KIVALLIQ ENERGY CORPORATION V.KIV

Canada Decision Boosts Takeout Potential on Uranium Assets

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According to Raymond James:

https://personal.crocodoc.com/TUlHZGy

Canada Decision Boosts Takeout Potential on Uranium Assets

Paladin announced that the Canadian government has approved the company’s application to become the majority owner of a uranium mine at its 100%-owned Michelin uranium project in Labrador, Canada. This decision suggests greater flexibility on the country’s Non-Resident Ownership Policy (NROP), which has prohibited most non-Canadian companies from owning operating uranium mines. While the government has dropped hints of this move in the past, we believe the announcement significantly lowers the perception of Canada’s risk profile for foreign suitors (e.g. Chinese nuclear utilities) and ramps up takeout potential for the few high quality uranium projects in the country.

Canada Shows NROP is Not Law – Approves Paladin to Operate Michelin Uranium Mine

- Paladin has been notified that the Canadian government has approved its application to be a majority owner of a uranium mine at Michelin.

- While a small positive for Paladin (we believe Michelin is uneconomic near current prices), we view this as a historic decision that could have implications for all uranium companies and projects in Canada.

- Recall, since 1987, Canada has maintained a NROP, which has prevented non-Canadian companies from owning more than 49% of an operating uranium mine.

- The exceptions to the rule include certain grandfathered Areva projects and in 2013, a free trade agreement with the EU relaxed the policy for EU-based companies.

- There had been rumblings for years, particularly in government throne speeches, that Canada might overturn this policy. Paladin in particular had been lobbying hard.

Implications for Canadian Uranium Equities

- While some have been undaunted (e.g. Rio Tinto purchasing Hathor in 2012 and Paladin buying Aurora in 2010), many large foreign mining companies and nuclear utilities have viewed NROP as a key point of uncertainty when considering the acquisition of Canadian uranium projects on either the company or asset level.

- Canada is likely to continue to review major takeouts on a case-by-case basis, but this precedent should go a long way to eliminating the hurdle of geopolitical uncertainty by showing NROP is not a “hard and fast” rule when no other Canadian partners can be found to lead development.

- In our view, it therefore significantly increases takeout potential for nearly all uranium companies with assets in Canada – it opens the door for non-Canadians to operate their projects – particularly with strong evidence that prices and sentiment in the uranium space have bottomed.

- For example, both Chinese nuclear utilities (CGNPC and CNNC) have separately said in recent months they are looking at buying uranium projects in Canada to feed their massive future uranium requirements.

Companies in our coverage universe that majority own significant assets in Canada:

- Cameco – 630.0 Mlbs in resources across multiple projects, plus Rabbit Lake and Key Lake mills (albeit, protected from a corporate takeout by Canadian legislation)

- Denison – 150.3 Mlbs across multiple projects and 22.5% stake in McClean Lake mill

- Fission – 105.5 Mlbs at Patterson Lake South

- Kivalliq – 43.3 Mlbs at Angilak

- Paladin – 140.6 Mlbs at Michelin

- UEX – 86.3 Mlbs at Hidden Bay and Shea Creek