Cameco SELL

CCO : TSX : C$23.67
Target: C$20.50

Headquartered in Saskatchewan, Cameco is the world’s largest supplier of uranium and a significant fuel conversion services supplier. Cameco operates uranium mines in Canada and the US and uranium conversion facilities in Canada. The company also owns a 100% interest in NUKEM, a trader and broker of nuclear fuel products and services.
All amounts in C$ unless otherwise noted.

Readers of this blog and my book The Apprentice Millionaire Portfolio ( available from well know my take on the sector and this stock. Yet I still receive emails calling or the rise of the Nuclear Phoenix . Not gonna happen this year .

Metals and Mining — Base Metals and Minerals
Cameco has agreed to sell its 31.6% stake in Bruce Power LP for C$450 million. While we welcome the cash injection, we note that BPLP contributed 30-20% of our previous 2014-2017E operating cash flow forecasts for Cameco, and we believe the transaction is NPV-dilutive.
Our revised 2013-15E adjusted (for Bruce Power) EBITDA forecasts are C$837 million, C$483 million, and C$593 million and compare to C$837 million, C$754 million, and C$870 million prior. Our revised 2013-15E adj. dil. EPS forecasts are C$1.20, C$0.63, and C$0.89 and compare to C$1.20, C$0.95, and C$1.22 prior. Our revised NPV8 estimate of C$16.84 is down from our previous NPV8 estimate of C$17.50.
Action and valuation
We are downgrading our recommendation from Hold to SELL, and maintaining our 12-month target price of C$20.50, which is based on the average of: i) 15x (up from previous 12x) our 2015E EV/EBITDA, which would imply a share price of C$20.30, and ii) 1.25x (up from previous 1.0x) our NPV8 estimate of C$16.84. While the downgrade is mostly due to recent share price outperformance, it also reflects our view of earnings and NPV dilution from the Bruce Power sale. The higher multiples reflect market anticipation of positive uranium market news flow.
Next potential catalyst and investment risks
We believe that the equity market has already moved to reflect the asymmetric news flow risks of 2014, with initial Japanese reactor restarts highly likely, and spot uranium prices likely already at bottom-of-cycle. However, we believe that the market remains in fundamental surplus, and with continued excess Japanese inventory build.

Fission Uranium Spec Play

Metals and Mining — Exploration and Development
Investment recommendation
The recent vote on the plan of arrangement by Alpha Minerals (AMW : TSX-V | HOLD) in favour of its acquisition by Fission Uranium in a predominantly share transaction (5.725:1, AMW:FCU) and the proposed spincos (Alpha Exploration Inc. and Fission 3.0 Corp) paves the way for the merged Fission Uranium Corp. to provide investors with a 100% exposure to the Patterson Lake South uranium project in the SW Athabasca Basin, which in our view is currently the most attractive exploration play in the uranium sector.  SPECULATIVE BUY
Investment highlights
 We estimate that the merged company will have a F/D share count
of 355.2 million shares with 338.6 million in I/O as Alpha Mineral’s
options and warrants are exercised. The forecast W/C position takes
into account the equity financing closed in late October for gross
proceeds of C$12.9M, cash inflows from ITM opt/warrants from
both companies and cash outflows related to generating the spincos
(C$3M each) and transaction costs. If the FCU option/warrants are
exercised its W/C position would be C$45M or C$35M, without the
early exercise. Its W/C position would be sufficient to fund (C$20-
24M) a winter and fall 2014 drill program leading to a maiden
resource estimate by Q3/14E. We will model the impacts on the
company after the transaction is closed ( we estimate Dec. 6).
 The spinco (Fission 3.0 Corp) will have C$3M in W/C and a portfolio
of assets which includes the Patterson Lake North project (27,408
ha), a JV with Azincourt Uranium Inc. (AAZ : TSX-V | Not rated),
North Shore property (55,160 ha, 100%-owned) and the Clearwater
West property (11,835 ha) where Brades Resource Corp (BRA : TSXV
| Not Rated) is earning in to a 50% stake.

Uranium Sector Update : Hope Keeps The Lights On

English: "Satsop nukes" seen from ne...
English: “Satsop nukes” seen from near Satsop, Washington, USA. Cooling towers, Satsop Development Park. (Photo credit: Wikipedia)

DENISON MINES (T-DML) $1.37 -0.06
UEX CORP. (T-UEX) $0.50 +0.03
PALADIN ENERGY (T-PDN) $0.98 +0.01
Go to a mining conference, turn on the business TV channels or visit the websites and for those still interested in the beaten up resource sector, uranium seems to be getting much of the attention.
Reading the charts seems to be high profile types such as Rick Rule of the Sprott Group or Marin Katusa of Casey Research. Also enjoying the times a little more is David Talbot, the uranium analyst at Dundee Securities and also an analyst with a big following since Hathor Exploration.

Mind you, this still has not been a good sector to be in for much of the last two years since Fukushima. All that may be changing as the Japanese make decisions some time in the next 4-8 weeks on if and when some of their nukes will be turned back on. In the real world of economics, the Japanese currently buy almost 30% of the LNG produced at a price almost triple to  quadruple what North American prices are. It makes the cost of power in Japan outrageous, but hey, it isn’t just Japan. We have all seen the pictures of those dirty, choking fogs caused by coal plants in China and we know they need an alternative. That is why, despite Fukushima, there are now more nukes planned to be built since before that terrible event.
Currently 160 new plants are planned and 320 are proposed. But timing is everything and if the Japanese do go ahead, the current bump in uranium stocks could continue.
And if they don’t? Well, the next big event is the ending of the HEU Agreement with the Russians—the big supplier of uranium for reprocessed old A-bombs. They will want higher prices come year-end and don’t have a lot left. Meanwhile, there are very few uranium miners that can  make money at the current spot price of $40.00 and very few new potential mines would make sense at the long-term price of $60.00. (Most new ones would need at least $65.00 to consider financing).
There are currently only a handful of publicly traded companies compared to the last boom when there were almost 500.

Marin Katusa has been leading the charge for the Casey Group, organizing some rather high-profile panelists to talk about the nuclear future and is a big believer in the coming cycle. He also points out the Islamists who bombed the Areva mine in Niger knew what they were doing and suggests that mine won’t be up and running for a while. He also points out that if the Japanese do decide to switch back to nukes, that would greatly affect the need for LNG and have potentially large effects for proposed American/Canadian LNG export facilities.
When we ask Katusa for some stock picks, he suggests one of them—low risk—with no permitting problems or the typical problems with mining and that is Uranium Participation which he would buy for his mother! He suggests it trades at a discount to its value and importantly, has some uranium hexafluoride in its assets which he believes down the road, is going to be important. Something of medium risk that he would buy for his
wife would be Uranium Energy, the American-based company whose assets he feels are significantly undervalued. He also points out that Russians now own more nuclear assets in the United States than Americans do (20% of all power in the US, now comes from nuclear power and half of that depends on the old Russian A-bombs whose supply ends at the end of this year).

For a pick for those accepting high risk, he goes with Skyharbour Resources in grabbing promising land areas.
We catch up with the very busy Dave Talbot, with another merger in the sector today as Rockgate and Mega Uranium agree to merge. We did get his top three picks at this moment.
He goes with one that has already created a lot of excitement— Fission Energy and also UEX and Paladin. We should note that Katusa has already played Denison and Fission and is looking to get back into both should they retreat…for whatever reason.

Paladin Energy Results / Update


TSX : $1.24

Shares of Paladin Energy moved higher after the growing mid-tier uranium producer reported betterthan- expected FY Q2/13 (CY Q4/12) results, that were driven by lower-than-anticipated cash costs at both Langer Heinrich (open-pit in Namibia) and Kayelekera (open-pit in Malawi). PDN’s adjusted EPS of $0.01 was aboveconsensus of -$0.01.

The company had already pre-released its U308 production, sales, and revenue. PDN’s consolidated cash operating costs, which were not previously disclosed, of $32/lb were markedly lower than forecasts of $40/lb, reflecting a combination of lower unit costs at both
operations and a sales mix that was more heavily weighted to Langer.

PDN also reconfirmed its FY 2013 U308 production guidance of 8.0-8.5 million lbs (the company produced 4.1 million lbs in FY H1/13). n PDN shares, highlighting the company’s attractive relative valuation, improving operating and financial performance, along with what
appears to be recovering uranium market fundamentals.

However, note that the company’s balance sheet, while improving, remains relatively weak. He also highlighted that, after badly missing expectations in the FY 2009-2011 periods, PDN has now met or exceeded  production forecastd for five consecutive quarters. With a relatively high debt load and a higher unit cash cost profile, Paladin provides superior leverage to the uranium market.

Uranium update – The AMP feels your pain , for you have no gain

Cubes and cuboids of uranium photographed in t...
Cubes and cuboids of uranium photographed in the 1940s (Photo credit: Wikipedia)

Please note our book ” The Apprentice Millionaire Portfolio ” has  extensive coverage of the sector / players and maintains an

” AVOID ” rating on same. 

This missive is from from Canaccord trying to drum up interest:

We combined some comments from Dave Talbot of Dundee
Securities on his recent visit to Africa with some of his most
recent research reports to give our readers an update on
some of the uranium stories we follow.
Denison Mining background: Canadian based uranium explorer
and developer with assets located in Saskatchewan,
Mongolia, and Zambia. Denison has 28 projects in the Athabasca
Basin, including non-operating interest with AREVA in
two late stage development projects, Midwest and McClean
Lake, and an operating interest in their flagship exploration
property, Wheeler River. Denison is also engaged in environmental
and mine decommissioning services through Denison
Environmental Services, and manages Uranium Participation
Corp., a uranium investment holding company with assets
held primarily in U3O8 and UF6.
Russ Dratwa: Hope your recent trip to see Denison’s interests
in Africa were adventurous but safe. Curious if there’s anything
new we should be aware of Dave?
Dave Talbot: On 1-Feb-13 we visited Denison’s wholly owned
Mutanga project in Zambia. Denison’s Mutanga project in
Zambia isn’t getting anywhere near the value it should be getting.
Mutanga has a current resource base of ~49.2MMlbs
grading 0.03% U3O8. Currently, the market doesn’t give much
value for Mutanga inside Denison, although we provide $1/lb
or $0.11/share in our 10% DCF model. Denison trades closer
to US$4.25/lb given its high grade assets in Saskatchewan
and near term production potential. However, we believe that
this project would be a company maker for almost any other
junior exploration company. It has all the hallmarks of a good
project – good jurisdiction, infrastructure, people, large resource
base, tremendous upside potential and similarities to
other world class projects.
Paladin Energy background: Paladin Energy is an Australiandomiciled company focused on uranium production, development and exploration with projects in Namibia, Malawi and Australia. Its flagship operation is Langer Heinrich, which recently completed its Stage III ramp-up capable of 5.2 MM lbs production. Kayelekera is completing its ramp up to 3.3 MM lbs annually. The company produced 6.894 MM lbs in FY2012 and guidance for 2013 is for between 8.0 and 8.5 MM lbs U3O8.


DT: Can’t really make a comparison between Hathor and
Patterson Lake South (PLS) yet. No one knows how big
this can get and no one has confirmed that the rocks
aren’t as complex down there either, although without all
those intrusives around I would expect it to be less of a
mess. Not entirely sure though, there are more conductive
structures lighting up on the PLS ground, but the rocks
look very good. Grade isn’t there yet from what I can
see….Hathor had some spectacular grades (up to 86%).
RD: … & if you could only buy one Dave, would it be DML?
DT: Actually would look at Fission Energy. You get 1/2 of
PLS, 0.35 shares of Denison and almost $15 MM in postdeal
cash for free….so best of all worlds. Rio Tinto is
pretty hot and heavy on the early stage hard rock Dome
property of Fission (soon to be Denison).

Cameco – more pain unless you followed the AMP ” Avoid ” label

Cameco (Photo credit: Wikipedia)


CCO : TSX : $21.06

Note today’s Uranium Update in this blog as well North America’s largest publicly-traded uranium producer reported quarterly results after the close on Friday.

Canaccord highlighted that Cameco reported markedly better-than-expected Q4/12 results (adjusted EPS of $0.60 vs. his estimate of $0.43 and the First Call consensus of $0.41) driven by stronger results in the core uranium segment.

The company also issued 2013 guidance that on an overall basis was slightly above forecast. The start-up of Cigar Lake remains on schedule for mid-2013. However, Cameco disclosed that the Canadian Revenue Agency (CRA) is challenging the company’s uranium transfer pricing structure which could have a material financial impact; this is likely to be an overhang on the shares in the near-term.

Looking ahead, Canaccord reiterated a bullish rating on Cameco’s stock, citing the company’s very high quality asset base, impressive medium term production growth profile driven by Cigar Lake, and what appear to be improving fundamentals in the uranium market.

A recovery in Japanese buying may help the uranium-mining industry, which has canceled or deferred billions of dollars of investments as the price of the commodity fell as much as 40 percent. The tsunami and earthquake that struck the country in 2011 damaged Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant and led to the meltdown of three reactors, the release of radiation and the evacuation of 160,000 people.

Japan subsequently suspended operations of its remaining reactors. Having accounted for about 20 million pounds of annual global uranium demand before the disaster, Japan now operates just two of its 50 functioning reactors. Current global demand is 177 million pounds, according to Rob Chang, an analyst at Cantor Fitzgerald LP in Toronto.

Average Prices

The price of U308, the tradable form of uranium, is currently at $43.75 a pound, according to Metal Bulletin data. The price, which reached $138 in 2007, will average $58.20 this year, $63.75 next year and $69.17 in 2015, according to the average of analysts’ estimates compiled by Bloomberg.

ower prices have slowed development of some mining projects. In October, BHP Billiton Ltd. deferred a decision to spend an estimated $33 billion to expand the Olympic Dam uranium mine in Australia, and Perth-based Paladin Energy Ltd. last year slowed expansion of a Namibian project.

Cameco has plunged 42 percent in Toronto trading since March 10, 2011, the day before the tsunami, as the 26-member ISE-CCM Global Uranium index has dropped about 47 percent. The company responded to falling uranium prices last year by abandoning its goal of doubling its annual output to 40 million pounds by 2018, dropping the target to 36 million.

Lower Profit

Last week Cameco reported a C$168 million ($167.6 million) writedown on its Kintyre project in Australia, reiterating that it wouldn’t be viable without a uranium price of about $67 a pound. The writedown helped push fourth-quarter net income down 83 percent to C$45 million, or 11 cents a share, from a year earlier.

Even amid public opposition in Japan to reactor restarts that included weekly protests last year, the victory in December of the pro-nuclear Liberal Democratic Party in parliamentary elections has raised expectations that more nuclear plants may come back online.

While countries such as Germany back away from nuclear power, restarts in Japan are important for the uranium and nuclear-power industries because the Asian nation has the most operational reactors after the U.S. and France, according to data from the World Nuclear Association. The nation of about 128 million people also is wholly reliant on imported uranium.

Thinking Ahead’

Cameco, the biggest uranium producer after Kazakhstan’s Kazatomprom and Paris-based Areva SA, forecasts the number of operable reactors to increase globally by 80 in the next 10 years to 511, according to a Jan. 23 investor presentation on its website. Before Fukushima, the company forecast 110 new units over the following 10 years, Chief Financial Officer Grant Isaacsaid.

With 64 reactors now under construction around the world, Cameco expects demand for uranium to increase by an average of 3 percent a year to 2022, Gitzel said on a Feb. 11 conference call.

“These utilities, when they’re building reactors today, they don’t need uranium today, they probably don’t need it for five years — but then they’ll need it for 60 years,” Gitzel said in the interview. “So they’re thinking ahead.”

Three from Casey Research

English: This graph shows the development of o...
English: This graph shows the development of oil prices (Brent) over the past 10 years in Dollars and in Euros. The difference is caused by the weakening of the dollar relative to the euro. (Photo credit: Wikipedia)

PRD ENERGY (V-PRD) $0.68 +0.03
HALLIBURTON CO. (US:HAL) $40.19 -0.72
Marin Katusa of Casey Research and  his three favorite stories at this time.
Marin obliges and writes, “My theme is similar to what it was last year. Stick with proven management teams that have cashed up companies and permitted drill targets for the oil and gas companies. I’ve been very bullish on PRD Energy and it has done very well, and believe it will continue to do well in 2013.
Uranium Participation Corp is a low risk way for an investor to play the uranium sector, but particularly the UF6 sector, which no one is talking about, but will have a great run in 2013. NAV is roughly 50% U3O8 and 50% UF6.
Halliburton has performed very well in our portfolio, and it pays a dividend, and we are up considerably on a stock that is a big player in the sector. If your readers want to take a look at our portfolio, which has done very well, they can do so at orderform/cer?ppref=

 Price forecasts :
he comments, “Subject to no major political issue occurs in the Middle East, I see oil both WTI and Brent trading in the range where it is currently. Gold will most likely also be in the same range.
That said, the current gold and oil prices are very good prices for the well run companies, and if the company you are invested in can’t make money at US$90 oil and US$1650 gold, you shouldn’t be invested in that company.”

For the 500 page sSrategy and Selections you’ll need in these sectors consult your copy of The Apprentice Millionaire Portfolio and The Gold Investor’s Handbook – both available from