Energy Fuels Ord Shs T.EFR

Canaccord Genuity comments on the uranium sector

[hockeyguy123]

According to Canaccord Genuity:

https://app.box.com/s/yrjbra9j2oj443jc94t5

Radioactive decay of junior uranium equity plays

- Positive sentiment in the junior uranium equity space was buoyed by the late February 2014 draft energy plan by the Japanese government which incorporated nuclear power. However, the U3O8 broker average price (BAP) is currently below US$30/lb while the long-term contract price has fallen to US$45/lb. The downward price pressure has negatively impacted not only producers such as Cameco Corp. (CCO : TSX | SELL : covered by Gary Lampard) but also junior exploration uranium plays such as Fission Uranium Corp. (FCU : TSX-V | SPECULATIVE BUY : covered by J. Mazumdar). In early to mid-March 2014, both FCU and our in situ index of companies within our uranium database were up 55-60% year to date.

- The BAP trended down after February 2014 but began its precipitous fall from US$35/lb near the end of March 2014. Cameco Corp. had indicated in its uranium market update (MD&A, 2014 First Quarter Report) that contracted volumes remained low as the market continues to be adequately supplied and utilities remain well covered such that Cameco “…expects little improvement over the near to medium term.” Surpluses were observed in 2013 and are forecast for 2014 by Ux Consulting.

- Since the mid-March 2014 peak, FCU and our in situ index has seen a radioactive decay of 20-25% in their share price performance. We continue to argue that the junior exploration uranium plays are more exposed to the long term positive fundamentals of the uranium market driven by strong Chinese demand and the continued deferral of production on the supply side. However, we acknowledge that timing of potential M&A bids may be impacted by near- to medium-term market behaviour.

- Long-term fundamentals remain in line with our thesis as supply is expected to suffer from project deferrals related to the current downward pressure on BAP and long-term uranium prices. Supply will be needed to meet burgeoning demand from China. Nuclear power in China represents less than 2% of its current electricity supply but 31 reactors are currently under construction. Going forward, China aims for an installed nuclear power capacity of 58 GWe by 2020 rising to 200 GWe by 2030, according to a Reuters article (May 4, 2014).

The lack of nuclear generated power in Japan has led to increasing trade deficits and higher energy prices due to the high price of importing oil/coal/natural gas with a weak yen. Modern reactors far from the Pacific coast and the threat of tsunamis may be restarted as early as the summer of 2014, more than 3 years after the Fukushima disaster. This could potentially see a rise in positive sentiment towards junior uranium equity plays in the near to medium term.