Expanding Coverage Of Uranium
Producers
Uranium's Light Still Shines Bright

We believe the uranium market has been and will remain in deficit for some
time with government and utility inventories filling the gap. With new
reactors proposed, global uranium demand is expected to continue on a
steady uptrend for years to come calling for significant new supply.

While speculation drove prices to highs of $136/lb. in 2007 and brought
forward many new development proposals, little new supply has actually
seen the light of the day and the recent pullback in prices has actually seen
capacity losses. Higher long-term prices are needed to support new builds.

While nothing happens fast in the uranium industry due to regulations, the
fundamentals remain compelling given the backlog of demand for new
reactors and the entrance of India and Russia to the global market. At the
same time, new supply remains in question.

In this report and accompanying company-specific reports, we are
expanding coverage of uranium producers to include Paladin Energy (SO,
C$3.50 price target) and Uranium One (SO, C$2.75 price target), as of
January 13. We are also downgrading Cameco to SP from SO.
All figures in US dollars, unless otherwise stated. 09-93968 © 2009
CIBC World Markets does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their
investment decision.
See "Important Disclosures" section at the end of this report for important
required disclosures, including potential conflicts of interest.
See "Price Target Calculation" and "Key Risks to Price Target" sections at the
end of this report, or at the end of each section hereof, where applicable.

Investment Summary
We believe the uranium mining and nuclear power generating industries are
among the least affected by the ongoing global economic turmoil. This is
because every pound of uranium mined will be consumed in the generation of
electrical power by nuclear power plants despite the pullback in the world’s
economies as electricity generation will continue. With no substitute available
and very low operating costs, overall consumer demand is not really declining as
the potential for closures within the generating business is extremely remote.
Other higher cost generating capacity would be curtailed prior to the closing of
any nuclear power plant. As such, the sector can be viewed as relatively
defensive in nature during these uncertain times.
Not only is near-term demand firm but as has been well known by the market for
years, the industry has been running a sustained supply deficit as government and
utility inventories have been consumed over the past 20 years after having been
built up during the Cold War period. This inventory drawdown cannot go on
forever and new supply is needed to meet ongoing current demand levels, as well
as to begin addressing the increasing demand from new reactor builds that are
being proposed on a global basis. Today there are 442 reactors operating and 35
reactors at some stage of construction with a further 70+ being proposed. With
public opinion coming around to support nuclear power, we expect this demand
profile to provide a long-term need for new uranium supply sources, many of
which require higher prices to be economic on a total cost basis.
This strong demand picture was one factor that led to the speculative run-up in
spot prices in 2006-2007 when uranium spot prices peaked at $136/lb. Typically
periods of high prices bring on a surge of new supply, however given the huge
regulatory burden on the uranium sector, only limited new supply was activated
during this period. Furthermore the collapse in prices seen in 2008, followed by
the financial crisis has actually led to some capacity curtailments and many new
projects being put back on the shelf. As such, the long-term supply-side need
remains intact if the industry is to enable the growth in nuclear generating
capacity. It is very much a chicken and egg scenario. For more nuclear power
generation to be possible, more uranium needs to be mined. However, investors
must realize the glacial pace of change in the nuclear industry. Furthermore,
while on paper there is a strong demand-side story, if new sources of supply are
not forthcoming, the investment in new generating capacity is likely to be
delayed. As such, new commitments to supply are needed today to fulfill the
demand needs of the next decade given the time required for development.
In light of our continued long-term positive view towards the uranium sector, we
are expanding our coverage of Canadian-listed producers in addition to our
current coverage of Cameco (CCO-SP). We have looked at our recommendations
relative to each other more than other names in our coverage universe. Valuation
metrics for uranium producers are somewhat hard to pin down in light of the
swings in share prices seen over the past year. At the peak, many market
participants were suggesting a precious metals type valuation such as 2x net asset
value (NAV) for targeting purposes to reflect the unique nature of the sector
especially as earnings and cash flow are not necessarily comparable in light of
legacy sales contracts for some producers, which limit exposure to near-term
uranium price changes. Furthermore, Cameco has historically traded at a premium
to its long-term NAV. We have based our price targets using relative valuation
metrics based upon the companies’ NAVs under our long-term uranium forecast of
$60/lb. and have then adjusted our price targets to reflect financial, operating and
political risks. Our analysis has also highlighted the strong correlation to the
overall energy sector, namely oil producers, for uranium producers, which need to
be taken into consideration by investors.

admin  魅力 +20  奖励 2009-1-23 12:59:47