realcap research leader uranium report final 04092014

URANIUM RESEARCH REPORT

RealCap Research Leader 2014

RealCap Uranium Research Report

Uranium Research Report

About RealFin Capital Partners

RealFin Capital Partners “RealCap” was founded in

2012 under the umbrella of the RealFin Group.

Since its inception in August 2003, the RealFin

Group has earned a widely acknowledged

reputation as a market leader in alternative asset

management, advisory and structured financial

solutions to the institutional market (pension funds,

life companies, asset managers and stock brokers).

The Group currently controls assets in excess of

USD1.5bn.

By listening to our clients, we took a strategic

decision to broaden our alternative asset

management service with the sole purpose of

making a financial difference in the lives of our

investors and formed RealCap.

RealCap Research Leader

Although based in Cape Town, South

Africa, our client base and product

offering is global.

Through our counterparties in Switzerland,

RealCap offers specialist, global investment

management services and products to our high net

worth investors with a focus on sectors and

countries where we believe our unique skill set

provides us with positive information asymmetry.

Transparency and security form the foundation of

RealCap and together with a driven, passionate and

committed team of people who are obsessed with

perfection and innovation, we are able to offer our

investors a truly unique investment management

service.

RealCap Directors

Steve Doidge Chief Executive Officer

Cornelis Batten Executive Director

Kerry Booth Head: Finance and Operations

RealFin Capital Partners Proprietary Limited “RealCap” is an authorised financial services provider - Licence No. 43784

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Table of Contents

URANIUM RESEARCH REPORT .................................................................................... 1

ABOUT REALFIN CAPITAL PARTNERS ............................................................................... 1

REALCAP DIRECTORS .................................................................................................... 1

TABLE OF CONTENTS ........................................................................................................... 2

1. INTRODUCTION TO THE INVESTMENT CASE .......................................................... 4

SUPPLY SHORTFALL ...................................................................................................... 4

JAPANESE RESTARTS ..................................................................................................... 4

CHINA DEMAND ........................................................................................................... 4

CLEAN ENERGY ............................................................................................................ 4

SECONDARY SUPPLIES ................................................................................................... 4

MERGERS & ACQUISITIONS (M&A) ................................................................................. 4

2. BACKGROUND ON URANIUM ............................................................................ 5

URANIUM ON EARTH ..................................................................................................... 5

ATOMIC STRUCTURE ..................................................................................................... 5

NUCLEAR FISSION ......................................................................................................... 5

URANIUM DEPOSITS ...................................................................................................... 6

USES OF URANIUM ........................................................................................................ 6

3. GLOBAL ENERGY REQUIREMENTS ..................................................................... 7

WORLD ENERGY CONSUMPTION ..................................................................................... 7

BASE LOAD ENERGY ..................................................................................................... 8

LEVELISED COST OF ENERGY .......................................................................................... 8

CLEAN AIR ENERGY ....................................................................................................... 9

4. THE NUCLEAR FUEL CYCLE .............................................................................. 11

URANIUM MINING PROCESS ........................................................................................... 11

URANIUM MILLING ........................................................................................................ 12

CONVERSION ............................................................................................................... 13

ENRICHMENT ............................................................................................................... 13

FUEL FABRICATION ....................................................................................................... 15

TEMPORARY STORAGE .................................................................................................. 15

REPROCESSING ............................................................................................................. 15

RECYCLING .................................................................................................................. 16

DISPOSAL OF WASTE .................................................................................................... 16


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5. NUCLEAR REACTORS ...................................................................................... 17

COMPONENTS OF A NUCLEAR REACTOR ........................................................................... 17

PHYSICS OF A NUCLEAR REACTOR ................................................................................... 17

TYPES OF NUCLEAR REACTORS ....................................................................................... 18

6. NUCLEAR DISASTERS ..................................................................................... 22

RADIOACTIVE DECAY ..................................................................................................... 22

THREE MILE ISLAND ...................................................................................................... 22

CHERNOBYL ................................................................................................................. 22

FUKUSHIMA DAIICHI ...................................................................................................... 23

7. NUCLEAR STORY IN JAPAN .............................................................................. 24

JAPANESE ENERGY REQUIREMENTS ................................................................................. 24

FUKUSHIMA DAIICHI ...................................................................................................... 24

POST-FUKUSHIMA ........................................................................................................ 25

JAPANESE RESTARTS ..................................................................................................... 25

8. URANIUM PRICING ......................................................................................... 26

SPOT & TERM PRICE...................................................................................................... 26

PRICING TRANSPARENCY ............................................................................................... 27

9. URANIUM DEMAND & SUPPLY .......................................................................... 29

WORLD NUCLEAR ASSOCIATION ..................................................................................... 29

WNA SUPPLY/DEMAND MODEL ..................................................................................... 29

REALCAP’S ASSESSMENT OF THE WNA SUPPLY/DEMAND MODEL ...................................... 31

REALCAP-WNA SUPPLY SIDE ANALYSIS ......................................................................... 32

RISKS TO THE ANALYSIS ................................................................................................. 38

10. PARTICIPANTS IN THE URANIUM INDUSTRY .......................................................... 39

MINING COMPANIES ...................................................................................................... 39

PHYSICAL URANIUM HOLDING COMPANIES ...................................................................... 39

SENIOR EXPLORATION COMPANIES ................................................................................. 40

JUNIOR EXPLORATION COMPANIES .................................................................................. 41

CONVERSION FACILITIES ................................................................................................ 41

ENRICHMENT FACILITIES ................................................................................................ 43

FUEL FABRICATION FACILITIES ........................................................................................ 46

11. SUMMARY AND CONCLUSIONS ......................................................................... 48

SUMMARY ................................................................................................................... 48

CONCLUSIONS.............................................................................................................. 48


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1. Introduction to the Investment Case

The Fukushima event pushed the Uranium market

into complete disarray and RealCap believes the

sector currently represents a very attractive,

positively skewed investment opportunity for

inter alia the following reasons:

Supply Shortfall

Contrary to popular market belief, RealCap

forecasts a significant supply shortfall from Q3

2014, primarily due to production costs and new

mine incentive costs being significantly lower than

the current Uranium price, causing project closures

and production stoppages.

Japanese Restarts

Japan is due to restart at least 25% of their idle fleet

in the short term.

China Demand

China’s massive nuclear rollout will make them a

hoarder of resources regardless of price.

Clean Energy

Air pollution in emerging economies, accompanied

by a concomitant demand for scalable, efficient and

clean energy, makes nuclear an obvious choice.

Secondary Supplies

Secondary supplies are coming under pressure as a

result of the end of the Russia/USA HEU

agreement, as well as producers dipping into the

secondary market to deliver on their contracts.

Mergers & Acquisitions (M&A)

With extremely low valuations the market is

witnessing an increase in corporate activity on the

M&A front. We expect this to continue, and in

doing so providing strong support for the sector as

a whole.

The Uranium sector currently represents a very attractive,

positively skewed investment opportunity


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2. Background on Uranium

Uranium on Earth

Uranium was discovered in 1789 by Martin

Klaproth, a German chemist who named it after the

planet Uranus. Uranium is a metallic mineral

deposited widely within the earth’s crust and is 40

times more abundant than silver. Uranium, like

other heavy elements, was formed through

nucleosynthesis in stars, particularly supernovae

which predate the sun and planetary system. The

radioactive decay of Uranium contained in the

earth’s molten core provides the primary source of

heat energy which drives plate tectonics or

continental drift. Uranium deposits are found

throughout the soil, rock and seawater of the

Earth’s crust and a typical 10 x 10 metre garden with

a soil depth of 1 metre contains around 300 grams

of Uranium.

Atomic Structure

Uranium is one of the heaviest of all naturally

occurring elements and is nearly 19 times as dense

as water. Uranium occurs in several forms known as

isotopes. Isotopes are distinguished by the number

of neutrons in the atomic nucleus. The Uranium

isotope accounting for 99.27% of Uranium is known

as U238.

This isotope has 92 protons, 92 electrons and 146

neutrons. Although U238 is readily abundant, it is not

fissile and cannot be used directly as a fuel. The

second most common Uranium isotope is U235,

which has three neutrons less than U238 and is a

fissile element.

Nuclear Fission

A fissile element is one that can sustain a nuclear

fission chain reaction. When the nucleus of the U235

atom is struck by a neutron, fissile fragments, more

neutrons and a large amount of energy is released.

The new “free” neutrons then collide with other

atoms of U235 and thus continue the fission chain

reaction and release of energy. Nuclear power

plants control the rate at which the fission chain

reaction occurs.

1 Schematic View of Nuclear Fission

Reaction


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If the free neutrons ejected strike a non-fissile U238

isotope, it is absorbed and the reaction does not

continue. Nuclear weapons (atomic bombs), by

comparison, are designed to produce chain

reactions that release such high levels of energy

that they cannot be controlled once initiated.

Uranium Deposits

Uranium is found all over the world, but primary

deposits are located in Australia, Kazakhstan and

Canada. Uranium occurs in high concentrations in

the mineral uraninite, commonly known as

pitchblende. The Uranium compound is triuranium

octoxide – U3O8. The Athabasca Basin in

Saskatchewan, Canada has the highest

concentration of U3O8 – it is extremely high grade

at an 18% concentration ratio.

Uses of Uranium

The primary use of Uranium is as a fuel source in

nuclear power reactors. However, Uranium does

have other uses. Its military applications include

using Uranium in a highly enriched, weaponised

form in nuclear warheads and also in a depleted

form as armour shielding for tanks.

Due to Uranium’s high density, it is used as a

counterweight in certain aircraft and sailboats.

Historically Uranium was used to give glass a

yellow/orange tint.

The Athabasca Basin in Saskatchewan, Canada has the highest grade Uranium

deposits in the world with a U3O8 concentration of 18%

2 Global Uranium Deposits


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3. Global Energy Requirements

World Energy Consumption

The US Energy Information Administration (EIA)

forecasts a 56% increase in world energy

consumption between 2010 and 2040, with most of

that increase in demand coming from non-OECD

(Organisation for Economic Co-operation and

Development) countries driven by economic

growth and growing and increasingly urbanised

populations.

3 World Total Energy Consumption

(quadrillion Btu)1

China and India are the non-OECD countries that

continue to lead energy demand growth, despite

relatively weaker economic growth at present.

1 US Energy Information Administration, International Energy Outlook 2013

4 Non-OECD energy consumption by

country grouping (quadrillion Btu)1

A combination of energy fuel sources needs to be

used to meet energy consumption demand.

Historically, there has been great reliance on fossil

fuels, but as national energy security and air

pollution concerns, as well as sustained high oil

prices grow and persist, nations need to adjust their

energy mix to further include alternative sources

like nuclear and renewables.

0

200

400

600

800

1000

1990 2000 2010 2020 2030 2040

Non-OECD OECD

0

100

200

300

400

500

600

1990 2000 2010 2020 2030 2040

Africa

Central and South America

Middle East

Europe and Eurasia

Asia

Recent events in Crimea and the Ukraine demonstrate the need for sovereign energy security including fuel source and delivery

mechanism certainty


7


5 World energy consumption by fuel type (quadrillion Btu)1

Base Load Energy

Base load energy is the minimum amount of power

required to meet minimum demands. The base load

varies through the day and over the course of the

year and is dependent on commercial and industrial

activities as well as seasonal factors. Base load

generators are required to produce a large load of

consistent energy (24/7) at a relatively low cost.

Coal plants, natural gas plants and nuclear reactors

are well suited to these requirements. While

renewable energy sources are important

contributors to the overall energy mix, their

dependence on weather makes the variability of

their energy output unsuitable for base load

production.

6 Load Curves for Typical Energy Grid

Levelised Cost of Energy

Comparing the true economic cost of various

energy sources is difficult due to the varying capital

and operating costs of different energy

technologies. A Levelised Cost of Energy (LCOE) is

the constant cost per KiloWatt (KWh) or MegaWatt

(MWh) hour of a payment stream that has the same

present value as the total cost of building and

operating the plant over its life. There are of course

multiple inputs and assumptions to a LCOE

computation and models are sensitive to

performance, financing and capital cost factors. A

recent study by the Bureau of Economic and

Business Research in association with the

University of Utah compared the LCOE for various

energy scenarios and broke their findings into the

component costs.

0

50

100

150

200

250

1990

1994

1998

2002

2006

2010

2014

2018

2022

2026

2030

2034

2038

Liquids Coal Natural gas

Renewables Nuclear


8


7 LCOE by Component Cost ($MWh)

The construction costs account for the majority of

the cost per MWh of nuclear energy, whereas the

fuel itself is an almost negligible component.

Integrated Gasification Combined Cycle (IGCC) is

the process to turn coal and other carbon based

fuels into synthesis gas (syngas) which allows for

the removal of impurities prior to combustion.

This is one of the processes oftentimes referred to

as “clean coal” and while the emissions from this

process are far less than from conventional coal

plants, the high capital costs and the overstated

environmental benefits reduce the viability of IGCC

as a true base load alternative.

Natural Gas Combined Cycle (NGCC) plants are

typically powered by natural (shale) gas extracted

through new fracking methodologies.

The efficiency of an NGCC plant is better than that

of more traditional gas-fuelled plants and most new

gas plants are being built and designed with

combined cycle technology. As with traditional gas

powered energy, the fuel cost (gas) is a large

determinant in the overall LCOE. This variable cost

ultimately means economies remain sensitive to

the input price and remain dependent on a secure

supply pipeline.

Clean Air Energy

Power generation, together with heating, has

historically been the leading cause of air pollution

as measured by greenhouse gas (GHG) emissions.

Greenhouse gases include the following: carbon

dioxide, methane, nitrous oxide, hydro-

flurocarbons, perfluorocarbons, and sulfur hexa-

fluoride.

0

20

40

60

80

100

120

Coal IGCC Gas NGCC Nuclear

Construction Variable Fixed Fuel


9


Coal and natural gas power plants, while important

base load energy providers and relatively cheap as

measured by LCOE, produce high levels of GHG

emissions during operation. The computation of

total life cycle GHG emissions is a complicated

process and is dependent on a number of model

inputs. The World Nuclear Association compiled

data from numerous emissions studies to produce

an industry average in life cycle emissions per

energy source.

The burning of fossil fuels, including natural gas,

produces high quantities of carbon dioxide over the

life cycle of the plant. Nuclear power plants are

comparable with other renewable technologies in

respect of emissions; however renewable

technologies like solar, wind and hydroelectric

plants are unable to provide the base load energy

needed by growing economies.

0

200

400

600

800

1000

1200

Tonn

es C

O2e

/GW

h

Nuclear energy is the only economically viable clean

air energy, base load solution to meet growing

energy demand

8 Lifecycle GHG Emissions - Average Emissions Intensity


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4. The Nuclear Fuel Cycle

The nuclear fuel cycle is the series of industrial

processes which involve the transformation of the

mineral U3O8 into enriched fuel suitable for use

within a nuclear reactor. These processes include

mining, milling, conversion, enrichment,

fabrication and final disposal of nuclear fuel.

The processes Uranium needs to go through to be

used as fuel in a reactor are collectively called the

“front end” of the nuclear fuel cycle. The “front end”

of the cycle consists of Uranium mining and milling,

conversion, enrichment and fuel fabrication.

Typically, after three years of electricity generation,

used Uranium fuel is removed from the reactor.

It undergoes a series of steps known as the “back

end” of the nuclear fuel cycle, which includes

temporary storage, reprocessing, recycling and

disposal of waste.

Uranium Mining Process

There are three mining methods that can be used to

recover Uranium ore: open pit mining, underground

mining and in-situ leach (ISL) mining. Open pit

mining is used when Uranium deposits lie close to

the surface of the ground – less than 100 metres.

Rocks are broken up with explosives and hauled to

the mill for processing. The cost of open pit mines is

greatly impacted by the amount of waste rock that

must be removed to access the ore, the ore grade,

the mine location, the scale of the operation and

the presence or lack of groundwater. Ore grades in

these mines are typically less than 0.5%.

For deposits lying deep in the ground (typically

more than 120m deep), underground mining is

used. The advantages of underground mining are

that it causes smaller surface disturbance and

requires less waste rock removal than open pit

mining. Vertical shafts are made to the ore depth

and then tunnels, ramps and chambers are created.

9 Nuclear Fuel Cycle


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There are three different types of underground

mining:

Raisebore method: A revolving ream head is

pulled through the ore body creating a vertical

tunnel. The Uranium ore falls through and is

collected using remote controlled front end

loaders. The ore is mixed with water and

pumped upwards in slurry form.

Jet-bore method: Highly pressurised water is

used to remove Uranium ore. The water/ore mix

is thickened and then also pumped to the

surface.

Conventional stoping method: This involves

processes much like those used in gold mines –

drilling and blasting breaks the ore into debris

which is then hauled to the surface by winch.

Underground mining cost is sensitive to depth, the

amount of waste rock development required,

ground conditions and the presence or lack of

groundwater.

ISL mining retrieves Uranium ores while leaving the

rocks in place. A chemical compound known as

lixivicent (a combination of water, oxygen and

baking soda) is injected into the ore layer, after

which Uranium ore compounds are dissolved to

form a slurry. This solution is pumped up to the

surface where the minerals can be recovered. The

ISL method does not generate waste rock and

causes minimal surface disturbance.

ISL mining cost is sensitive to drilling and

installation costs, well field pattern design and

Uranium recovery rates.

Uranium Milling

A milling site is generally situated near a Uranium

mine. The milling process extracts Uranium oxide

concentrate (U3O8) from Uranium ore. Also

commonly referred to as “yellowcake”, U3O8

contains more than 80% Uranium. In comparison,

the original ore contains about 0.1% Uranium or

less.

The Uranium ore is first crushed and ground to a

fine slurry then leached in sulphuric acid to separate

the Uranium from the rock. The Uranium solution

is purified through solvent extraction and returned

to a solid state through chemical preparation. The

concentrate is baked and dried and packed into

steel drums similar in size to oil barrels. Due to the

density of the Uranium, each drum weighs around

400 kilograms.

The remaining wastes from the ore contain long-

lived radioactive materials and toxic materials such

as heavy metals. As such, they are isolated from the

environment in engineered facilities near the mine.

For a typical nuclear reactor generating 1000MWe

of electricity, about 200 tonnes of U3O8 is required.


12


Conversion

The U3O8 product of the Uranium milling process is

initially converted by a chemical process to

Uranium Hexafluroride (UF6) to form the input to

the enrichment process.

Enrichment

Most of the nuclear reactors operating or under

construction in the world today require enriched

Uranium rather than

naturally occurring

Uranium as a fuel.

Enriched Uranium

raises the percentage of the fissile U235 isotope from

the naturally occurring concentration of 0.7% to a

reactor grade of between 3% and 5%.

The enrichment process forms two products from

UF6 feedstock: the enriched product containing a

higher concentration of U235 which is used for

nuclear fuel, and the “tails assay” or depleted

Uranium, which contains a lower concentration of

U235.

The tails assay refers to the percentage of U235 in

the depleted Uranium and is an important quantity

as it indirectly determines the amount of work that

needs to be inputted to produce an enriched

product with a particular concentration.

The enrichment process is measured in terms of

separative work units (SWU), defined as the

amount of enrichment effort required in order to

increase the concentration of U235. SWU is

measured in kilogrammes or tonnes.

Utilities enter into a contract with enrichment

companies, specifying the enrichment level

required and the tails assay. These specifications

are referred to as “contracted assay” and they

determine the amount of natural

Uranium that utilities need to

supply to an enrichment facility to

create enriched Uranium.

An enrichment facility has

flexibility in creating enriched Uranium. When the

operational SWU of a facility is over and above the

required SWU of a contracted assay, less feed

Uranium is required. In this case, the enricher is free

to sell the surplus Uranium for its own account. This

is called underfeeding. Conversely, if the

operational SWU of a facility is below the required

SWU of a contracted assay, more feed Uranium is

required. This is known as overfeeding and the

enricher has to supplement the feed Uranium

supplied by the utility with some of its own.

According to the 2013 data from Ux Consulting

(UxC), enrichers are able to contribute up to 7700tU

per year to world markets by underfeeding.

For a typical nuclear reactor generating 1000MWe of electricity, about 200

tonnes of U3O8 is required


13


Enrichment usually takes place by inserting UF6 gas

in fast-spinning cylinders called centrifuges. The

U238 isotopes, which have higher atomic mass than

U235 isotopes, are pushed out to the cylinder walls.

This leaves an increased concentration of U235

isotopes near the centre. Another commonly used

enrichment method is the gaseous diffusion

process. In this method, UF6 gas is pushed through

porous membranes that allow U235 to pass through

more easily than heavier U238.

A new laser enrichment method is in its final

development stage and requires lower energy

input, lower capital cost and lower tails assay. The

utilisation of laser technology is expected to be in

commercial operation by 2017 and will have a

revolutionary impact on the enrichment process.

There are two categories of laser processes,

namely, atomic and molecular. The Atomic Vapour

Laser Isotope Separation (AVLIS) technology was

devised in the 1970’s and the US government

invested about $2 billion for its research and

development. Despite its hefty investment, the US

has decided to abandon the project and has

adopted a molecular enrichment technology called

Separation of Isotopes by Laser Excitation (SILEX).

AVLIS technology is dependent on photo-

ionisation, a process whereby an electron is

removed from the U235 atom to make it positively

charged.

The laser is set to a certain frequency such that only

U235 atoms are affected and not U238 atoms. The

ionised U235 atoms are then collected using a

negatively charged plate. The AVLIS technology

can also be used to separate plutonium isotopes.

SILEX is a molecular laser process that uses

Uranium hexafluoride (UF6). A 16 micron laser is

used to excite molecules containing U235 atoms, but

not affecting molecules containing the U238 atoms.

Essentially, the technology allows enriched

Uranium to be separated from depleted Uranium

using the difference in energy levels. The specific

detail on the SILEX technology is classified under

the US Atomic Energy Act. It is estimated that

SILEX technology only requires one-fifth of the

initial cost, size and power requirement of a

centrifuge-based enrichment plant to enrich the

same amount of UF6. SILEX technology is expected

to come into full commercial operation by 2017. The

first commercial-scale laser enrichment facility is to

be built by GE and Hitachi with an expected

capacity of 3.5 to 6 million SWU per year. Currently,

the test loop programme has been completed at

the GE-Hitachi Global Laser Enrichment (GLE)

facility in North Carolina. Construction of an initial

commercial cascade is expected in the near future.


14


Fuel Fabrication

The enriched Uranium is converted to UO2 pellets

by baking them at a high temperature (over

1400°C). The pellets are further encased in metal

tubes, typically zirconium alloy, to form fuel rods.

The rods are arranged into a fuel assembly and

shipped to the reactor. It is important to keep the

dimensions of the fuel pellets and other

components of the fuel assembly precise to ensure

consistency in the characteristics of the fuel.

The core of a 1000MWe reactor needs about 75

tonnes of enriched Uranium; the annual burn

amounts to about 27 tonnes of enriched Uranium.

Some U238 isotopes in the fuel turn into plutonium

during the fission process and about half of this is

fissile. The fissile plutonium contributes about one

third of the reactor’s energy output.

Every 12 to 18 months, about one-third of spent fuel

is replaced with new fuel to ensure efficient energy

generation.

Temporary Storage

Nuclear fuel is typically stored in a reactor for 18-36

months, after which it is removed. As time goes by,

the increase in the concentration of fission

fragments and the formation of heavy elements

make it unfeasible to continue using the fuel.

The fuel emits radiation and heat when removed

from a reactor. It is submerged in a storage pond

adjacent to the reactor to reduce heat and radiation

levels. The time it takes to reduce radiation to a

required level varies from several months to years.

Longer storage time makes it easier to handle used

fuel, as radioactivity reduces over time. Typically,

after five years, used fuel is transferred to naturally

ventilated dry storage on-site or to central storage

facilities.

Used fuel must either be reprocessed or prepared

for permanent disposal.

Reprocessing

Used fuel still contains 96% original Uranium, but

contains less than 1% of U235 isotopes – too low a

concentration to be fissile. The spent fuel also

contains plutonium and other heavy elements.

To reprocess, the fuel rods are chopped up and

dissolved in an acid. This allows separation of

Uranium and plutonium from the waste material.

The waste material, which is highly radioactive, is

stored in liquid form and subsequently solidified.


15


Recycling

The reprocessed Uranium goes through conversion

and enrichment to be used as a fuel. In the case of

recovered plutonium, it is processed directly into

mixed oxide (MOX) fuel. The MOX fuel is a mixture

of Uranium and plutonium oxide and can be used as

a substitute for normal Uranium oxide fuel in

specific reactors.

According to Areva, about eight fuel assemblies

reprocessed can yield one MOX fuel assembly, two-

thirds of an enriched Uranium fuel assembly, and

about three tonnes of depleted Uranium plus about

150kg of waste. By reprocessing and recycling,

utilities reduce the amount of natural Uranium they

require from a mine by around 12 tonnes.

Disposal of Waste

Nuclear waste can be categorised by radiation level:

Low-level: produced at all stages of the fuel

cycle.

Intermediate-level: produced during reactor

operation and reprocessing.

High-level: highly-radioactive fission products

separated in reprocessing and the used fuel

itself.

Currently, there is no pressing need to establish a

permanent disposal facility, as the total volume of

waste is relatively small. In addition, the high

recyclability of nuclear fuel makes it sensible for

used fuel to be kept aside temporarily for

reprocessing at a later date.

The first permanent disposal facility is planned to

be in operation around 2020. The waste will be

packed in containers and buried deep underground.

Geologically, these underground chambers should

have stable rock formations and limited water

movement to provide stability.


16


5. Nuclear Reactors

The key objective of a nuclear reactor is the

production of heat. That heat is used to generate

steam which drives a turbine producing electricity.

Nuclear fission is an extremely efficient heat

generation process.

Components of a Nuclear Reactor

All nuclear reactors, regardless of design, share

several common components.

Fuel: all require fuel in the form of enriched

Uranium.

Moderator: a moderator slows down the

neutrons released during the fission process to

enable more fission reactions. Moderators are

usually water or heavy water and occasionally

graphite.

Control rods: control rods are needed which

have the ability to absorb neutrons and can be

inserted or withdrawn to control the rate of the

fission reaction.

Coolant: a coolant (water) circulates around the

core and transfers heat away from the reactor.

Containment: the containment is typically a

steel and concrete structure designed to protect

the inner reactor core and more importantly to

protect operators and materials outside the core

from radiation.

Physics of a Nuclear Reactor

The fission chain reaction within the core of a

nuclear reactor is a balancing act between the rate

of production and rate of absorption of free

neutrons. Free neutrons are needed to collide with

the U235 nuclei and cause fission, releasing energy

and more free neutrons. The control rods have the

ability to absorb these free neutrons and slow down

the reaction. When the rate of neutron production

is equal to the rate of neutron absorption, the

reactor is said to be “critical”. Too many free

neutrons make it “supercritical”, while too few are

“subcritical”. Most nuclear reactors require a starter

neutron source, typically a mixture of Americium241

and Beryllium9, to ensure there are always some

free neutrons in the reactor core. Once the chain

reaction has begun, that starter is often removed

from the core.

Newly produced neutrons from the fission process

are termed “fast neutrons”, which need to be

slowed down by the moderator to increase the

probability that they start new fission reactions.

Moderators need to contain light elements that

scatter the fast neutrons rather than absorb them.

Water (H2O), heavy water (D2O) and zirconium

hydride (ZrH2) are all used as moderators.


17


Control rods are made of materials that strongly

absorb free neutrons such as Boron or Cadmium

and are often called reactor poisons. Many reactor

poisons are produced as by-products during the

nuclear fission process and ultimately this build-up

is what determines the life of a reactor. The

reprocessing step in the fuel cycle is a chemical

process that allows for the removal of reactor

poisons and the reuse of the fuel.

Types of Nuclear Reactors

There are six principal reactor types that vary by the

level of fuel enrichment, the moderator material,

the nature, temperature and pressure of the

coolant and the spent fuel reprocessing – see

summary table for details.

Reactors currently being built and designed are part

of a new generation of reactors known as

Generation III reactors. There is a focus on greater

standardisation of designs, simpler operational

control mechanisms and digital instrumentation, as

well as passive safety systems to combat

overheating. New reactors include:

The Advanced Boiling Water Reactor (ABWR) by

GE Hitachi Nuclear Energy and Toshiba.

The Advanced Passive (AP) 1000, this is designed

and built by Westinghouse Electric Company.

The Economic Simplified Boiling Water

Reactor (ESBWR) by GE Hitachi Nuclear

Energy.

The US Evolutionary Power Reactor (US

EPR) by Areva Nuclear Power.

The Mitsubishi Advanced Pressurised Water

Reactor (APWR) built by Mitsubishi Heavy

Industries.

There is also a move towards smaller and more

modular reactors which would be completely

fabricated and assembled and then shipped by

road or rail to the desired location. This would

enable nuclear power generation in more

remote areas and lower reactor costs through

economies of scale. Some of these designs

include:

NuScale Reactor from NuScale Inc.

The Babcock & Wilcox mPower Reactor,

which is currently undergoing design

certification.

Toshiba 4S (Super Safe, Small and Simple),

which is being developed by Toshiba,

Westinghouse and the Japanese Central

Research Institute of Electric Power.

The Gen4Module (G4M) offered by

GEN4ENERGY.


18


Westinghouse Small Modular Reactor.

Power Reactor Innovative Small Module Reactor

(PRISM) being developed by GE Hitachi Nuclear

Energy.

The participants in the nuclear power industry are

actively developing and improving nuclear power

reactor technology in an effort to increase safety

and reduce cost.


19


Reactor

Type Fuel Moderator

Coolant Spent Fuel

Reprocessing

Steam

Cycle

Efficiency

Main Economic and

Safety Characteristics Heat Extraction

Outlet Temperature

Pressure

Magnox

Natural

Uranium

metal (0.7%

U235)

Magnesium

alloy

cladding

Graphite Carbon dioxide

gas heated by

fuel raises

steam in steam

generator

360°C 300 psia Typically

within one

year, for

operational

reasons

31% Safety benefit that coolant

cannot undergo a change

of phase. Also ability to

refuel whilst running gives

potential for high

availability

Advanced

Gas-Cooled

Reactor

(AGR)

Uranium

dioxide

enriched to

2.3% U235.

Stainless

steel

cladding

Graphite Carbon dioxide

gas heated by

fuel raises

steam in steam

generator

650°C 600 psia Can be stored

under water for

tens of years,

but storage

could be longer

in dry

atmosphere

42% Same operational and

safety advantages as

Magnox but with higher

operating temperatures

and pressures, leading to

reduced capital costs and

higher steam cycle

efficiencies

Pressurised

Water

Reactor

(PWR)

Uranium

dioxide

enriched to

3.2% U235.

Zirconium

alloy

cladding

Light Water Pressurised

light water

pumped to

steam

generator

which raises

steam in a

separate circuit

317°C 2235 psia Can be stored

for long

periods under

water giving

flexibility in

waste

management

32% Low construction costs

resulting from design

being amenable to

fabrication in factory-built

sub-assemblies. Wealth of

operating experience now

accumulated worldwide.

Off load refuelling

necessary.

Boiling Water

Reactor

(BWR)

Uranium

dioxide

enriched to

2.4% U235

Zirconium

alloy

cladding

Light Water Pressurised

light water

boiling in the

pressure vessel

produces steam

which directly

drives a turbine

286°C 1050 psia As for PWR 32% Similar construction cost

advantages to PWR

enhanced by design not

requiring a heat

exchanger, but offset by

need for some shielding of

steam circuit and turbine.

Off load refuelling

necessary

2 The Institute of Electrical Engineers

10 Summary of Main Nuclear Reactor Types2


20


Reactor

Type Fuel Moderator

Coolant Spent Fuel

Reprocessing

Steam

Cycle

Efficiency

Main Economic and

Safety Characteristics Heat Extraction

Outlet Temperature

Pressure

Pressurised

Canada

Deuterium

Uranium

(CANDU)

Unenriched

uranium

dioxide

(0.7% U235)

Zirconium

alloy

cladding

Heavy

Water

Heavy water

pumped at

pressure over

the fuel raises

steam via a

steam

generator in a

separate

circuit.

305°C 1285 psia As for PWR 30% Good operational record

but requires infra-

structure to provide

significant quantities of

heavy water at reasonable

costs

Reaktor

Bolshoy

Moshchnosty

Kanalny

(RMBK)

Uranium

dioxide

enriched to

1.8% U235

Graphite Light water

boiled at

pressure, steam

used to drive a

turbine directly

284°C 1000 psia Information

not

available

31% Information not available

but operated in

considerable numbers in

the former USSR. Believed

in the West to be

inherently less safe


21


6. Nuclear Disasters

Anti-nuclear energy campaigners usually cite the

destruction caused by a nuclear power plant

disaster as reason to seek non-nuclear energy

solutions. Radiation remains a psychologically

difficult threat because it is “invisible” and the level

of destruction and timespan of destruction run

beyond natural lifespans.

Radioactive Decay

Radioactive decay or radioactivity is a natural

process where an unstable atom emits energetic

particles in an attempt to become more stable.

These energetic particles come in three “flavours” –

alpha particles (α), beta particles (β) and gamma

particles (γ). Alpha particles are not harmful unless

ingested or inhaled and can be stopped by a

substance as thin as paper. Beta particles are also

harmful if ingested or inhaled but can typically be

stopped by clothing. Gamma particles are

extremely high energy and high frequency, making

them the most biologically hazardous. Gamma

particles penetrate the body’s cells, disrupting DNA

and causing cellular degradation. When we think of

images of radiation sickness, the cause is gamma

radiation.

Fortunately, gamma particles can be stopped by

water or thick concrete and nuclear power plants

are careful to have multiple layers of redundant

shielding around the nuclear core. However,

accidents do happen.

Three Mile Island

On March 28th, 1979, the nuclear reactor at Three

Mile Island in Harrisburg, Pennsylvania suffered a

partial core meltdown. Mechanical and electrical

failure prevented a main feed water pump from

sending water to the steam generators to remove

heat from the reactor core. A cooling water valve

then got stuck open and a lack of sufficient

instrumentation caused power plant operators to

take steps which escalated the problems. The

nuclear fuel overheated, the zirconium cladding

ruptured and the nuclear fuel pellets began to melt.

The reactor is now permanently shut down and the

fuel removed.

Chernobyl

On April 26th, 1986, there was an explosion at the

Chernobyl power plant, 130km north of Ukraine’s

capital city of Kiev. A flawed reactor design created

a positive feedback loop. In most reactors, water is

used as a coolant and a reaction moderator.


22


As the heat increases, the production of steam

increases and the steam bubbles or voids reduce

the reactivity of the core. However, the Soviet

design used graphite as a moderator and as steam

and heat built up, the nuclear reaction increased,

thus producing more heat and adding to a further

increase in reaction. Coupled with the flawed

reactor design, operators disabled certain plant

equipment in violation of safety rules in preparation

for a planned reactor shutdown of reactor number

4. A power surge detached a 1,000 tonne plate and

caused the adjacent reactor to explode. There was

a nuclear fall-out of radioactive (gamma ray

emitting) isotopes (Iodine131, Cesium134, Cesium137),

which spread as a radioactive plume across the

Ukraine and into northern Europe. The area around

Chernobyl was evacuated, with many residents

being told the evacuation was temporary, only to

learn later of the permanence. There is a 30km

exclusion zone around Chernobyl which is

unoccupied, known as Red Forest. The surrounding

trees and plants were killed by high levels of

radiation and turned a bright red colour, hence the

name. The high level of radiation means the area

around Chernobyl will not be safe for human

habitation for 20,000 years. The reactor site itself

will be completely dismantled by 2065.

Fukushima Daiichi

The events surrounding Fukushima Daiichi on

March 11th, 2011, are covered in-depth later in our

report, but unlike the human errors that caused the

initial reactor meltdown, the accident at Fukushima

was triggered by a natural disaster – namely a

tsunami initiated by an earthquake. However, there

were multiple human safety failings and an

unwillingness to heed multiple prior research

findings that warned the operators of the

vulnerability of the plant to flooding following a

tsunami event.

11 Contamination from Chernobyl


23


7. Nuclear Story in Japan

Japanese Energy Requirements

Japan is a highly industrialised nation with large

energy requirements, but with very limited

domestic energy resources. It is the world’s largest

importer of Liquefied Natural Gas (LNG) and

second largest importer of coal (behind China) and

the third largest net oil importer. Prior to the

Fukushima disaster, nuclear energy generation

represented 26% of Japan’s power supply and was

the most cost-effective source of energy.

Fukushima Daiichi

On March 11th, 2011, the Fukushima Daiichi nuclear

power plant on Japan’s east coast was engulfed by

a 15 metre high tsunami caused by The Great East

Japan Earthquake of magnitude 9.0 on the Richter

Scale. The tsunami rolled over an area of 560 square

kilometres, resulting in an enormous loss of life and

high levels of destruction to coastal towns and

infrastructure. Eleven reactors at four nuclear

power plants in the region were all operating at the

time of the quake and all shut down automatically.

The construction of the reactors at Fukushima

Daiichi all proved robust enough to withstand the

force of the earthquake; however, they were

particularly vulnerable to the vast flooding caused

by the tsunami. The flood water disrupted the

power supply and the ability of the reactors to

maintain proper cooling during the shutdown.

Without the ability to reduce heat, the fission

reaction continued and the temperature of the

exposed fuel in reactor 1 is thought to have risen to

2800°C and melted through the concrete flooring.

As the temperature and steam increased, the

pressure built up, resulting in a hydrogen explosion

which destroyed the containment unit and ignited.

A similar sequence of events happened at reactors

2 and 3. Reactor 4 was defueled, but was damaged

by the explosion at reactor 3.

12 Japan's Key Nuclear Power Plants


24


Water was injected into the reactors in order to try

and cool the core temperatures, but it is now

estimated that much of this water either boiled

away or leaked from the reactors. The leakage of

radioactively contaminated water from the cooling

system, as well as from the storage ponds which

contained the defueled rods from reactor 4, has

been a source of great concern for the Japanese

population and for the nuclear industry as a whole.

Post-Fukushima

The Fukushima disaster had a major impact on

sentiment towards nuclear power both in Japan and

globally. Japan shut down all of its nuclear reactors

in a response to the disaster and has yet to restart

them. The removal of nuclear power from Japan’s

energy grid has resulted in the country having to

import more LNG and crude oil to make up for the

energy shortfall. Japan has undergone a general

election since the Fukushima disaster and both the

upper and lower houses are now run by the Liberal

Democrats who have a pro-nuclear stance.

The newly elected Japanese government has been

undertaking a programme of monetary policy

stimulus, dubbed “Abenomics” after Japanese

Prime Minister Shinzo Abe. The effect of this

monetary policy intervention has been to weaken

the Japanese currency – the Yen. A weak Yen

coupled with increasingly expensive energy imports

has resulted in a current account deficit for Japan.

Japan needs to address the cost of its energy

imports to restore economic competitiveness.

Japanese Restarts

Shinzo Abe is “pro-nuclear” and has stated that he

has clear intentions of restarting Japan’s nuclear

reactors. In March 2013, six out of eight anti-nuclear

members of the energy policy board were fired. On

the 9th of February, 2014, Yoichi Masuzoe, a vocal

pro-nuclear candidate was elected as the mayor of

Tokyo.

Most importantly, on the 24th of February, 2014, the

Japanese government released its draft energy bill

which clearly defined nuclear energy as an

important base load energy source. In July 2014,

the Japanese Nuclear Authority approved the

restart of the two Sendai reactors.

13 Groundwater Contamination at Fukushima Daiichi

RealCap believes the restart of certain Japanese nuclear power reactors is both

necessary and imminent


25


8. Uranium Pricing

Spot & Term Price

Physical Uranium does not have a formal exchange

platform as a typical commodity such as gold or oil

would. Limited applications of Uranium and the

sensitive nature of the nuclear industry imply lack of

sufficient traders to make such an exchange

efficient. As such, price indicators published by few

private business organisations, such as Ux

Consulting Company (UxC) and TradeTech, provide

an indication of the Uranium price.

14 Uranium Spot & Long Term Price

Two price types exist for Uranium, namely the spot

price and the term price. Spot price refers to the

price of Uranium for delivery within 12 months.

Term price refers to the price at which multi-year

contracts are entered into, with deliveries starting

from one to three years after the contract is made.

Spot prices apply to trades that represent less than

20% of total supply. The remaining trades are done

using term prices as utilities prepare an inventory of

Uranium far in advance of reactor fuel loading.

Long-term prices have historically traded at a

premium to spot prices. Since 1996, the average

premium has been 10%. This gap reflects the

difference between the marginal cost of mining

companies and excess secondary material.


26


Pricing Transparency

The transparency in the price of Uranium was a

huge concern prior to 2007, when the reference

price published by UxC and TradeTech was only

based on confidential contracts between one buyer

and one seller. In fact, the number of non-

confidential transactions was no greater than 10 per

month in 2006 according to Financial Times.

Since April 2007, it became possible for investors to

have an impact on the Uranium pricing mechanism.

In April 2007, a 10-year agreement was signed

between UxC and the New York Mercantile

Exchange (the world’s largest physical commodity

exchange) to introduce on and off-exchange

Uranium futures products. Soon afterwards, other

Uranium-related investments such as certificates,

exchanged traded products and warrants were

formed.

The formation of the Uranium futures market

brings greater transparency to Uranium prices as

market inefficiencies are effectively corrected by

the arbitrage mechanism.

Pricing Methodology

The spot price indicator of UxC is based on the most

competitive offer of which UxC is aware, subject to

specified form, quantity, and delivery timeframe

considerations.

Completed transactions are not necessarily the

constituents in spot price derivation of UxC (where

a transaction can be defined as an embodiment of

offer and acceptance).

TradeTech gives more detail in its derivation of spot

price. The considerations in determining the spot

price of Uranium are: data from recently completed

transactions, data from pending transactions, firm

bids to buy or borrow, firm offers to sell or lend,

prices purchasers have expressed a willingness to

pay and prices sellers have expressed a willingness

to accept. Considerations not used in determining

the spot price are: prices associated with deliveries

under old or renegotiated contracts, or other than

arm's-length transactions, charges for

transportation other than that customarily

provided by suppliers, and prices of services or

materials delivered under long-term contracts with

primary suppliers.


27


TradeTech uses a specified pricing mechanism in its

long-term price indicator. Specified pricing is either

a fixed price, a series of fixed prices, or a base price

plus adjustment for inflation to the date of delivery.

Inflation adjustment can be a fixed annual

percentage or linked to a published index.

Specified pricing appeals to both buyers and sellers

in terms of cash flow and budget management, as

it is the most predictable form of pricing. A small

degree of uncertainty remains as the base price is

agreed to escalate in line with inflation. This

mechanism essentially prevents the contract from

devaluing in real terms.


28


9. Uranium Demand & Supply

World Nuclear Association

The World Nuclear Association (WNA) is an

international organisation that promotes nuclear

energy and supports the many participants of the

nuclear industry. The WNA’s mission is to serve the

world nuclear industry through actions to:

Provide a global forum for sharing knowledge

and insight on evolving industry developments.

Strengthen industry operational capabilities by

advancing best-practice internationally.

Speak authoritatively for the nuclear industry in

key international forums that affect the policy

and public environment in which the industry

operates.

The WNA publishes a biennial report

“The Global Nuclear Fuel Market:

Supply and Demand 2013-2030”. This

is widely regarded as the industry

handbook for understanding the supply/demand

dynamics of the Uranium and nuclear industry. The

WNA presents three scenarios in forecasting

Uranium supply and demand, a reference case, an

upper case and a lower case.

The data collected is generated predominantly

through an industry survey of the various

supply/demand participants.

WNA Supply/Demand Model

The charts below reflect the WNA’s three

supply/demand scenarios as published in August

2013. The quantities are given in tonnes of U3O8 –

the milled product derived from Uranium ore. There

are seven components to each chart:

Current: this indicates current supply from

operational mines.

Secondary Supply: this indicates “above-

ground” Uranium.

Under Development: this indicates supply that

will come on-stream from mines currently under

development.

Planned: this indicates supply from mines which

are in the planning stage of development.

Prospective: this indicates supply from mines

that have the potential to enter the planning and

development stage.

Supply Pipeline: the WNA refers to this as

“uncategorised” supply which will meet future

demand.

Scenario Requirements: this is an indication of

demand from nuclear power utilities.

According to WNA, the supply of Uranium should move more or less in tandem with demand for the foreseeable

future, indicating no shortages of supply


29


0

40

80

120

160

200

240

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

U3O

8(M

lbs/

yr)

Current Secondary Supply Under Development

Planned Prospective Supply Pipeline

Reference scenario requirements

020406080

100120140160180

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

U3O

8(M

lbs/

yr)

Current Secondary Supply Under Development Planned Prospective Lower scenario requirements

15 WNA Reference Case Scenario

16 WNA Lower Case Scenario

17 WNA Upper Case Scenario

04080

120160200240280

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

U3O

8(M

lbs/

yr)

Current Secondary Supply Under Development

Planned Prospective Supply Pipeline

Upper scenario requirements


30


RealCap’s Assessment of the WNA Supply/Demand Model

RealCap’s supply/demand forecast for Uranium is in

broad agreement with the Upper Case Scenario of

WNA, given the current political and economic

trends.

The following describes the assumptions of

the WNA’s Upper Case Scenario and why

we believe it is plausible in today’s market:

Improvements in the technology, design

and economies of nuclear power

reactors.

Increasing government focus on

reducing greenhouse gas emissions.

Governments are restructuring their energy mix.

The Fukushima event affected sentiment and

not fundamentals.

The public perception of the nuclear process is

improving.

Great improvements have been made in nuclear

technology involving the construction, design and

operation of reactors.

Relative economics of nuclear power have

improved significantly in light of rising fossil fuel

prices.

As discussed previously, new reactors currently

being built and designed offer increased fuel

efficiency, safety and longer operating lifetimes.

The move towards smaller and modular reactors

enables nuclear power generation in remote areas

and lower reactor costs through economies of

scale.

To meet the growth plans of emerging economies

such as China, a source of cheap base load energy is

essential. The ever-rising prices of fossil fuels imply

that nuclear power is more economical.

The world is going “green” and governments are

focussed on implementing policies that encourage

the reduction of greenhouse gas emissions. China

implemented its first National Action Plan on

Climate Change in 2007. This plan aims to increase

the proportion of electricity generation from

nuclear power and renewable energy sources. The

12th Five-year Plan on Greenhouse Emission Control

was implemented in 2011 and aims to reduce

carbon emission by 17% by 2015.

However, we believe the WNA forecast has shortcomings and, where appropriate, we have made adjustments to this scenario based on our proprietary research to determine a more realistic view of the Uranium demand-supply dynamics


31


“Green” Energy is popular in Europe and the

European Commission plans to cut down

greenhouse gas emissions by 80-95% by 2050.

These policies indicate heavier reliance on clean,

non-fossil fuel energy in the future.

Electricity market restructuring has put greater

emphasis on nuclear energy, leading to new

investment projects and satisfying specified energy

and environmental policy goals. As part of its

national energy policy, India aims to generate

14.5GW of electricity from nuclear reactors and

reduce reliance on coal, crude oil and natural gas.

Similarly, China plans to shift its energy source from

fossil fuels (80% of which consists of coal) to nuclear

energy. China also plans to export nuclear

technology to Brazil, the UK, South Africa and other

countries.

The Fukushima accident exacerbated negative

sentiment toward nuclear power, but ultimately the

fundamental case for nuclear power generation

remains intact. There are more planned nuclear

reactors post-Fukushima than pre-Fukushima. In

addition, the recent draft energy policy in Japan

includes plans to restart some of its shut-down

reactors. Much progress has been made in assuring

the public of nuclear safety, waste management

and decommissioning. Post-Fukushima, stricter

regulations on nuclear safety have been put in

place.

Many people are concerned about the safety of

nuclear energy; however, with the exception of

Chernobyl, it should be noted that no nuclear

workers or members of the public have died due to

exposure to radiation from a commercial reactor.

Getting public acceptance is still a tough challenge,

but the situation should improve, given stricter

regulations and development of safer reactors.

RealCap-WNA Supply Side Analysis

RealCap has made adjustments to the WNA

supply/demand model in order to better reflect the

current supply situation. Each of the supply-side

components are discussed below.

Current Mines

Of the current operating mines, only those mines

that are economically feasible in the current

Uranium price environment are included in our

supply model. Economic feasibility in this context

refers to the ability of the mine to cover its

production cost and also to make appropriate risk-

adjusted returns.

There are more planned nuclear reactors post-Fukushima than

pre-Fukushima


32


The current marginal cost of production is $40/lbU,

based on UxC’s production cost report. The spot

price of Uranium is $35/lbU and the term price of

Uranium is $50.00/lbU (as of 20 March 2014).

Based on current prices (spot price and term price),

it is RealCap's view that around 50% of the world’s

producers are not profitable. This view is shared by

analysts at Raymond James Ltd and Cantor

Fitzgerald. We have assumed that up until 2016 all

current producers will be able to withstand these

adverse situations.

However, post 2016 we have modelled a reduction

in production based on current producers cutting

back on unprofitable production, as well as smaller

producers ceasing business. We have also assumed

that many producers will look to the secondary

supply market to fulfil contracts.

According to the WNA, the formal cut-off date for

information to be included in its 2013 report was 1st

of August 2013. Subsequent to this date, several

big-name Uranium mines have closed down and

this information has been incorporated in our

model. These mines account for approximately

20% of the total world forecasted Uranium

production for 2014 alone: see table below.

The short term supply trend as forecast by RealCap

is slightly higher for current mines than the WNA’s

forecast; however, post-2016 we are far more

pessimistic with regard to the ability of current

mines to remain open for business. In the short

term, the slightly higher supply numbers are based

on RealCap's observations that those producers

that are profitable are trying to maximise profits

through sales growth, albeit at thin margins. This

production cannot continue indefinitely over time,

as low-cost resources become depleted and miners

have to turn to high-cost resources.

COUNTRY MINE OPERATOR CAPACITY (MlbU)

Australia Ranger Rio Tinto/ERA 10,18

Canada McArthur River Cameco 18,7

Namibia Rossing Rio Tinto 7,63

Malawi Kayelekera Paladin 2,8

US Canyon Energy Fuels Resource 1,63

TOTAL 40,94

18 Large Uranium Mine Closures post WNA Report Publication


33


Under Development

RealCap is already seeing current projects and

expansion plans being halted due to an

unfavourable Uranium price environment. These

projects include the Imouraren mine in Niger, the

Trekkopje mine in Namibia and the Sotkamo mine

in Finland. In particular, junior mining companies

face more uncertainty in their roll-out as they lack

quality infrastructure, equipment and financing. In

the short-term up to 2016, our forecast is slightly

higher than WNA’s as we expect a higher

production rate from the Husab project in Namibia,

which is expected to come online in 2015. China

Guangdong Nuclear Power has a 90% stake in the

project and the company will produce Uranium

regardless of the mine’s economic feasibility to

support China’s nuclear programmes.

With the exception of Husab, we are far more

pessimistic with regard to other current projects

being seen through to completion relative to the

WNA and this is inherent in our forecasts.

Planned

In the short term, assuming the current price

environment as well as development stage of

planned mines, we see no new production coming

online until 2018.

About 72% of the planned mines listed in the WNA

report are located in Kazakhstan, famous for use of

ISL mining methods.

Uranium in Kazakhstan is solely produced by a

state-owned company called KazAtomProm. The

CEO of KazAtomProm, Vladimir Shkolnik, recently

mentioned that production growth is limited due to

low Uranium prices.

It is expected that KazAtomProm will curtail most

of its planned Uranium mine projects, given that

the country has set a limit of 55Mlbs on Uranium

production for 2014. As a result, we forecast a

scenario whereby production from "planned" mines

is significantly less than the WNA forecast.

Prospective

Similar to "planned" production capacity, we do not

expect to see any prospective new mines in the

current price environment in the short term.

Despite having completed preliminary feasibility

studies (PFS), the Yeelirie and Kintyre project in

Australia are currently under review due to weak

market conditions. Chinese stockpiling and

resource hoarding will lead to some activity in the

long term but once again our forecast is subdued

relative to the WNA forecast.


34


Secondary Supply

RealCap’s secondary supply forecast is significantly

less than the WNA forecast. The WNA Upper Case

Scenario assumes healthy primary production of

Uranium which implies that producers are not

heavily reliant on secondary supply. However, the

current trend suggests downward pressure on

secondary supplies as new production activity is

muted.

Current producers are increasing their reliance on

secondary supplies to satisfy their contracting

liability. We have modelled this as having greater

impact on the secondary supply in the short term

and tapering off in mid- to long term.

The current Uranium price environment is such that

buying at the spot price is much cheaper than

digging Uranium out of the ground. Energy Fuels

has publicly announced that it would buy on the

spot market to meet contractual obligations during

2014. It has placed its White Mesa mill in care and

maintenance, stopped shaft sinking at the Canyon

mine and plans to close the Pinenut mine in July

2014. This brings our estimate of secondary supply

much lower than that of WNA.

Secondary supply from the Russian HEU (highly

enriched Uranium) Agreement has been left out of

both models as the agreement was concluded in

December 2013.

This removes as much as 24Mlb of Uranium from

the secondary market in 2014 and onwards, which

should further tighten the Uranium supply/demand

balance.

We have reduced the forecast for Russian

Government Uranium Stocks and Russian Tails Re-

Enrichment, given that Russia has reiterated plans

to build 21 nuclear reactors by 2030. Currently,

Russia has 33 operating nuclear reactors and 10 new

reactors under construction.

Our downward adjustment of secondary supply is

also due to Uranium Participation Corporation

purchasing excess supply in the secondary market

to hold as an investment.

The Canada-based company acts as a market

consolidator and holds about 5% of the global

Uranium supply.


35


RealCap-WNA Demand Side Analysis

There is a noticeable difference between the

demand forecast of the WNA and the demand

forecast of RealCap. The actual composition of

demand is different for the two; the WNA takes

account of annual burn and initial core

requirements in their demand forecast, whilst we

have an item called “strategic inventory building” in

addition.

Annual burn refers to the amount of Uranium

required each year to operate the reactors. Initial

core is the amount of Uranium required to start up

a reactor, which roughly translates to three times

the amount of annual consumption.

Inventory build is the amount of Uranium that

reactors stockpile to satisfy fuel requirements for

one to three years.

“Strategic inventory building”, more commonly

referred to as stockpiling of Uranium, is the main

driver of demand difference between the two

demand models. Due to the price inelastic nature of

demand, stockpiling of Uranium is expected to be

widespread as soon as supply shortages are even

rumoured. To put the non-volatile nature of nuclear

energy into context, a 100% rise in the price of U3O8

will cause a price increase of no more than 8% in

actual nuclear power.

China is the main player in this regard as they act to

ensure sufficient Uranium supplies to meet

requirements for 28 new reactors that are expected

to come online up to 2018. In addition, China has 38

additional planned reactors that are yet to be

constructed. China’s major Uranium mine

acquisitions include the Husab mine and a 25%

stake in Langer Heinrich mine, both situated in

Namibia.

Production from these two mines provides enough

Uranium to meet 58GW of the electricity

requirement; however, Chinese electricity

requirements from nuclear sources may be

expanded to 200GW in the future. In this case the

rapid acquisition of Uranium resources is highly

likely.

In comparison to the WNA, RealCap has a more

positive outlook on Japanese demand and expects

eight to ten Japanese reactors to come online in

2014. Japan’s total nuclear energy capacity of

45.8GW is about 12% of the global nuclear energy

capacity.


36


Uranium Supply/Demand Adjusted

Outcome

The WNA supply/demand forecast suggests that

the Uranium market will be in surplus up until 2022,

after which balance is restored. This is largely in

part thanks to the WNA’s concept of a supply

pipeline that fills any supply deficit. In addition, the

WNA does not take the current price of Uranium

into account in its forecasts.

RealCap expects a Uranium deficit from the third

quarter of 2015. The deficit gap is expected to

widen swiftly in the near future, holding the price of

Uranium fixed at the current level. We believe the

Uranium price has to rise significantly for demand

and supply fundamentals to come into balance.

The WNA demand and supply forecast suggests that the Uranium market will

be in surplus up until 2022, after which balance will be restored

RealCap expects a Uranium deficit from 3Q15 if the Uranium price remains at current levels. We believe the Uranium price has to rise significantly for the supply/demand balance to be restored


37


Risks to the Analysis

The following are the risk factors which need to be

taken into consideration in assessing the Uranium

supply/demand forecast models.

On the demand side, the following risks apply:

Delayed or limited start of Japanese reactors:

Strict nuclear safety regulations and anti-nuclear

sentiment could delay the restart of Japanese

reactors. In the short term, inventories continue

to build as utilities sit with pre-existing contracts.

Nuclear accidents: Any major nuclear accident

(a “Black Swan” event) could quickly curtail new

reactor builds and significantly reduce the

demand of Uranium.

Nuclear reactor closures: Reactors could close

due to expiration of operating licenses, safety

checks and/or maintenance.

No increase in planned reactors: This does not

impact short-term demand; however, in the

long-run, demand could remain flat.

Increase in demand for alternative energy

sources: In particular, natural gas has been a

prominent source of energy in the USA. Political

decisions could restrict the use of nuclear energy

in favour of other energy sources.

Development in nuclear technology: The

advent of new reactor technology could improve

the efficiency of Uranium usage, reducing overall

demand of Uranium. The WNA forecast is based

on the assumption that the current nuclear

technology will be deployed up to 2030.

The following supply side risks apply:

US Department of Energy (DOE) increases the

rate of Uranium transfers: The excess inventory

held by the US government could be depleted

more quickly than expected. This risk should

have a dampening effect on Uranium prices.

Enrichment underfeeding increases: This

practise leads to an increase in secondary

supplies.

Political risk: Changes in regulatory or

environmental policy could affect mine

production.

Investor sentiment: A change in investor

sentiment could flood the market with Uranium

stockpiles.

Mine disruptions not as severe as expected:

Forecasted production amounts may deviate

significantly from the actual Uranium production

if mine disruptions are not as severe as expected.


38


10. Participants in the Uranium Industry

The Uranium industry has many diverse

participants which form part of the nuclear fuel

cycle. Below is a brief introduction to the key

industry participants of the various industry stages.

Mining Companies

Cameco Corporation (TSX: CCO)

Cameco is the biggest traded Uranium mining

company in the world. It specialises in producing

low-cost Uranium, currently providing about 15% of

global Uranium production. It has about 443 million

pounds of proven and probable Uranium reserves.

Cameco’s main operation is situated at the

Athabasca Basin in the Saskatchewan area of

Canada, famous for its rich Uranium ore.

Cameco is also the market leader in the US,

operating two in-situ mines in Wyoming and

Nebraska. Elsewhere, it has ramped up production

at the Inkai joint venture with KazAtomProm, the

state-owned Uranium mining company in

Kazakhstan.

In order to sustain its operation, Cameco undergoes

extensive exploration, expansion programmes and

M&A activities. Recent projects include Kintyre and

Yeelirie in Australia and the Millenium deposit in

the Athabasca Basin.

19 Cameco Corporation (USD)

Physical Uranium Holding Companies

Uranium Participation Corporation (TSX: U)

Uranium Participation Corp (UPC) is a physical

Uranium holding company based in Canada, which

was listed on the Toronto Stock Exchange in May

2005. The company makes investments in Uranium

oxide – U3O8 and Uranium hexafluoride – UF6. The

primary investment objective of UPC is to lock in

the long-term appreciation in value of its Uranium

holdings. It is not an investment vehicle that

actively speculates on short-term changes in

Uranium prices.

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The company also lends Uranium to third parties.

UPC uses 85% of the gross proceeds of any equity

offerings to fund its investment strategy. Up until

the 2013 fiscal year, UPC has raised gross proceeds

of $647.0 million through eight public offerings. In

addition, $39.2 million was gained from warrant

and option exercises. The proceeds were used to

purchase Uranium, the repurchase of shares

pursuant to a normal course issuer bid, and general

corporate purposes.

20 Uranium Participation Corporation (USD)

Senior Exploration Companies

Denison Mines Corporation (TSX: DML)

Denison is primarily a Uranium exploration and

development company. It has projects in Canada,

Mongolia, Namibia and Zambia. Denison focuses

on exploration projects in the Eastern Athabasca

Basin region of Saskatchewan, the area spanning

up to about 582,000 hectares.

It has 45 exploration projects, including the high

grade Phoenix deposits located on its 60% owned

Wheeler project. In Canada, Denison has a 22.5%

ownership of McClean Lake, a 25.17% interest in

Midwest deposit and a 60% interest in the J-Zone

deposit on the Waterbury property.

In Zambia, Denison has a 100% stake in the

conventional heap leach Mutanga project, an 80%

stake in the Dome project in Namibia, and an 85%

stake in the in-situ recovery projects held by the

Gurvan Saihan Joint Venture (GSJV) in Mongolia.

21 Denison Mines Corporation (USD)

The Denison Environmental Services division of

Denison Mines provides mine decommissioning

and environmental services. Other major

operations of Denison include serving as a manager

of Uranium Participation Corporation, a company

which holds physical Uranium for investment

purposes.

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40


Junior Exploration Companies

Toro Energy Limited (ASX: TOE)

Toro is an emerging Australian Uranium company

with a highly prospective project development and

exploration portfolio. It is focused on getting its

100% owned Wiluna mine into operation by 2016.

Much progress has been made since the company’s

inception, with government approving its final

environmental assessment back in April 2013. This

will be the first Uranium mine in Western Australia

and the sixth in Australia.

The Wiluna region is estimated to contain about 54

million pounds of Uranium oxide concentrate. The

acquisition of the Lake Maitland project from Mega

Uranium has increased its resources by 21 million

pounds. The acquisition was an all-share deal and

consequently, Mega Uranium has a 28% stake in

Toro.

The company also works on the Theseus project to

extend its resource base, as well as carrying out

extensive greenfields tenements exploration in

Western Australia and the Northern Territory.

22 Toro Energy Limited (USD)

Conversion Facilities

The facilities to convert U3O8 to UF6 are very

specialist and there are five major conversion

providers and two minor providers globally.

23 Uranium Conversion Providers

CONVERTER COUNTRY LOCATION NAMEPLATE CAPACITY

Cameco Canada Port Hope 12,500

COMURHEX France Pierrelatte 14,000

ConverDyn USA Metropolis 15,000

Rosatom Russia

AECC Angarsk, SGChE Seversk

25,000

Springfields Fuels Limited

UK Springfields 6,000

CNNC China Lanzhou 3,650

IPEN Brazil Sao Paulo 40

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41


Cameco Corporation

The Blind River refinery plant in Ontario, Canada,

refines U3O8 into Uranium trioxide (UO3). The UO3

is transferred to its Port Hope conversion facility,

also situated in Ontario. At this facility, the UO3 is

further processed to produce UF6. Both facilities are

solely owned by Cameco Corporation.

The Blind River refinery plant was commissioned in

1983 and the Port Hope conversion facility was

commissioned in 1984. In 2012, the Blind River

facility received a 10 year extension of its operating

license from the Canadian Nuclear Safety

Commission (CNSC). Similarly, the Port Hope

facility was extended for another 5-year term. The

Port Hope conversion facility has the capacity to

convert 12,500tU to UF6 each year.

Cameco has expanded its operation in Kazakhstan

by signing a Memorandum of Agreement (MOA) in

2012 with regards to the construction and

operation of a UO3 refinery in Kazakhstan. The

MOA benefits Cameco by allowing them to increase

production at its Inkai operation in Kazakhstan. In

return, Cameco provides Kazakhstan with options

for future UF6 supply. Construction of this facility is

expected to start in 2018.

Areva – COMURHEX

COMURHEX is a subsidiary of Areva and it carries

out the conversion process in two steps. First, U3O8

is converted to Uranium tetrafluoride (UF4) at the

Malvési plant. Then, UF4 is transported to the

Tricastin plant, at which it is converted to UF6.

COMURHEX is the first converter to have converted

400,000tU to UF6 (as of 2013), a record figure in the

nuclear industry.

Areva commenced the COMURHEX II project in

2007, which is a plan to build new Uranium

conversion facilities. These plants are expected to

come online between 2014 and 2015, effectively

replacing the existing Malvési and Tricastin sites.

Areva has made significant investments in this

project to meet post-Fukushima safety and

environmental regulations. The nominal capacity of

these facilities is 15,000tU per year.

ConverDyn

Established in 1992 at Metropolis, USA, ConverDyn

provides conversion services to utility end users at

its Honeywell Metropolis Works Facility. The

business is co-run by Honeywell and General

Atomics and has annual capacity of 15,000tU.


42


ConverDyn made a 100 million dollar investment in

2012 to improve efficiency and to reduce plant

downtime. In addition, the facility upgrades

satisfies the post-Fukushima safety requirements.

The upgrades were completed in the second

quarter of 2013 and operation resumed in June,

2013.

Rosatom

Three conversion facilities are run by Rosatom: the

JSC Angarsk Electrolysis and Chemical Complex,

the JSC Siberian Group of Chemical Enterprises and

the JSC Chepetsky Mechanical Plant.

Rosatom is a supplier of all nuclear fuel cycle

products and services and exports to Western

facilities as well. These include fabricated fuel and

enriched Uranium.

Springfields Fuels Limited

Situated in the United Kingdom, the Springfields

Facility was first commissioned in 1993 by British

Nuclear Fuels plc (BNFL). The facility was planned

to close in 2006, but in 2005, BNFL opted to enter

into a 10-year conversion agreement with Cameco

Corporation that extends to 2016. The agreement

stipulates that Cameco purchases UF6 conversion

services from the Springfields plant using UO3 feed

from Cameco.

Enrichment Facilities

The enrichment market has high barriers to entry

given its politically sensitive and capital intensive

nature. There are four major suppliers in the world,

namely, Areva, State Atomic Energy Corporation

Rosatom, URENCO and the United States

Enrichment Corporation (USEC). A number of other

countries also operate enrichment facilities,

primarily for domestic supply requirements. These

countries include China, Japan and Brazil.

Areva

AREVA operates Georges Besse II (GB II), a gas

centrifuge facility, in Tricastin. It has an effective

capacity of 7 to 8 million separative work units

(SWU) per year. The South Plant started operation

in April 2011, while the North Plant started

operation in March 2013. GBII has a nominal

capacity target of 7.5 million SWU by 2016. In 2013,

it reached 4.5 million SWU, well on course for its

target.

Areva’s planned construction of its new enrichment

facility in the USA was put on hold in December

2011 due to financial constraints. Areva is looking

for financial partners to move this project forward,

which is expected to have capacity of 3.3 million

SWU.


43


Rosatom

Rosatom has four enrichment plants: Angarsk

Electrolysis and Chemical Complex (AECC),

Siberian Group of Chemical Enterprises (SGCE),

Ural Electrochemical Integrated Plant (UEIP), and

Electrochemical Plant (ECP). These plants are

owned by the TVEL Fuel Company, a subsidiary of

Rosatom. Combined, they provide approximately

27 million SWU per year for the global market.

Russia is currently the largest supplier in the

enrichment market and supplies a significant

portion of enriched Uranium to the West.

URENCO

URENCO started enrichment operation in the

1970s. It is based in Europe and has operations in

the UK, Gronau, Germany and Almelo -

Netherlands.

It also has a plant in New Mexico, USA, called the

URENCO USA plant. The European plants had total

capacity of 14.7 million SWU per year as of 2012.

URENCO USA’s capacity was 2.2 million SWU per

year as of 2012. URENCO’s total annual capacity is

expected to be 18 million SWU by 2015.

USEC

USEC had a lease agreement in place with the US

Department of Energy (DOE) to operate its gas

diffusion plant (GDP) in Paducah, Kentucky.

Enrichment operations ceased at the end of May

2013, which effectively removed some 6 million

SWU per year of enriched uranium supply from the

market.

USEC has been the executive agent for the US in the

US/RUSSIA HEU agreement which was concluded

in 2013. In 2011, USEC entered into a multi-year

contract with TENEX that provides them with

Russian Low-enriched Uranium (LEU) through to

2022. These LEUs, in contrast to the Highly-

enriched Uranium (HEU) agreement, come from

commercial enrichment activities.

USEC is planning to operate its new centrifuge

plant in Ohio by 2016. Named the American

Centrifuge Plant (ACP), this facility plans to use

modern equipment and regulation standards.

However, due to financing problems, USEC has

recently filed for bankruptcy in the midst of a low

enriched Uranium price and the difficulty in

securing financing partners for its ACP project.


44


OPERATOR FACILITY

START

OF

OPERATION

END 2011 EFFECTIVE CAPACITY

(tSW)

DATE

OF TARGET CAP.

MAXIMUM/

TARGET

(tSW)

AREVA

GBI(GDP) 1979 10800 2012 Shut down

GBII 2010 1250 2016 8200

EREF 2018 0 2022 3300

12050 11500

Rosatom

AECC/IUEC 1990 2800 2020 2800

SCC 1973 3900 2020 4300

ECP 1972 8000 2020 14700

UEIP/UEC 1957 12900 2020 15300

27600 37100

URENCO

UEC(UUK) 1975 5000 2010 5000

UEC(UNL) 1975 5000 2020 6200

UEC(UD) 1985 4200 2020 4500

UUSA 2010 400 2022 5700

14600 21400

USEC Paducah GDP 1952 6000 2013 Shut down

ACP 2016 0 2018 3800

6000 3800

CNNC

LUEC 504 2004 1000 2020 2500

SUEC 405 1999 1000 2020 5500

Heping 814(GDP) 1975 250 2013 0

2250 8000

GLE Wilmington(Laser) 2015 0 2020 3000

0 3000

Other

JNFL Rokkasho-

2011 38 2020 1500

INB Resende 2010 19 2020 250

CNEA(SIGMA) 2001 20 2020 500

76 2250

TOTAL 62576 87050

24 Enrichment Facilities


45


Fuel Fabrication Facilities

Fuel fabrication is a complicated process as the fuel

needs to be engineered to meet each reactor’s

specific needs. The customisation is based on a

reactor’s physical characteristics, licensing

requirements and operating and fuel cycle

management strategy. Many utilities seek the

“package” solution in which the processing facility

provides the complete fuel assembly for them.

Usually, fuel fabricators also operate as reactor

vendors, as this makes it easier to assemble fuel for

the reactor they designed. However, they also

attempt to offer a service to their competitor’s

reactors to fill its surplus capacity. The light water

reactor (LWR) fuel market is becoming increasingly

competitive for this reason. Such competition has

encouraged better fuel design, increased burn-ups

and performance.

Currently, there is considerable excess capacity

over demand in the fuel fabrication space for LWR

fuel. The following table shows global LWR fuel

fabrication capacities:


46


COUNTRY FABRICATOR LOCATION CONVERSION PELLETIZING ROD/

ASSEMBLY Brazil INB Resende 160 160 240

China CNNC Yibin 400 400 450

Baotou 200 200 200

France AREVA NP-FBFC Romans 1800 1400 1400

Germany AREVA NP-ANF Lingen 800 650 650

India DAE Nuclear Fuel Complex Hyderabad 48 48 48

Japan

NFI (PWR) Kumatori 0 360 284

NFI (BWR) Tokai-Mura 0 250 250

Mitsubishi Nuclear Fuel Tokai-Mura 450 440 440

Global NF-J Kurihama 0 750 750

Kazakhstan Ulba Ust Kamenogorsk 2000 2000 0

Korea KNFC Daejeon 700 700 500

Russia

TVEL-MSZ Elektrostal 1450 1200 1200

TVEL-NCCP Novosibirsk 250 200 400

Spain ENUSA Juzbado 0 500 500

Sweden Westinghouse AB Västeras 600 600 600

UK Westinghouse Springfields 950 600 860

USA

AREVA Inc Richland 1200 1200 1200

Global NF-A Wilmington 1200 1000 1000

Westinghouse Columbia 1500 1500 1500

Total 13908 14618 12972

25 Fuel Fabrication Facilities (tonnes per year)


47


11. Summary and Conclusions

Summary

Uranium is currently a non-substitutable fuel for

nuclear power generators.

The Uranium industry, from mining through to

nuclear power generation, has undergone a

major period of uncertainty and underfunding.

The events at Fukushima in 2011 called into

question the role that nuclear energy has to play

in meeting growing global energy demand.

The quoted prices of Uranium, as well as the

company prices of the major participants of the

Uranium industry, are extremely depressed.

The WNA believes that despite the low price of

Uranium, there will be more than sufficient

supply to meet the demand from nuclear power

utilities.

There are more nuclear reactors planned post-

Fukushima than pre-Fukushima.

Nuclear energy is a key base load, clean air

energy source.

Conclusions

The WNA, the accepted industry leader, has

significant flaws in their supply/demand

assumptions.

RealCap believes that the low Uranium price

and other key factors will result in a Uranium

supply shortfall from 3Q15.

Japan has no alternative but to restart their

nuclear reactors in order to provide stable

electricity and curb high energy costs.

Growing pressure for a clean air, base load

power supply will make nuclear energy a core

part of the global energy mix.

China has an extensive roll-out of nuclear

power plants planned and this programme

will make them stockpile Uranium,

irrespective of the price.

The current Uranium price environment

represents a very attractive, positively

skewed investment opportunity.


48


RealFin Capital Partners FSP Licence No. 43784

Steve Doidge Chief Executive Officer Tel: +27 21 709 0114 Email: [email protected]

CONTACT US Tel: +27 21 709 0954 • Fax: +27 21 709 0461 • Email: [email protected] • Website: www.realcap.co.za Physical Address: 19 Braemar Road, St James, Cape Town, South Africa, 7945 Postal Address: Suite 762, Private Bag X16, Constantia, Cape Town, South Africa, 7848

DISCLAIMER:

This document was produced by and the opinions expressed are those of RealFin Capital Partners Proprietary Limited “RealCap” as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of RealCap to any person to buy or sell any security. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. The price and value of investments mentioned and any income that might accrue may fluctuate and may fall or rise. Any reference to past performance is not a guide to the future. The information and analysis contained in this publication is recorded and expressed in good faith and have been compiled or arrived at from sources believed to be reliable but RealCap does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Investments in commodity markets are speculative and considerably more volatile than investments in traditional markets. Some of the main risks are political risks, economic risks, credit risks, currency risks and market risks. Investments in foreign currencies are subject to exchange rate fluctuations. Before entering into any transaction, you should consider the suitability of the transaction to your particular circumstances and independently review the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences.

IMPORTANT NOTICE:

This report is the intellectual capital of RealFin Capital Partners Proprietary Limited "RealCap" and all rights are reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of RealCap.

Abdullah Solomons Investment Consultant Tel: +27 21 709 0954 Email: [email protected]


49

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