RBC Dominion Securities Inc. Metal Prospects Uranium ...believe that the tight market in 2008 will...

RBC Dominion Securities Inc.

Adam Schatzker (Analyst) (416) 842-7850 [email protected]

H. Fraser Phillips (Analyst) (416) 842-7859 [email protected]

Robin Kozar (Associate) (416) 842-7861 [email protected]

Jamie Riff (Associate) (416) 842-5339 [email protected]

David Ing (Associate) (416) 842-7893 [email protected]

March 24, 2008

This report is priced as of market close March 14, 2008 ET.

All values in U.S. dollars unless otherwise noted.

For Required Disclosures, please see page 27.

Metal Prospects Uranium Market Outlook – Second Quarter 2008 Demand • We foresee uranium demand growing by an average of 3.9% per year during the next 25

years, in line with our previous forecast. We expect that new reactors will take many years to permit and build; however, we believe the demand for material will precede reactor commissioning by many years.

• Announcements continue to be made by governments and companies around the world regarding potential new nuclear plants. We believe this trend will continue as nuclear power continues to be seen as a clean alternative for baseload generation.

Supply • The supply of uranium is forecast to grow by an average of 7.9% annually until 2013, down

from our previous forecast of 9%. We have adjusted our supply forecast slightly, mainly driven by decreased production from Uranium One, the lower production from new Kazakh ISR mines due to acid shortages, and shortages and delays caused by electricity shortages in South Africa. After 2015, we are forecasting that uranium supply will decrease by an average of approximately 5% per year based on reserve exhaustion. The high uranium price has already begun to attract new production and increased exploration spending to try to fill the gap post 2017. We believe the uranium price will continue to remain at levels that are sufficient to justify the continued exploration for, and development of, new deposits.

Market Balance • We expect that the market will be in either a small deficit or balance for 2007 through 2009

due to shortfalls on the production side. From 2010 to 2013 we foresee small surpluses developing; however, we think that any surplus material will be purchased by consumers looking for initial cores or inventory, or by countries like India and China that are seeking to build strategic uranium inventories. From 2015 onward, our projections indicate a potential for a severe and growing deficit.

Price Forecasts • Our spot price forecasts to 2017 are unchanged this quarter compared to last quarter;

however, we have raised our long-term price by $10/lb to $45/lb. We continue to believe that the tight market in 2008 will result in a modest deficit. Therefore, we are forecasting a rising uranium spot price in 2008.

2006A 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E Long-Term

New $48 $99 $110 $100 $95 $90 $75 $75 $70 $60 $50 $50 $45

Previous $48 $99 $110 $100 $95 $90 $75 $75 $70 $60 $50 $50 $35

Source: RBC Capital Markets estimates

Risks to Forecast • Any major problem with a nuclear reactor could quickly curtail new reactor builds and

thereby reduce demand. • Technical or regulatory problems could reduce mine supply. • Material owned by speculators and investors could temporarily flood the market.

Uranium Market Outlook March 24, 2008

2 Adam Schatzker

Table of Contents Price Forecast Analysis ...................................................................................................... 5

Uranium Supply ................................................................................................................. 9

Supply – General Comments.............................................................................................. 9

Primary Mine Supply ....................................................................................................... 11

Secondary Uranium Supply ............................................................................................. 16

Highly Enriched Uranium ................................................................................................ 16

MOX and RepU ............................................................................................................... 17

Russian Suspension Agreement (RSA)............................................................................ 17

Uranium Demand ............................................................................................................. 18

WNA Demand Forecast Analysis .................................................................................... 18

Nuclear Generating Costs................................................................................................. 25

Required Disclosures ....................................................................................................... 27

Additional Disclosures ..................................................................................................... 32

March 24, 2008 Uranium Market Outlook

Adam Schatzker 3

Exhibit 1: Uranium/Supply Demand Balance (MM lb U3O8 equivalent)

Supply:U3O8 Production: 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Western World Existing 66.04 75.68 77.98 71.85 68.60 73.07 81.35 77.06 83.10 88.60 92.40 92.30 92.91

Planned 0.00 0.00 0.00 0.00 0.00 1.69 4.21 11.11 17.53 29.67 36.66 45.80 46.82

Total 66.04 75.68 77.98 71.85 68.60 74.77 85.56 88.16 100.64 118.28 129.06 138.10 139.73

% Change Year/Year 14.6% 3.0% -7.9% -4.5% 9.0% 14.4% 3.0% 14.1% 17.5% 9.1% 7.0% 1.2%

Former East Block Existing 25.86 27.16 31.20 33.54 38.11 44.81 52.41 55.83 57.87 60.27 61.88 61.52 61.91

Planned 0.00 0.00 0.00 0.00 0.00 1.41 3.53 5.31 7.51 11.00 14.76 17.09 18.13

Total 25.86 27.16 31.20 33.54 38.11 46.23 55.94 61.14 65.38 71.27 76.64 78.62 80.04

% Change Year/Year 5.0% 14.8% 7.5% 13.6% 21.3% 21.0% 9.3% 6.9% 9.0% 7.5% 2.6% 1.8%

Total World Existing 91.91 102.84 109.18 105.38 106.71 117.89 133.76 132.89 140.98 148.87 154.28 153.83 154.83

Planned 0.00 0.00 0.00 0.00 0.00 3.11 7.74 16.41 25.04 40.68 51.42 62.89 64.95

Total 91.91 102.84 109.18 105.38 106.71 121.00 141.50 149.31 166.02 189.55 205.70 216.72 219.77

% Change Year/Year 11.9% 6.2% -3.5% 1.3% 13.4% 16.9% 5.5% 11.2% 14.2% 8.5% 5.4% 1.4%

Former Soviet Union Exports: 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Russian EUP 13.00 12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 5.00 5.00 5.00 5.00

Re-enriched Tails 13.00 13.00 13.00 13.00 13.00 13.00 12.00 9.00 6.00 6.00 6.00 6.00 6.00

HEU Feed - - - - - - 8.00 8.00 8.00 8.00 8.00 - -

HEU Feed II - - - - - - - - - - - - -

Kazak EUP 2.00 - - - - - - - - - - - -

Total 28.00 25.00 24.00 23.00 22.00 21.00 27.00 23.00 19.00 19.00 19.00 11.00 11.00

HEU Feed: 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

GNSS (U.S. Quota) 4.80 5.60 6.40 6.80 7.20 7.60 - - - - - - -

Cameco/Cogema/Nukem 7.20 8.40 9.60 10.20 10.80 11.40 12.00 12.00 12.00 12.00 12.00 - -

Total 12.00 14.00 16.00 17.00 18.00 19.00 12.00 12.00 12.00 12.00 12.00 - -

Other: 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

USEC Sales 9.50 8.00 7.00 6.00 3.00 1.00 1.00 1.00 1.00 0.50 - - -

U.S. Government Stockile Sales - - - 2.86 0.52 1.00 1.00 2.10 3.10 4.20 4.20 4.20 4.20

TVA - - 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50

DOE HEU - - - - - - - - - - - - -

MOX & Reprocessed U 6.00 7.50 8.50 8.50 6.70 6.50 7.60 7.50 6.70 7.00 7.00 7.00 7.00

Total 15.50 15.50 17.00 18.86 11.72 10.00 11.10 12.10 12.30 13.20 12.70 12.70 12.70

Supply: 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Total U3O8 Supply 147.41 157.34 166.18 164.24 158.43 171.00 191.60 196.41 209.32 233.75 249.40 240.42 243.47

% Change Year/Year 6.7% 5.6% -1.2% -3.5% 7.9% 12.1% 2.5% 6.6% 11.7% 6.7% -3.6% 1.3%

Demand:

Reactor & Inventory Requirements 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

RBC Base Demand 181.33 171.59 167.99 166.86 170.43 173.78 191.60 196.41 204.89 205.93 219.01 232.40 242.37

% Change Year/Year -5.4% -2.1% -0.7% 2.1% 2.0% 10.3% 2.5% 4.3% 0.5% 6.4% 6.1% 4.3%

Market Balance & Price

Implied Market Surplus/Deficit: 2003 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

World Basis

RBC Base Demand Case -33.93 -14.25 -1.81 -2.61 -12.00 -2.79 0.00 0.00 4.43 27.82 30.39 8.02 1.10

Average Spot Price US$/lb U3O8 $11.38 $18.32 $28.14 $47.91 $98.68 $110.00 $100.00 $95.00 $90.00 $75.00 $75.00 $70.00 $60.00

Average Term Price US$/lb U3O8 $12.10 $20.33 $30.73 $49.41 $93.68 $95.00 $95.00 $90.00 $85.00 $70.00 $70.00 $65.00 $55.00 Source: World Nuclear Association, Ux Consulting, company reports, RBC Capital Markets estimates


4 Adam Schatzker

The World Nuclear Association (WNA) supply and demand forecast (The Global Nuclear Fuel Market – Supply and Demand 2007–2030) was released in September 2007. The WNA book is a bi-annual publication in which the supply and demand for uranium, conversion, enrichment, fuel fabrication and nuclear electricity generation are forecast. We have used the WNA data as the foundation for our U3O8 demand forecast. However, we believe that there are shortfalls to the WNA methodology, which we address later. As a result, our forecast demand is somewhat higher than that forecast by the WNA. This is discussed in detail in the “Uranium Demand” section of this report. Our uranium spot price forecast remains unchanged this quarter. We think that the uranium price has already experienced its peak in the summer of 2007 at $135/lb U3O8. Looking forward, we believe the price will remain, on average, above $100/lb for 2008 and 2009; however, we believe the speculator-driven market is a thing of the past and that prices will remain at more reasonable levels compared to those experienced in the first half of 2007. As new supply sources enter the market and surpluses become apparent, we expect that the spot price will come down. In the long term, we are forecasting a price of $45/lb in 2007 dollars, starting in 2018.

Exhibit 2: Global Uranium Supply/Demand Balance

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

2003

20

04

2005

20

06

2007

A20

08E

2009

E20

10E

2011

E20

12E

2013

E20

14E

2015

E20

16E

2017

E20

18E

2019

E20

20E

thous

ands

lbs U

3O8

025,00050,00075,000

100,000125,000150,000175,000200,000225,000

250,000275,000300,000

thous

ands

lbs U

3O8

Net Balance (kt, LS) World Supply (kt, RS) World Requirements (kt, RS)

Source: Ux Consulting, World Nuclear Association, RBC Capital Markets estimates

We believe that the near-term deficits and precarious market balances should continue to support the uranium price between $75/lb and $115/lb.

Exhibit 3: Global U3O8 Supply Versus Demand (000 lb)

0

50,000

100,000

150,000

200,000

250,000

300,000

2003

2005

2007

A

2009

E

2011

E

2013

E

2015

E

2017

E

2019

E

000s

lbs

U3O

8

Other Secondary

USEC

HEU

FSU Secondary

Former East Bloc Mine

Western World Mine

Global Demand

Source: Ux Consulting, World Nuclear Association, RBC Capital Markets estimates

The supply response to date has been noticeable, but not nearly enough to compensate for the forecast demand growth in the future (beyond 2015).

We are forecasting significant new supply being added to the market in the coming years. Our supply forecast is risk adjusted such that our forecast for new production is, in many cases, lower than management forecasts.


Adam Schatzker 5

Exhibit 4: Global U3O8 Supply/Demand Balance and U3O8 Price

-100,000

-75,000

-50,000

-25,000

0

25,000

50,000

75,000

100,000

125,000

1970

19

72

1974

19

76

1978

19

80

1982

19

84

1986

19

88

1990

19

92

1994

19

96

1998

20

00

2002

20

04

2006

20

08E

2010

E20

12E

2014

E20

16E

2018

E20

20E

thou

sand

s lb

s U

3O8

$0.00

$25.00

$50.00

$75.00

$100.00

$125.00

Ura

nium

Pri

ce (

US$

/lb)

Net Balance (kt, LS) U3O8 Price (US$/lb) Source: Ux Consulting, World Nuclear Association, RBC Capital Markets estimates

We believe 2007 and 2008 will be the peak years for uranium prices. Beyond 2008 we believe the clarity of new supply will act to lower the spot price over time.

Price Forecast Analysis We believe that high uranium prices will persist for many years (relative to historical levels). In the near term, we believe the continued spot market deficit will help to maintain prices between $75/lb and $115/lb. As new supply is brought to market in the coming years, we feel that this will be the signal for the spot price to retrace to more sustainable levels.

We believe the market will be in surplus by approximately 4 to 30 million pounds in 2011 through 2014; however, we do not believe that this will precipitate a severe downdraft in the spot price, as there are likely many buyers for that material (e.g., initial cores, utility inventories, strategic inventories, etc.).

We think that the opportunities for speculators to make large returns by holding uranium will be few in the coming years, as supply is brought to market and the deficits turn into surpluses. Ux Consulting notes that speculative purchases comprised 25%, 25% and 20% (or more) of 2005, 2006 and 2007 purchases, respectively. With such a large component of the spot market expected to be absent in the coming years, it seems logical that the price volatility experienced in 2006 and 2007 will diminish.

In our uranium spot price forecast, we believe the uranium price will peak in 2008 and gradually retrace towards our long-term price forecast ($45/lb) by 2018. At that point we feel prices will have been high enough for long enough to stimulate new exploration, production and development to ensure a more secure supply base.

The Role of the NYMEX Futures In May 2007 uranium futures began trading on the NYMEX. Volumes have been quite low, but this is to be expected from a newly launched futures contract. There are certain attributes of the uranium market that we think make uranium futures quite different from other commodity futures:

• Uranium futures cannot be settled with physical delivery (this is not unique to uranium).

• The uranium future is settled based on the Ux Consulting spot price at the end of the month. This is quite different to other commodities that trade on a daily basis. In general terms, futures prices are expected to converge with the spot price on the day of settlement; we do not believe this will always be the case with the uranium futures.

• The market participants for the futures market and the spot market will likely be very different. We estimate that the spot market comprises fewer than 150 participants globally. The futures market is more or less open to anyone who can afford it (with a single contract of 250 pounds U3O8 trading for less than $40,000). Therefore, we believe there will be two different groups of buyers and sellers with different motivations: the spot market participants will transact in physical material, while those trading futures will settle in cash.


6 Adam Schatzker

A Note on Contracts With the uranium spot price retracing to and below the current Ux long-term price of $95/lb, we believe the contract market will be more predictable than it was when the spot price was $120/lb and higher.

Utilities requirements for the near-term are thought to be mostly covered and we do not expect significant contracting to occur for this time frame. From 2010 onward, we estimate that there is a substantial and growing level of uncovered demand and that contracts will be written to cover most of this demand in the coming years.

Exhibit 5: Uncovered Uranium Requirements Estimate (2008E–2017E)

0

20

40

60

80

100

120

2008

E

2009

E

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

mill

ions

lbs

U3O

8

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

% of

Dem

and

Unc

over

ed

U.S. Utilities Non-U.S. Utilities Uncovered % of Total Source: Ux Consulting, RBC Capital Markets estimates

Over the next year or two, we expect that contracts will continue to be skewed to those with market-related terms as opposed to those with fixed prices. We expect that, on average, contracts will be 75% market related and 25% base escalated.

For companies with mines under development or advanced exploration, we believe the contracting market will continue to look for offers, but at substantial discounts. We think that utilities will be very risk sensitive with respect to new entrants, given the difficulty that uranium companies have had bringing new production to market in recent years.


Adam Schatzker 7

Exhibit 6: RBC Capital Markets Uranium Price Forecast (US$/lb U3O8)

Source: Ux Consulting, RBC Capital Markets estimates

We are forecasting 2007 to 2009 to be the peak years for the uranium spot price.

We believe the long-term price will be at a discount to the spot price until 2018. This is based on the assumption that the long-term price represents the price for escalating base-priced contracts.

Exhibit 7: Spot Versus Term Contract Uranium Prices

$0$10$20$30$40$50$60$70$80$90

$100$110$120$130$140$150

69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

US$

/lb

U3O

8

Long Term Contract Price

Spot Price


The long-term price has remained unchanged for both Ux and TradeTech since reaching $95/lb at the end of May 2007. We do not foresee significant movement in the term price over the next three years.

Exhibit 8: Annual Volumes and U3O8 Prices

0

50

100

150

200

250

300

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

08 = YTD

$0

$25

$50

$75

$100

$125

Spot Volume (mm lbs, LS)Completed Contract Volume (mm lbs, LS)Annual Average Spot U3O8 Price (US$/lb, RS)


Both spot and contract volumes remained strong in 2006; however, volumes did not match the records set in 2005. Much of 2007’s spot volume was carried out in the last three months at prices between $75/lb and $85/lb. Spot volumes have been relatively strong in 2008; we believe this is due to the relatively low uranium price.

Current Previous Change LT Price2006A $47.91 $47.91 -

2007A $98.68 $98.68 - $93.68

2008E $110.00 $110.00 - $95.00

2009E $100.00 $100.00 - $95.00

2010E $95.00 $95.00 - $90.00

2011E $90.00 $90.00 - $85.00

2012E $75.00 $75.00 - $70.00

2013E $75.00 $75.00 - $70.00

2014E $70.00 $70.00 - $65.00

2015E $60.00 $60.00 - $55.00

2016E $50.00 $50.00 - $50.00

2017E $50.00 $50.00 - $50.00

Long-Term $45.00 $35.00 $10.00 $48.00


8 Adam Schatzker

Exhibit 9: Uranium Futures Prices

$50

$55

$60

$65

$70

$75

$80

$85

$906/

2008

7/20

08

8/20

08

9/20

08

10/2

008

11/2

008

12/2

008

1/20

09

2/20

09

3/20

09

4/20

09

5/20

09

6/20

09

$/lb

U3O

8

0

50

100

150

200

250

300

350

400

450

500

Open Interest Mid Last

Num

ber

of C

ontr

acts

Note: Forward curve as of March 17, 2008.

Source: Bloomberg

In May 2007 uranium futures began trading on NYMEX. To date, the volumes have been very small and the bid-ask spreads quite large.

Given that the futures market for uranium is still very young, we are not convinced that it provides an accurate measure of future spot prices.

We believe that the futures contracts will provide some utility to those wanting to financially hedge uranium exposure; however, since the futures do not provide for physical delivery, we think they will be of limited use to utilities.


Adam Schatzker 9

Uranium Supply

Exhibit 10: Uranium Supply 2004 to 2015E (000 lb U3O8)

Year 2004 2005 2006 2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Africa 18,400 18,434 18,291 16,258 20,725 26,747 32,270 37,762 40,556 43,677 46,547 47,268

Australia 23,327 24,921 22,167 22,016 20,625 23,750 24,415 24,580 24,580 23,580 23,580 22,745

Canada 30,152 30,230 25,640 24,345 25,967 26,467 20,567 24,865 38,162 44,767 49,767 49,767

Kazakhstan 8,632 11,381 13,225 17,055 23,774 32,464 37,367 41,088 45,417 50,009 51,721 52,889

Russia 8,000 8,997 9,220 9,600 10,400 10,920 10,920 11,440 13,000 13,780 14,040 14,300

Ukraine 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100

USA 2,140 2,686 4,412 4,485 5,700 6,600 8,662 10,930 12,480 14,538 15,710 17,450

Uzbekistan 5,330 5,700 6,000 6,500 7,000 7,500 7,800 7,800 7,800 7,800 7,800 7,800

Other 4,757 4,728 4,329 4,352 4,704 4,954 5,204 5,454 5,454 5,454 5,454 5,454

Total Mine Supply 102,838 109,177 105,384 106,711 120,995 141,502 149,305 166,018 189,549 205,704 216,718 219,772y/y Change 11.9% 6.2% -3.5% 1.3% 13.4% 16.9% 5.5% 11.2% 14.2% 8.5% 5.4% 1.4%

Non-Mine Supply

Former Soviet Union SuppliesRussian Govt Stockpiles 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 5,000 5,000 5,000 5,000

Re-Enriched Tails 13,000 13,000 13,000 13,000 13,000 12,000 9,000 6,000 6,000 6,000 6,000 6,000

HEU Feed 0 0 0 0 0 8,000 8,000 8,000 8,000 8,000 0 0

HEU II 0 0 0 0 0 0 0 0 0 0 0 0

Kazak EUP 0 0 0 0 0 0 0 0 0 0 0 0

Total FSU 25,000 24,000 23,000 22,000 21,000 27,000 23,000 19,000 19,000 19,000 11,000 11,000

HEU Feed (to West)

Cameco/Cogema/Nukem/GNSS 14,000 16,000 17,000 18,000 19,000 12,000 12,000 12,000 12,000 12,000 0 0

USEC Sales 8,000 7,000 6,000 3,000 1,000 1,000 1,000 1,000 500 0 0 0

Other

U.S. Government Stocks 0 0 2,860 520 1,000 1,000 2,100 3,100 4,200 4,200 4,200 4,200

TVA 0 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500

US HEU Blend-down (Non-TVA) 0 0 0 0 0 0 0 0 0 0 0 0

MOX + RepU 7,500 8,500 8,500 6,700 6,500 7,600 7,500 6,700 7,000 7,000 7,000 7,000

Total Other 7,500 10,000 12,860 8,720 9,000 10,100 11,100 11,300 12,700 12,700 12,700 12,700

Total Non-Mine Supply 54,500 57,000 58,860 51,720 50,000 50,100 47,100 43,300 44,200 43,700 23,700 23,700

TOTAL URANIUM SUPPLY 157,338 166,177 164,244 158,431 170,995 191,602 196,405 209,318 233,749 249,404 240,418 243,472

y/y Change 6.7% 5.6% -1.2% -3.5% 7.9% 12.1% 2.5% 6.6% 11.7% 6.7% -3.6% 1.3% Source: World Nuclear Association, Ux Consulting, company reports, RBC Capital Markets estimates

Supply – General Comments Since our last update we have made few changes to our supply forecast. The most significant changes are due to the electricity problems in South Africa and the continuing problems with Uranium One’s Dominion mine (also in South Africa). We have also changed our long-term outlook for Dominion: rather than reaching 7 million pounds, we are now forecasting 4 million pounds by 2015.

Looking forward, most of the growth in supply comes from companies that are new producers (i.e., Uranium One, Paladin, etc.) and/or countries that are increasing their supply contribution significantly (i.e., Namibia and Kazakhstan). While we are confident that most of the forecast production will come to fruition, we must caution that if production milestones are delayed, the market reaction could be strong and result in higher than anticipated uranium prices.


10 Adam Schatzker

Exhibit 11: Uranium Mine Supply 2007E to 2020E - New vs. Previous Forecast (000 lb U3O8)

-

50,000

100,000

150,000

200,000

250,000

2007A 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Min

e Su

pply

(00

0s lb

s U

3O8)

Current Forecast Previous Forecast Source: World Nuclear Association, Ux Consulting, company reports, RBC Capital Markets estimates


Adam Schatzker 11

Primary Mine Supply Exhibit 12: Changes in Uranium Mine Production 2006A to 2015E (2005 base year; 000 lb U3O8)

Continued on next page.

Year 2007A 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Africa Niger (725) 72 72 72 72 72 72 72 72

Namibia - Langer Heinrich 122 1,958 3,259 3,497 3,671 3,752 3,752 3,752 3,752

Namibia - Rossing & others (1,261) 26 826 826 826 826 826 826 826

South Africa (Dominion) - 724 2,126 2,445 2,567 2,689 3,048 3,454 4,064

South Africa (Anglo Ashanti) (169) (639) (189) (189) (189) (189) 441 441 441

Ezulwini - - 56 286 500 628 752 935 893

Buffelsfontien - 216 728 1,218 1,395 1,131 887 887 887

Kayalekera (Paladin) - - 390 1,270 3,060 3,274 3,274 3,274 3,274

Rossing Additions - - - 1,200 1,200 1,200 1,200 1,200 1,200

Incremental Langer Heinrich - - - 1,003 829 748 748 748 748

Trekoppkje (50%) - 2013 Start - - 500 1,000 2,000 2,000 2,000 2,000 2,000

Imouraren, Niger (AREVA) Total Africa (2,033) 2,357 7,766 12,627 15,931 16,131 17,000 17,589 18,157

Australia Ranger 1,464 (224) 533 533 533 533 (467) (467) (467)

Olympic Dam (1,815) (1,518) 800 800 800 800 800 800 800

Beverley 200 200 200 200 200 200 200 200 200

Honeymoon - 50 715 880 880 880 875 - -

Total Australia (151) (1,492) 2,248 2,413 2,413 2,413 1,407 533 533

Canada McArthur River (3) 49 49 49 49 49 49 49 49

Cigar Lake (Rabbit L.) - - - - 2,999 8,996 18,000 18,000 18,000

McClean Lake (178) 1,805 2,705 (1,795) (1,795) (1,795) (1,795) (1,795) (1,795)

Rabbit Lake (1,114) (1,527) (1,927) (3,327) (2,027) (2,727) (5,127) (5,127) (5,127)

Midwest (McClean) - - - - - 8,000 8,000 8,000 8,000

Aurora - - - - - - - 5,000 5,000

Total Canada (1,295) 327 827 (5,073) (775) 12,522 19,127 24,127 24,127

Kazakhstan LLP Kazatomprom (2,297) (1,637) (787) 213 213 3 (127) (787) (787)

Stepnogorsk 1,200 1,200 1,300 1,300 1,300 1,375 1,390 1,430 1,560

Akdala 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600

Inkai (200) 1,200 4,033 4,200 4,200 4,200 4,200 4,200 4,200

Muyunkum 627 2,262 2,262 2,262 2,262 2,262 2,262 2,262 2,262

Budenovskoye 600 850 2,000 2,600 2,600 2,600 2,600 2,600 2,600

Central Mynkuduk 260 910 2,000 2,800 3,800 4,250 5,200 5,200 5,200

Western Mynkuduk 260 450 1,000 1,560 2,080 2,600 2,600 2,600 2,600

Zarechnoye 780 1,300 1,300 1,300 1,300 1,300 1,300 1,300 1,300

Kharasan - 688 1,974 2,713 3,875 5,813 6,975 7,750 7,750

South Inkai - 727 1,557 2,595 3,633 5,189 7,784 9,341 10,379

Total Kazakhstan 3,830 10,549 19,239 24,142 27,863 32,192 36,784 38,496 39,664

Czech Republic (138) (36) (36) (36) (36) (36) (36) (36) (36)

Other 161 411 661 911 1,161 1,161 1,161 1,161 1,161

Total Other 23 375 625 875 1,125 1,125 1,125 1,125 1,125


12 Adam Schatzker

Exhibit 12: Changes in Uranium Mine Production 2006A to 2015E (2005 base year; 000 lb U3O8) (continued)

Year 2007A 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

Russia

Dolmatovskoye 240 760 760 760 760 1,800 1,800 1,800 1,800

Khiagda 140 420 940 940 1,460 1,980 2,760 3,020 3,280

Total Russia 380 1,180 1,700 1,700 2,220 3,780 4,560 4,820 5,080

United States

AREVA/Christensen Ranch - - 500 500 500 500 500 500 500

PRI/Crow Butte - (29) 71 871 2,071 2,071 (729) (729) (729)

Cotter 125 - - - - - - - -

Rio Algom - - - - - - - - -

PRI/Highland/Smith R. (60) (44) (44) (44) (44) (44) (44) (44) (44)

URI/Kingsville Dome 256 406 406 406 406 406 406 (94) (94)

URI/Vasquez (85) (165) (165) (165) (165) (165) (165) (165) (165)

IUC/White Mesa 20 (280) (280) (280) (280) (280) (280) (280) (280)

Mestena/Alta Mesa (183) - (100) (100) (100) (100) (100) (100) (100)

Churchrock - - - - - 500 1,000 1,000 1,000

Henry Mtns./White Mesa - 1,400 1,500 1,500 1,500 1,500 1,500 1,500 1,500

Powder River (UUU) - - - - - 900 1,350 1,800 2,250

Great Divide (UUU) - - - - - 450 900 1,350 1,800

Palangana Hobson (UUU) - - 300 792 1,200 1,200 988 - -

Shootaring - - - - - - 250 660 1,000

Lost Soldier (URE) - - - - - 150 500 1,000 1,000

Lost Creek (URE) - - - - - - 150 500 1,000

Goliad - - - 770 980 980 1,400 1,400 1,400

Other - - - - - - 2,500 3,000 3,000

Total USA 73 1,288 2,188 4,250 6,068 8,068 10,126 11,298 13,038

Uzbekistan

Navoie 500 1,000 1,500 1,800 1,800 1,800 1,800 1,800 1,800

Total Uzbekistan 500 1,000 1,500 1,800 1,800 1,800 1,800 1,800 1,800

TOTAL CHANGES TO SUPPLY (base 2006) 1,326 15,884 36,093 42,734 56,644 78,031 91,929 99,787 103,523

EXISTING SUPPLY BY REGION

Africa (2,033) 2,357 7,766 12,627 15,931 16,131 17,000 17,589 18,157

Australia (151) (1,492) 2,248 2,413 2,413 2,413 1,407 533 533

Canada (1,295) 327 827 (5,073) (775) 12,522 19,127 24,127 24,127

Kazakhstan 3,830 10,549 19,239 24,142 27,863 32,192 36,784 38,496 39,664

Russia 380 1,180 1,700 1,700 2,220 3,780 4,560 4,820 5,080

USA 73 1,288 2,188 4,250 6,068 8,068 10,126 11,298 13,038

Uzbekistan 500 1,000 1,500 1,800 1,800 1,800 1,800 1,800 1,800

Other 23 375 625 875 1,125 1,125 1,125 1,125 1,125

Total 1,326 15,584 36,093 42,734 56,644 78,031 91,929 99,787 103,523 Source: World Nuclear Association, Ux Consulting, company reports, RBC Capital Markets estimates


Adam Schatzker 13

Exhibit 13: Mine Supply, Non-Mine Supply and Demand

-

50,000

100,000

150,000

200,000

250,000

300,000

2007

E

2008

E

2009

E

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

000s

lbs

U3O

8

Existing Supply Likely Additions Possible Additions

Secondary Sources Global Demand

Source: World Nuclear Association, Ux Consulting, RBC Capital Markets estimates

We believe the market will remain in balance until the end of 2009, driven primarily by initial core purchases (we have not forecast any non-essential demand such as that from speculators). Surpluses are forecast for 2011 through 2014; however, we think it is likely that much, if not all, of this material will be absorbed easily into the market, particularly through the building of strategic inventories by countries like China, India and South Africa (with announced intentions to build uranium inventories).

Exhibit 14: Global Mine-Sourced Uranium, Uranium Demand and Price Forecast

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

2003

2004

2005

2006

2007

A

2008

E

2009

E

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

thou

sand

s of

lbs

U3O

8

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

U3O

8 $/

lb

Production Requirements Average Uranium Spot Price (US$/lb)

Forecast


Mine-sourced uranium production remains well short of demand. The difference should continue to come from inventories and secondary supplies until at least 2015; thereafter, additional secondary sources will have to be made available or new mine supply will be required.

Exhibit 15: Uranium Production by Region 1948-2030E (000 lb U3O8)

0

50,000

100,000

150,000

200,000

250,000

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003

2008

E

2013

E

2018

E

U3O

8 Su

pply

(00

0s lb

s)

OtherUSACanadaAfricaAustraliaUzbekistanUkraineRussiaKazakhstanEastern Bloc


The rising uranium price from 2003 onward has stimulated a significant rise in mined output, particularly from the former Soviet Union and in particular Kazakhstan.


14 Adam Schatzker

Exhibit 16: 2008E Production by Geographical Region

Canada20%

Australia17%

Kazakhstan20%

Uzbekistan6%

USA5%

Russia9%

Ukraine2%

Africa17%

Other 3%


The top producer list continues to be much the same as in previous years, except for the dramatic rise of Kazakhstan to the number two spot.

Exhibit 17: Global Uranium Producers 2006

Production (000s lbs U3O8) % of World Total

Cameco 21,446 21%

Rio Tinto 18,443 18%

Areva 13,706 13%

KazAtomProm 9,617 9%

TVEL 8,481 8%

BHP Billiton 7,456 7%

Navoi 5,876 6%

Uranium One 2,600 3%

Other 19,140 15%

Total 106,764 100%

Source: World Nuclear Association, Ux Consulting, Areva, RBC Capital Markets estimates

.

Exhibit 18: Selected Uranium Mines (Most recent reserves)

Mine Reserves Reserve Contained (1) Annual Production Extraction

Name Country Owner (000s Tonnes) Grade (%U3O8) mm lbs U3O8 Est. (000s lbs U3O8) Method

McArthur River Canada Cameco/Areva 810 20.55% 367 18.7 u/g

Cigar Lake Canada Cameco/Areva 497 20.67% 226 18.0 u/g

Inkai Kazakhstan Cameco/Kazatomprom 86,421 0.06% 114 1.0 ISL

Olympic Dam Australia BHP Billiton 374,000 0.07% 577 10.3 o/p - byproduct of Cu

Rossing Namibia Rio Tinto (69%) 132,400 0.03% 93 8.0 o/p

Ranger Australia Energy Resources Australia 35,570 0.14% 110 13.0 o/p

Langer Heinrich Namibia Paladin Resources 37,174 * 0.06% 50 2.6 o/p

Dominion Project South Africa SXR Uranium One 18,450 0.08% 31 2.0 u/g - byproduct Au

Honeymoon Australia SXR Uranium One 1,200 ** 0.24% 6 0.9 ISL

Beverly Australia Heathgate Resources n/a n/a 46 2.0 ISL

Crow Butte United States Cameco 902 0.33% 7 0.8 ISL

Smith Ranch/Highland United States Cameco 5,034 0.12% 13 1.6 ISL

(1) Regulated maximum or potential maximum

* M&I Resource** I Resource Source: Company reports, RBC Capital Markets estimates


Adam Schatzker 15

Exhibit 19: RBCCM Long-Term Uranium Production Cash Cost Curve

$0.00$5.00

$10.00$15.00$20.00$25.00$30.00$35.00$40.00$45.00$50.00$55.00$60.00$65.00$70.00$75.00$80.00

0.0 25.0 50.0 75.0 100.0 125.0 150.0 175.0 200.0 225.0

Cumulative Production (mm lbs U3O8)

Cas

h C

ost

(US$

/lb

U3O

8)

90th Percentile

Source: Ux Consulting, Company Reports, RBC Capital Markets estimates

We are forecasting a long-term uranium price of $45/lb starting in 2018.

Our long-term price is based upon the 90th percentile of our cash cost curve forecast. We feel that this level is appropriate to maintain uranium production over the long term. We believe our higher price forecasts between 2008 and 2017 are sufficient to bring enough production to the market to satisfy future demand.

Exhibit 20: Long-Term Uranium Production and Requirements (1945 to 2020E)

0

25

50

75

100

125

150

175

200

225

250

1945

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

E

2015

E

2020

E

Mill

ion

poun

ds U

3O8

Western Production Eastern Production Requirements Source: Ux Consulting, World Nuclear Association, RBC Capital Markets estimates

Historical inventories were built up from the mid-1950s through to the late 1980s. However, much of the uranium produced during that period was, and still is, used for military purposes. We believe that there is no significant inventory remaining outside of military or government holdings that is not destined for reactor requirements.


16 Adam Schatzker

Secondary Uranium Supply Exhibit 21: Secondary Uranium Supply 2003 to 2030E

0

10,000

20,000

30,000

40,000

50,000

60,000

70,00020

03

2005

2007

A

2009

E

2011

E

2013

E

2015

E

2017

E

2019

E

2021

E

2023

E

2025

E

2027

E

2029

E

000s

lbs

U3O

8

HEU I Re-Enriched Tails

Russian Government Stockpile Sales US/USEC Government Stockpile Sales

MOX & RepU


The U.S. government has plans to possibly place up to 5.5 million pounds of uranium per year into the market in the coming years. The material will be sourced from highly enriched uranium (HEU) and strategic stockpiles. We have already factored in 6.5 million pounds (including TVA material already being delivered). Therefore, we do not foresee this changing our view of the market or uranium prices.

Secondary supply has comprised a large portion of the uranium supply over the past 20 years. We believe that there will be no continuation of the current HEU supply agreement with Russia when it expires in 2013 (see the “Russian Suspension Agreement” section on the following page).

Aside from the primary mine supply of uranium, a key component of the supply/demand balance is the contribution from secondary sources. The secondary sources are varied and comprise the following:

• MOX and RepU – See below. • US/USEC Government Stockpile Sales – The sales of previous government strategic stocks that have been deemed

surplus. Some of this material is sold through the United States Enrichment Corporation (USEC), a public company that was previously a government organization.

• Russian Government Stockpile Sales – Surplus strategic stocks. • Re-Enriched Tails – Derived from the waste streams of previous enrichment (called depleted uranium) that are

reprocessed to extract additional usable uranium. • HEU I and HEU II – See below. • Cameco, Areva (the French nuclear utility), Nukem (a German nuclear services company) and GNSS (Globe

Nuclear Supply Services) – The original companies that were assigned the rights to sell the HEU/LEU products outside of Russia. Effective January 2004, GNSS lost its rights to sell Russian HEU/LEU material.

Highly Enriched Uranium Historically, more than half of the uranium produced in the world has been used in the production of nuclear weapons and in fueling military vessels. However, since the end of the Cold War in the early 1990s, many weapons have been dismantled under international treaties and some of the highly enriched uranium (HEU) and plutonium has been declared surplus.

In 1993, the governments of the United States and Russia agreed to allow 500 tonnes of Russian surplus HEU containing about 90% U-235 to be sold into the market as blended-down low enriched uranium (LEU) containing about 4% U-235; this equates to approximately 395 million pounds of U3O8. The agreement called for the material to be sold into the market over a 20-year period.

Recently it was announced that the Russian HEU partner, Tenex, has asked the Western partners (Cameco, AREVA and Nukem) to renegotiate the pricing of the U3O8 component of the HEU agreement. We are assuming that the volumes sold under the HEU contract are unaffected; therefore any renegotiation of the price will have no effect on our supply demand outlook or price forecast.


Adam Schatzker 17

MOX and RepU Mixed oxide fuel (MOX) is a combination of plutonium oxide recovered from spent fuel and new uranium oxide from depleted uranium (a “waste” product of the fuel enrichment), while reprocessed uranium (RepU) involves the removal of uranium and plutonium from spent fuel to fabricate new fuel. While these two fuel sources have been used for many years, the contribution has been quite low (approximately 5% of total uranium supply). We have assumed that the contribution from both MOX and RepU will decrease, on both a percentage and an absolute basis. With a high uranium price, the economics of reprocessing become more attractive (still considered marginal and done more for political than economic reasons), but the ability to increase production is currently limited by the capacity of existing facilities.

We believe the secondary supply will remain fairly constant and predictable. However, with high uranium prices, the potential increase of supply from MOX, RepU and re-enriched tails exists. Also, while Russia has significantly reduced its supply of weapons-grade uranium through the HEU program, the United States has not. Depending on political pressure and the availability of resources, there is always a possibility that the U.S. material could find its way to the market in the future.

Russian Suspension Agreement (RSA) Further to our last commentary regarding the agreement initialed between Russia and the United States to allow the importation of Russian origin uranium products starting in 2011 through 2020 (after the expiry of the HEU agreement in 2013), the two countries have signed an amendment to the RSA that formalizes the initial agreement and provides Russia with access, albeit limited, to the U.S. commercial markets until 2020. We continue to believe that the RSA is focused on providing U.S. utilities with access to Russian enrichment services. We do not think that the RSA will introduce any “new” uranium to the global supply chain and, therefore, our supply-demand forecast is not affected by this agreement.

Of particular note are the following aspects of the amended RSA:

• As we stated in our prior update, the annual quotas come into effect post-2013, equate to 20% of the total forecast U.S. annual consumption (as per the World Nuclear Association’s 2005 Reference Case adjusted to 0.30% tails assay), and all material will be measured in terms of kilograms of enriched uranium product (EUP) standardized to 4.4% U235 with a tails assay of 0.30%.

• Russia can sell uranium from Enriched Uranium Product (EUP) stockpiles that were brought into the U.S. as part of deliveries grandfathered by the original 1992 RSA. No further approvals are necessary for sales of these EUP stockpiles if the sales are made before January 1, 2014.

• While Russia considers SWU transactions services, the U.S. wishes to treat them as goods and therefore subject to anti-dumping regulations.

• Essential definitions and processes under the amendment remain to be clarified by “Statements of Administrative Intent” to be issued by the U.S. government at some undetermined time in the future.

• “Reopener” periods in 2016 and 2019 will allow adjustments to these export limits if the WNA’s forecasts of U.S. demand are revised higher.

• The U.S. may consider termination of the amended RSA if Russia fails to carry out its commitments under the initial HEU agreement.

• Although implementation has not yet been set, the U.S. believes that Russian uranium imported for initial cores should be used exclusively for that purpose and, if not, should be counted against the export limits under the amended RSA.

• The U.S. can unilaterally increase the export limits to address what it calls “unforeseen situations of substantial market disruption,” but stressed that such an action would only be done to support the U.S. economy and after consulting the domestic uranium industry.


18 Adam Schatzker

Uranium Demand

Exhibit 22: Uranium Demand 2004 to 2015E (000 lb U3O8)

Year 2004 2005 2006 2007A 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E

North America 58,701 55,776 53,717 55,367 55,234 55,656 56,044 56,833 57,498 58,735 60,631 61,410

South America 1,219 1,217 1,084 1,119 1,130 1,366 2,477 1,419 2,014 2,054 2,091 3,408

West & Central Europe 58,979 57,783 60,812 60,977 62,334 59,448 59,923 60,354 62,476 63,690 64,041 65,927

East and South-East Europe 14,153 15,289 13,740 14,089 14,542 14,622 15,744 15,789 16,813 17,764 18,058 20,925

Africa 858 848 785 803 803 803 811 819 830 2,477 1,208 1,809

West and Central Asia 133 1,032 928 0 379 379 375 378 383 389 1,995 1,334

South Asia 1,287 1,393 2,795 2,206 2,766 3,408 3,813 4,115 3,958 5,281 4,646 5,960

South-East Asia & Pacific 0 0 0 0 0 0 0 0 0 0 1,200 0

East Asia 36,259 34,473 32,864 35,865 36,594 39,222 40,607 41,348 45,562 47,741 51,693 55,133

Initial Core Demand 0 0 0 0 0 16,674 14,540 12,127 5,771 9,020 11,571 8,770

Reactor Inventory Demand 0 0 0 0 0 0 884 12,918 10,625 11,861 15,264 17,698

Total Demand 171,589 167,812 166,725 170,427 173,783 191,578 195,218 206,102 205,930 219,012 232,397 242,373

y/y Change -5.4% -2.2% -0.6% 2.2% 2.0% 10.2% 1.9% 5.6% -0.1% 6.4% 6.1% 4.3%

Including:

USA 57,453 53,956 49,183 48,757 50,302 50,167 50,031 50,222 50,983 51,617 52,273 53,577

France 26,838 25,811 26,999 27,129 27,793 27,915 28,027 27,793 27,876 27,978 28,757 28,893

Russia 9,466 8,582 8,566 8,624 8,862 9,308 9,379 10,569 10,571 11,551 11,551 12,711

Japan 23,736 22,285 18,511 19,285 21,456 20,071 22,243 21,045 21,923 24,288 23,607 25,851

UK 6,154 5,857 6,559 6,458 5,921 5,831 5,460 4,849 4,935 5,024 5,112 5,206

China 2,808 3,926 4,425 3,013 3,800 3,738 5,382 7,204 6,965 6,546 10,477 11,585

y/y Change 39.8% 39.8% 12.7% -31.9% 26.1% -1.6% 44.0% 33.8% -3.3% -6.0% 60.0% 10.6%

India 1,108 1,126 2,488 2,626 2,034 2,593 2,761 3,639 3,810 3,647 3,763 4,322

y/y Change 1.6% 1.6% 121.0% 5.5% -22.5% 27.5% 6.4% 31.8% 4.7% -4.3% 3.2% 14.9% Source: World Nuclear Association, Ux Consulting, company reports, RBC Capital Markets estimates

WNA Demand Forecast Analysis Every two years the World Nuclear Association (WNA) revises its forecast of nuclear electricity generation and the supply and demand for uranium, conversion, enrichment and fuel fabrication. For our forecast purposes, we focus on the uranium demand portion of the study; we carry out our own supply forecast. Our forecast is based upon the WNA Upper scenario contained within The Global Nuclear Fuel Market – Supply and Demand 2007–2030.

Exhibit 23: WNA 2005, 2007 and RBC Forecast Demand for 2003 to 2030 (000 lb U3O8 )

150,000

200,000

250,000

300,000

350,000

400,000

450,000

2003

2005

2007

E

2009

E

2011

E

2013

E

2015

E

2017

E

2019

E

2021

E

2023

E

2025

E

2027

E

2029

E

2005 Reference 2005 Upper 2007 Reference

2007 Upper RBC Forecast Source: World Nuclear Association, Ux Consulting, company reports, RBC Capital Markets estimates


Adam Schatzker 19

The outcome of the 2007 study is considerably different than the one published in September 2005. While nuclear-sourced electricity generation is almost the same (slightly lower for the upper scenario), the demand for uranium is forecast to be lower in all three scenarios (lower, reference and upper). The lower level of demand is driven primarily by a significant lowering of assumed Western World enrichment tails assays.

Exhibit 24: WNA 2005 and 2007 Upper and Reference Nuclear Generation for 2003 to 2030 (MWe net)

350

400

450

500

550

600

650

700

750

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

MW

e ne

t

2005 Reference 2005 Upper 2007 Reference 2007 Upper

Source: World Nuclear Association

The WNA carries out its study without consideration of the price of inputs or products. As stated in the 2007 report: “Consideration of likely price levels is outside the scope of this report, but the scenarios presented could change substantially within a few years if perceived market conditions become very different from those presently prevailing.” We believe that forecasting supply and demand levels absolutely requires the consideration of price; otherwise the study could tend toward unrealistic outcomes. Our price forecast for uranium is very different from those that were “prevailing” at the time the document was authored.

We have used the WNA report as the foundation for our demand forecast; however, we believe that the WNA work provides only a partial picture of future demand. There are three areas in which our forecast differs from that of the WNA: (1) enrichment tails assays; (2) initial cores; and (3) new reactor inventories.

(1) Tails Assays

The enrichment process is used to increase the weight percent of the U235 isotope in nuclear fuel. Natural uranium contains 0.711% U235 with the remainder comprising U238 (and other minor constituents). Typically, most reactors require U235 levels between 3.5% and 5.0%. The enrichment process uses physical separation using either gaseous diffusion or centrifuge technology to concentrate the U235. The process is not 100% efficient and results in U235 being sent to the tails – the percentage content of U235 in the tails is the tails assay. It is possible to bring the tails assay down through the application of additional separation, which is measured as separative work units (SWU). The amount of SWU applied is often limited by the availability of SWU, the relative costs of SWU versus uranium or contract specifications.

As mentioned above, the most significant change in the WNA forecast was the lower tails assay assumption for the Western World. We estimate that the WNA’s forecast would require, in some years, close to the maximum output of SWUs available in the Western World. However, depending in the prevailing prices for SWUs, uranium and electricity prices, the forecast enrichment capacity may not be available. Given that our forecast is for gradually weakening uranium prices from 2009 onward, we feel the economic impetus to reduce tails assays may likewise diminish. Additionally, with high electricity prices the feasibility of running gaseous diffusion plants at the maximum rated capacity is reduced substantially.


20 Adam Schatzker

Exhibit 25: WNA 2005 and 2007 Upper and Reference Tails Assay Assumptions for Western World Enrichment for 2003 to 2030 (% U235 in tails)

2005 2010 2015 2020 2025 2030

2005 Reference 0.27% 0.27% 0.27% 0.27% 0.27% 0.27%

2005 Upper 0.27% 0.27% 0.27% 0.27% 0.27% 0.27%

2007 Reference 0.25% 0.22% 0.25% 0.25% 0.25% 0.25%

2007 Upper 0.25% 0.22% 0.25% 0.25% 0.25% 0.25% Source: World Nuclear Association

For Western World enrichment demand, we have left the tails assay unchanged from the 2005 WNA report at 0.27%. As a result our annual uranium demand forecast is 4.1 million pounds higher, on average, between 2008 and 2020.

(2) Initial Cores

We have calculated the initial cores that are implied by the WNA forecast and we believe they are too low. Our initial core forecast is derived by first estimating the amount of uranium we believe will be necessary for the initial cores of the reactors in the Upper generating scenario. From that, we subtract the amount implied by the WNA uranium demand forecast. The result is an initial cores forecast that is incremental to that published by the WNA. Between 2008 and 2020 our incremental initial core forecast totals approximately 138 million pounds.

We have assumed that there is some flexibility in the timing for the demand for initial cores and, therefore, initial core demand is forecast to take up any potential market surplus. In years in which there is insufficient supply to meet initial core demand, the demand is carried over to the following year.

Exhibit 26: Annual Initial Core Requirement Forecast (000 lb U3O8)

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

22,500

2008

E

2009

E

2010

E

2011

E

2012

E

2013

E

2014

E

2015

E

2016

E

2017

E

2018

E

2019

E

2020

E

Others

Asia (incl China)

Russia & Eastern Europe

Europe

North America

Source: World Nuclear Association, RBC Capital Markets estimates


Adam Schatzker 21

Exhibit 27: Annual Initial Core Requirement and Purchasing Forecast (2007E to 2020E) (000 lb U3O8)

2007E 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Beginning Balance 0 10,500 15,255 7,128 0 0 0 0 0 0 250 8,880 18,343 25,412

Annual Requirement 10,500 4,755 8,570 7,388 12,127 5,771 9,020 11,571 8,770 14,611 9,354 9,463 7,069 18,777

Cummulative Requirement 10,500 15,255 23,826 14,516 12,127 5,771 9,020 11,571 8,770 14,611 9,604 18,343 25,412 44,189

Market Surplus (no Cores) (11,996) (2,787) 16,698 16,610 28,262 44,215 51,274 34,856 27,566 14,361 724 (10,276) (16,561) (16,792)

Core Material Purchased 0 0 16,698 14,516 12,127 5,771 9,020 11,571 8,770 14,361 724 0 0 0

Ending Balance 10,500 15,255 7,128 0 0 0 0 0 0 250 8,880 18,343 25,412 44,189

Market Balance (11,996) (2,787) 0 0 4,427 27,819 30,392 8,021 1,098 0 0 (10,276) (16,561) (16,792) Source: WNA, RBC Capital Markets estimates

(3) New Reactor Inventories

The WNA forecast is designed to measure the amount of uranium required by reactors at the time of need. By limiting the forecast scope in this manner, the WNA ignores the necessity for utilities to build an inventory for each new reactor constructed. For our forecast, we have assumed that utilities will build inventories of between one year and two years, depending on the country (see Exhibit 28). Based on these assumptions, we have modeled an additional 186 million pounds of demand between 2008 and 2020.

Exhibit 28: Utility Strategic Inventory in Terms of Desired Level of Forward Requirements (Demonstrated as % of utilities replying)

North America Europe

East Asia Total

6 Months 24% 18% 0% 16%

12 Months 34% 30% 12% 22%

18 Months 27% 22% 28% 26%

2 Years 10% 18% 24% 18%

3+ Years 5% 12% 36% 18% Source: World Nuclear Association

As with the initial core requirements, we have assumed that new reactor inventories will be purchased when there is material available. In years where there is insufficient U3O8, the balance will be carried over to the following year.

Exhibit 29: Annual New Reactor Inventory Requirement and Purchasing Forecast (2008E to 2020E) (000 lb U3O8)

2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Beginning Balance 0 1,300 3,371 5,205 0 0 0 0 0 20,633 42,845 67,938 92,739

Annual Requirement 1,300 2,071 3,929 6,502 10,625 11,861 15,264 17,698 20,633 22,212 25,094 24,801 24,213

Cummulative Requirement 1,300 3,371 7,300 11,707 10,625 11,861 15,264 17,698 20,633 42,845 67,938 92,739 116,951

Market Surplus (no Inventory) (2,787) 0 2,095 16,134 38,444 42,254 23,285 18,796 0 0 (10,276) (16,561) (16,792)

Inventory Material Purchased 0 0 2,095 11,707 10,625 11,861 15,264 17,698 0 0 0 0 0

Ending Balance 1,300 3,371 5,205 0 0 0 0 0 20,633 42,845 67,938 92,739 116,951

Market Balance (2,787) 0 0 4,427 27,819 30,392 8,021 1,098 0 0 (10,276) (16,561) (16,792) Source: WNA, RBC Capital Markets estimates

Strategic Inventories

As the world looks forward to a renaissance for nuclear power, many countries are proposing to build strategic inventories of uranium to ensure that their fuel supplies are secure. India, China, the United States, South Africa and others have jumped on this bandwagon and, in total, could provide substantial buying in the uranium market. This provides us with a level of comfort with respect to the market surpluses we are forecasting for 2010 to 2013, as these countries could enter the market and absorb any additional material. We have not modeled any strategic inventory buying as it is highly discretionary.


22 Adam Schatzker

Reactor Growth According to the World Nuclear Association, there are 445 reactors operating globally and 34 under construction. Additionally, there are 34 reactors planned and another 223 proposed. Should all of the planned and proposed reactors be built, the world total would be more than 779, or an almost 75% increase over the current level.

Exhibit 30: Nuclear Power Generation – Current, Under Construction and Planned

billion kWh % total generation

No. MWe No. MWe No. MWe No. MWe No. MWe

OECD North America 239 40 37 32,602 3 3,000 8 9,745 24 31,000 72 76,347

OECD Europe 680 44 106 97,988 4 4,730 7 5,475 41 24,055 158 132,248

Japan & Korea 433 13 75 65,110 5 5,285 16 21,545 1 1,100 97 93,040

China 18 44 2 1,906 0 0 2 1,900 0 0 4 3,806

India 159 32 17 20,339 0 0 0 0 0 0 17 20,339

Rest of World 1,091 7 202 148,870 22 12,183 60 61,930 157 138,540 441 360,323

TOTAL 2,620 15 445 366,815 34 25,198 93 100,595 223 194,695 789 686,103

REACTORS PROPOSED (Jan 2008)

TOTAL REACTORSOper, Const, Planned,

Prop

NUCLEAR ELECTRICITY GENERATION 2006

REACTORS OPERABLE Jan 2008

REACTORS UNDER CONSTRUCTION (Jan

2008)

REACTORS PLANNED (Jan

2008)

Source: World Nuclear Association, company reports, RBC Capital Markets estimates

China - Nuclear Generation Growth Increasing In March 2008, China announced that the growth of its electricity generation from nuclear power is expected to grow much faster than previously anticipated. The previous plan was for China to have 40,000 MW of capacity from nuclear generation in 2020, up from the current level of approximately 8,500 MW. The revised plan now calls for a total of 60,000 MW. We have based our estimates on the WNA High Scenario which forecasts China to have 35,667 MW in 2020, out of a global total of approximately 519,000 MW. We have not yet factored in this additional growth, but its effect would be relatively small (approximately 6 million additional pounds of U3O8 demand annually).


Adam Schatzker 23

Exhibit 31: WNA Global Reactor Statistics (September 2001 to October 2007)

08-Jan07-DecOct-0707-AugMay-07Jan-07Sep-05Jan-05Nov-04Jan-04Dec-02Mar-02Sep-02

0

100

200

300

400

500

600

700

800

Operating Under Construction Planned Proposed


There has been significant growth in the number of planned and proposed new reactor builds since 2004, reflecting the increased global demand for nuclear generating capacity.

Based on the WNA figures, the change from May to August 2007 is the largest increase in proposed reactors since the data has been tracked.

Exhibit 32: Forecast Uranium Demand by Region 1975 to 2030E

0

50,000

100,000

150,000

200,000

250,000

300,000

1975

1979

1983

1987

1991

1995

1999

2003

2007

E

2011

E

2015

E

2019

E

2023

E

2027

E

U3O

8 De

man

d (0

00s

lbs)

East Asia

South-East Asia &Pacific

South Asia

West and CentralAsia

Africa

East and South-East Europe

West & CentralEurope

South America

North America


Until the 1990s, North America and Europe dominated global uranium demand. We believe that by 2015 East Asia (including China, Japan and Korea) will account for 27% of total demand, roughly on par with North America and Europe at 29% and 30%, respectively.

It is important to note that there is no data for Russia before 1990.

Exhibit 33: Uranium Demand by Region 2007E

East and South-East Europe

8%

Africa0%

East Asia21%

South Asia2%

North America32%

South America1%

West & Central Europe

36%



24 Adam Schatzker

Exhibit 34: Relative Size of the Uranium Market 2006E (US$B)

$13 $20 $40 $42

$92 $97 $119

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

Oil

The

rmal

Coa

l

Gol

d

Alu

min

um

Cop

per

Zinc

Nic

kel

Silv

er

Ura

nium

2006

E M

arke

t V

alue

(U

S$ m

illi

ons)

$3,160 $772


Despite significant price increases, the uranium market is relatively small compared to other base and precious metals.

Note: Calculated using forecast global demand and priced at recent spot levels.

Exhibit 35: Uranium Demand Growth

0

50

100

150

200

250

300

350

400

450

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

E

2011

E

2014

E

2017

E

2020

E

2023

E

2026

E

2029

E

Ura

nium

Dem

and

(mm

lbs

U3O

8)

1972 - 1986

1987 - 2007

2008 - 2030

2.0% CAGR

10.0% CAGR

3.9% CAGR


From the early 1970s to the late 1980s, the rate of demand growth for uranium was very high, at approximately 10%. After the accidents at Three Mile Island and Chernobyl, the growth in demand fell significantly and averaged 2.0% to 2007E. We are forecasting that growth from 2008E to 2030E will be significantly higher, averaging 3.9% per year.

Exhibit 36: Nuclear Contribution to Electricity Generation

0%

10%

20%

30%

40%

50%

60%

70%

80%

Fran

ceLi

thua

nia

Slov

akia

Belg

ium

Swed

enU

krai

neBu

lgar

iaAr

men

iaSl

oven

iaKo

rea

RO (

Sout

h)H

unga

rySw

itze

rlan

dG

erm

any

Czec

h Re

publ

icJa

pan

Finl

and

Spai

nU

SAU

nite

d Ki

ngdo

mCa

nada

Russ

iaRo

man

iaAr

gent

ina

Mex

ico

Sout

h Af

rica

Net

herl

ands

Braz

ilPa

kist

anIn

dia

Chin

a

% of

Gen

erat

ion

from

Nuc

lear


The first nuclear renaissance occurred from the 1970s through the late 1980s, when various countries, specifically in Europe, North America and the former Soviet Union, built their existing fleet of nuclear reactors. Today there are 445 reactors operating, accounting for approximately 15% of the total global electricity generation. However, these reactors are, for the most part, concentrated in developed countries. In the rapid-growth economies of China and India, the contribution of nuclear to the energy mix is minimal, at 2% and 3%, respectively, but is expected to grow over the coming years.


Adam Schatzker 25

Nuclear Generating Costs Nuclear power is now considered to be a relatively inexpensive, clean method of electricity generation that is key to the development of a reliable baseload system. We compared nuclear power generation to its peers on a new-build basis and it continues to be an economically competitive solution. With carbon costs added, nuclear looks even better.

We estimate that the current installed base of nuclear generation will be mostly insensitive to the cost of uranium as fuel. Even at high prices, the overall contribution to costs remains manageable.

Exhibit 37: Nuclear Fuel Cost Analysis Enrichment Level 4.50% 4.50% 4.50% 4.50% 4.50%

Tails Assay 0.25% 0.25% 0.25% 0.25% 0.25%

Uranium Price (US$/lb U3O8) 10.00 25.00 50.00 75.00 100.00Conversion Price (US$/kg UF6) 11.50 11.50 11.50 11.50 11.50

Enrichment Price (US$/SWU) 140 140 140 140 140

Fabrication Price (US$/kg) 250 250 250 250 250

Fuel Cost (US$/MWe) 4.78 5.75 7.37 8.99 10.60

O&M Cost (US$/MWe) 12.70 12.70 12.70 12.70 12.70

Total Cost (US$/MWe) 17.48 18.45 20.07 21.69 23.30

Change in cost (%) 9% 8% 7%

Uranium as % of Total Cost 4% 16% 16% 22% 28% Source: Ux Consulting, RBC Capital Markets estimates

The sensitivity of existing nuclear generation to changes in the uranium price is quite low. Even at $100/lb U3O8 for all uranium (ignoring contacted material), we estimate that the cost of generating electricity is highly competitive.

Exhibit 38: Nuclear Contribution to Electricity Generation (US$/ MWh)

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

Nuc

lear

Gas

Coa

l

Nuc

lear

Gas

Coa

l

Nuc

lear

Gas

Coa

l

Nuc

lear

Gas

Coa

l

Capital TotalFuelO&M

Notes: Capex Ranges: Nuclear = $1,500/kW low, $3,000/kW high; Gas = $400/kW low, $700/kW high; Coal = $1,000/kW low, $2,000/kW high. Fuel Ranges: Uranium = $10/lb U3O8 low, $100/lb U3O8 high; Gas = $3/MMBtu low, $9/MMBtu high; Coal = $1/MMBtu low, $3/MMBtu high. O&M costs for each are assumed to have one price.

Source: OECD, University of Chicago, MIT, ABARE, CERI, Uranium Information Centre, RBC Capital Markets estimates

Based on a range of capital costs and fuel costs, nuclear power generation remains very competitive. Gas and coal fuel cost volatility continue to drive the higher-end costs well beyond those of nuclear.


26 Adam Schatzker

Exhibit 39: Levelized Production Costs by Fuel Costs for Nuclear, Gas (CCGT) and Coal

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

-50% -25% 0 25% 50%

% Change from Base

Leve

lised

Ope

rati

ng C

ost

(US$

/MW

h)

Nuclear

Gas

Coal

Note: Base fuel prices are assumed to be US$50/lb U3O8 for uranium, $6.00/MMBtu for gas and $2.00/MMBtu for coal. Base capex assumed to be $1,500/kW for nuclear, $650/kW for gas and $1,300/kW for coal. Equity discount rate = 12%; 40-year life and 38% tax rate are assumed. Uranium fuel: $12/jkg conversion, $135/SWU, $240/kg fuel fabrication, 4.5% enrichment, 0.26% tails assay.


The cost of uranium has little effect on the economics of a new nuclear reactor. Based on levelized cost analysis, the sensitivity to uranium costs is very low compared to coal and gas.

Exhibit 40: Nuclear, Gas and Coal Production Costs Including CO2 Cost

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

$100.00

Nuclear Gas Coal NuclearLevelized

CoalLevelized

GasLevelised

US$

/MW

h

Levelized

Carbon Cost (US$20/t)

Carbon Cost (US$10/t)

Capital Cost

O&M Cost

Fuel Cost

Note: Costs above illustrate generating costs with capital and financing charges amortized equally over the life of the asset (on the left) and levelized costing (on the right). Assumptions: Nuclear: $50/lb U3O8 uranium, $1,500/kW capex; Gas: $3/MMBtu gas, $650/kW capex; Coal: $2/MMBtu, $1,000/kW capex.


Adding the cost of CO2 to electricity generation makes nuclear look like the least expensive option for new generation.


Adam Schatzker 27

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28 Adam Schatzker

Conflicts Disclosures RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to http://www.rbccm.com/cm/file/0%2C%2C63022%2C00.pdf or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

Important Disclosures The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates.


Adam Schatzker 29

Notes:


30 Adam Schatzker

Notes:


Adam Schatzker 31


Additional Disclosures RBC Capital Markets is the business name used by certain subsidiaries of Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets Corporation, Royal Bank of Canada Europe Limited and Royal Bank of Canada - Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. 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, the securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets.

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