Sa Sachem Co Cove ve Pa Partners Essential Facts Needed For Price Discove very y in the Uranium Market NEI Nashvi ville - Oc October 2019 2019 Sachem Cove Partners
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What Do Financial Analysts Do? Ø Analysts compare consensus estimates and current prices to their view of the future. s r Ø Investment opportunities with large gaps between consensus e n t r a P expectations and reality, often prove to be the most m u i n a r U successful over time. 8 O 3 U e v o C m Ø Contrarians tend to be most successful in under-followed, e h c a S opaque industries where group-think is driven by a just a few data sources or worldview (Uranium!). Sachem Cove Partners 3
What is Consensus Saying About the Uranium Market? Ø Demand is dropping through the 2020’s. s r Ø Supply is not price sensitive. e n t r a P m u i n a r U 8 O 3 U Ø No near-term price spike risk. e v o C m e h c a S Sachem Cove Partners 4
What is Consensus’ Track Record in Uranium? Ø Did it forecast peak or trough prices last cycle? No s r e Ø Did it predict supply cuts this cycle? No n t r a P m u i n a r U 8 O 3 U e Ø Did it forecast the 5x increase in conversion prices? No v o C m e h c a S Ø Did it forecast the recent 40% rise in SWU prices? No Sachem Cove Partners 5
s r e How Does Sachem Cove’s View n t r a P m u i n a Differ From Consensus? r U 8 O 3 U e v o C m e h c a S Glad You Asked! Sachem Cove Partners 6
You Can’t Run A Mine if You Can’t Afford to Run A Company Ø Consensus “Full Cost” of mining is only representative of the cash and capital costs to break-even in the current market. It excludes sunk costs and corporate costs such as G&A, s r e Finance, Exploration and other potentially significant costs. n t r a P m u i n a r U Ø Consensus does not calculate any incentive price needed to 8 O 3 U e keep mines running. v o C m e h c a S Ø That’s why it didn’t forecast the supply cuts that have occurred - ~25% of global supply. Sachem Cove Partners 7
Consensus “Full Cost” Doesn’t Capture All Costs – Cameco s r e n t r a P m u i n a r U 8 O 3 U e v o C m e h c a S Source: Company Reports/SCP estimates Sachem Cove Partners 8
Nor Does It for Kazatomprom (and Most Other Miners) s r e n t r a P m u i n a r U 8 O 3 U e v o C m e h c a S Source: Company Reports/SCP estimates Sachem Cove Partners 9
And That’s Why It Failed To Forecast Supply Cuts Consensus Primary Production For Consensus Primary Pr oduction Forecast 2019 ecast 2019-2030 2030 1Q 1Q17 17 170 Forec Fo ecast 160 s r 1Q18 1Q 18 e n t Fo Forec ecast r a P 150 m u i n a r U 3Q 3Q19 19 8 140 O 3 Fo Forec ecast U e v o C 130 m e 1Q17 A 1Q17 Avg. . 150M 150M l lbs./ ./yr. h c a S 120 3Q19 A 3Q19 Avg. . 131M 131M l lbs./ ./yr. 110 Lb Lbs. Cut: -229M 229M/ -19M 19M/yr. 100 90 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 1Q17 Primary Production 1Q18 Primary Production 3Q19 Primary Production Source: Consensus estimates Sachem Cove Partners 10
But New Projects Will Fill Any Supply Shortfall, Right? Ø Consensus largely ignores the financing costs, timing & permitting issues of new projects. s r Ø $ Billions in projects needed ON-LINE by middle 2020’s to avoid a e n t r a P nuclear power crippling supply shortfall – for context, these m u i n a companies have been living hand to mouth for a decade with minimal r U 8 O 3 access to the capital markets. U e v o C m e h c a S Ø Prices must at least double from here and miners must have contracts in hand before they can even begin to have financing discussions, let alone build a mine. Ø Window for required contracts and needed mines is almost closed and markets are telling us that at these prices, none of these projects are getting built. Sachem Cove Partners 11
Some of the New Mines Needed After Restarts of C & M Mines Capital Required USD Capital Requir ed USD $1,200,000 s r e $4.6 4.6 Bi Billion t n to b bui uild n $1,000,000 t r a P m the mines is needed th u i n a r U 8 $800,000 O 3 U e v o C m e h $600,000 c a S $400,000 $200,000 $0 Dasa Goviex Phoenix Mulga Rock Norasa Etango Gryphon PLS Arrow Source: Company Reports/SCP estimates Sachem Cove Partners 12
Some of the New Mines Needed After Restarts of C & M Mines Market Caps and Capital Requir Market Caps and Capital Required ed $5,000,000 $4,597,000 De Developers need 4.5x their $4,500,000 s r e n current marke cu ket ca capit italiz lizatio ion t r a $4,000,000 P to to build th the mines s needed m u i n to to meet t demand a $3,500,000 r U 8 O 3 U $3,000,000 e Good Lu Luck With That! v $ in Billions o C m e $2,500,000 h c a S $2,000,000 $1,500,000 $1,056,000 $1,000,000 $500,000 $0 Market Cap of Greenfield Developers Capital Required Source: Company Reports/SCP estimates Sachem Cove Partners 13
The Market is Saying The Mines Will Not Get Built s r e n t r a P m u i n a r U 8 O 3 U e v o C m e h c a S Source: Bloomberg, Solactive Global Uranium Pure-Play Index Sachem Cove Partners 14
It’s A Scary World If Miners Are Not Incentivized to Produce Ø State-owned Chinese and Indian production isn’t being sold to the West. s r e Ø That leaves State-owned Russian, Uzbek and Kazakh production. That n t r a P m doesn’t meet half of world demand. u i n a r U 8 O 3 U e v o Ø Imagine a geopolitical event like Iran sanctions or the RSA sealing off C m e h access to production. c a S Ø Imagine a flood, fire, or other disruption – Concentrated supply should always heighten awareness of tail risks to price. Ø Currently there is little-to-no concern. Sachem Cove Partners 15
If Nothing Changes – What Does The World Look Like In 2028? 2028 Supply / Demand Forecast 2028 Supply / Demand For ecast 250 s r DE DEFICIT : 58M 58Mlbs per er yea ear! e n t r a 200 P m u i n a r U 8 O Million Lbs. Uranium 3 U 150 e v o C Sec Second ndary Sup Supply m e h c a S 100 Primary Sup Pr Supply 50 0 Demand Supply Source: SCP estimates/Consensus estimate Sachem Cove Partners 16
And Only 16% Of Global Supply Will Come From The West 2028 Global Primary Pr 2028 Global Primary Production oduction Vaal Rivers Arlit US USA, A, Au Austral stralia a an and oth ther r (15.8%) Husab of of which 10.5% % is s by prod oduct at Olympic Dam Rossing Ru Russi ssia Con ontrol olled (7 (7.7%) %) China (Various/Export) s r e n Semisbai t r a P Irkol Chinese Co Ch Controlled (1 (18.2%) %) m u N. Kharasan 2 (Baiken-U) i n a r Western Mynkuduk (Appak LLP) U 8 O N. Kharasan 1 (Kyzylkum LLP) 3 U e Kazatomprom-SaUran + RU-6 v o C Budenovskoye 1,3,4 (Akbastau JV) m e h Central Mynkuduk (JV Ortalyk) c a S South Inkai Inkai Budenovskoye 2 (Karatau LLP) Muyunkum Dalur Khiagda Priargunsky Lance Four Mile Olympic Dam Ka Kazakhstan co controlled (51.8%) Other Countries Source: SCP estimates Sachem Cove Partners 17
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