise to attract new investment • Uranium should be an attractive commodity for companies

and long-term investors going forwardCRU | THE INDEPENDENT AUTHORITY 36

Thank you

3737

CRU contacts for further information:

In LondonPhilip Macoun, Principal Consultant, CRU Strategies(+44 20 7903 2200 * [email protected] Hiscock, Consultant, CRU Strategies(+44 20 7903 2244 * [email protected]

In the USAIrv Adler, VP, Business Development, North America, CRU(+1 260 918 3643 * [email protected]

In SydneyPhilip Sewell, Business Development Manager, Australasia, CRU (+61 2 9387 8842 * [email protected]

In PerthAllan Trench, Regional Director, Australasia, CRU (+61 (0)43 709 2466 * [email protected]: www.crugroup.com

mailto:[email protected]






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