Analyst Actions: Credit Suisse Says Uranium One Well-Positioned for Recovery in Uranium Prices

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Reinstating coverage of Uranium One Inc. (UUU.TO) at Outperform. "After a period of restriction, we reinstate coverage of UUU with an Outperform rating and 12-month target price of C$4.50/share."

Stronger reserve base and another year of production growth. "UUU is targeting another year of production growth with FY12 attributable share of 11.6Mln lbs U3O8 (+9% YoY) at an average cash cost of $19/lb sold. FY13 attributable share of production is estimated to grow a further +7.8% YoY to 12.5Mln lbs U3O8. With average cash costs around $20/lb, UUU remains in the lowest cost quartile of the uranium cost curve and as a result, maintains a strong relative position on EBITDA margins on a per pound (sold) basis."

Seeking an inflection. "We believe we are in the early stages of a positive turn in market sentiment towards uranium and uranium equities that would see a return to the historical valuation range on P/NAV of 1.2-1.4x (peak valuation 1.6x) based on: (i) partial restart of Japanese nuclear capacity; (ii) resumption of approvals for new nuclear reactors in China; (iii) expiry of the HEU supply agreement in 2013; and (iv) slower production growth from Kazakhstan. Relative valuations are rich on traditional metrics (P/NAV, EV/EBITDA) vs. peer group metals; however, we believe uranium equities will continue to trade at premium based on scarcity value, lack of investment alternatives and the relatively high barriers to entry associated with uranium mining."

Valuation: "UUU well-positioned for recovery in uranium prices. We believe the current spot price of $52/lb is fundamentally supported and a staged recovery in prices more reflective of incentivized supply pricing, in our view between $65-70/lb, will occur over the next 18-24 months. We currently assume $55/lb in 2013, $65/lb in 2014, and $75/lb in 2014. Our 12-month TP for UUU of C$4.50/share is based on a 1.2x our NAV estimate of C$3.57/share. Our target multiple for UUU reflects the low-end of the historical range (1-1.6x)."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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