Resource Capital Research -- June Quarter 2010

Equity Research Report; Global Uranium Companies

DENVER, CO--(Marketwire - July 19, 2010) -

Key Points

Uranium Market:

* The uranium spot price is currently trading at US$41.50/lb
* The Fund Implied Price (FIP) is US$43.00/lb, which compares with US$46.00/lb Jan '10.
* Since April 1, 2010 the FIP has traded in a range of ~US$35/lb to ~US$46/lb, with the low of US$35/lb coinciding with equity market weakness in April.
* The long term contract uranium price is US$58.00/lb. It is down from US$61/lb Jan '10.
* There are 496 new nuclear reactors planned or proposed globally as of June '10.
* Kazakhstan ISR production reached 36mlbs U3O8 in 2009 up 62% from 2008 levels (22mlbs) and is forecast to reach 47mlbs in 2010.
* With low cost production forecast to rise to 78mlbspa U3O8 by 2018, Kazakhstan's mine supply growth is expected to exert further downward pressure on the global sector near/mid-term cash cost curve.

Uranium Companies:

* The Merrill Lynch Uranium Equity Index (a basket of uranium equities) is up 6% over the past month, down 15% over 3 months and down 16% over the past 12 months (to June 30).
* The market valuation of Australian companies with one or more uranium projects is down 4% over the past month, down 16% over the past 3 months, and up 48% over the past 12 months (to June 30).
* This compares with Canadian companies with one or more uranium projects, down 2% over the past month, down 15% over the past 3 months, and up 29% over the past 12 months (to June 30).

Resource Capital Research ("RCR"), an equity research company which focuses on small and mid size resource companies, today launched its major quarterly research report covering 17 global uranium exploration and development companies.

The quarterly report typically reviews companies listed in Australia, Canada, USA and UK and active in established uranium districts globally, including Australia, Canada, USA, Argentina, Peru, Mongolia, Zambia, Tanzania, Niger and Namibia.

To access the free summary report or to purchase the complete 94 page comprehensive report, go to www.rcresearch.com.au/reports. RCR also publishes gold, iron ore, and tin-tungsten sector reports.

Equity market performance (to June 30)

The market valuation of Australian companies with one or more uranium projects is down 4% over the past month, down 16% over the past 3 months, and up 48% over the past 12 months. This compares with Canadian companies with one or more uranium projects, down 2% over the past month, down 15% over the past 3 months, and up 29% over the past 12 months.

In the past 1 month, the uranium mining majors have had mixed share price performance: Cameco is down 6% (3 month performance -13%), Denison Mines is down 1% (3 month performance -13%), Uranium One is up 24% (3 month performance unchanged), Energy Resources of Australia up 7% (3 month performance -27%) and Paladin unchanged (3 month performance -1%). The UUU one month price increase (+24%) is attributable to the announced ARMZ transaction; and ERA's 3 month price decline (-27%) is attributable to a number of factors including the impact of the announced resource tax in Australia.

The Merrill Lynch Uranium Equity Index (a basket of uranium equities) is up 6% over the past month, down 15% over 3 months and down 16% over the past 12 months.

Uranium price outlook

The uranium spot price is currently trading at US$41.50/lb and compares with US$44.50/lb at the start of the year. The Fund Implied Price (FIP) is US$43.00/lb, which compares with US$46.00/lb Jan '10. The FIP has generally been a good leading indicator of near term spot price performance.

RCR's outlook for the uranium price over the next few months is for it to continue to trade around the low US$40/lb mark. With the FIP currently trading at US$43.00/lb the spot price outlook is relatively flat. Since April 1, 2010 the FIP has traded in a range of ~US$35/lb to ~US$46/lb, with the low of US$35/lb coinciding with equity market weakness in April. The gradual downward drift in spot and contract prices over the past 12 months reflects in part the tremendous growth in new mine supply from Kazakhstan's ISR projects. Utility purchases remain discretionary though timing of demand from long term Chinese inventory build remains a factor with potential to influence short term market trends.

The long term contract uranium price is US$58.00/lb. It is down from US$61/lb Jan '10, though has been relatively stable, compared with the more thinly traded spot market price, since peaking at US$95/lb from May '07 to March '08.

Kazakhstan ISR production reached 36mlbs U3O8 in 2009 up 62% from 2008 levels (22mlbs) and is forecast to reach 47mlbs in 2010. With low cost production forecast to rise to 78mlbspa U3O8 by 2018, Kazakhstan's mine supply growth is expected to exert further downward pressure on the global sector cash cost curve.

World planned and proposed nuclear power reactors

Currently there are 439 nuclear power reactors in operation and 57 under construction. There are 496 new nuclear reactors planned or proposed globally as of June '10, up from 435 Dec '09 (+14%). A total of 67 new reactors are scheduled to be commissioned by 2016.

Since Dec '09 the largest increases in planned and proposed new nuclear reactors are in India, taking its total from 38 to 60 (+22, up 58%); and China taking its total from 125 to 154 (+29, up 23%).

Events of the past 3 months include:

* First Uranium - Environmental Approval reinstated for tailings facility at the MWS project in South Africa after earlier cancellation by the government (in Jan '10); and subsequently FIU finalized a C$150m recapitalization (Apr '10). MWS is currently ramping up gold production and aims to produce uranium from Aug '11. Ezulwini Mine in South Africa reported its first shipment of uranium in the March quarter (22,500lbs U3O8).
* Uranium One reported average total cash cost at its Kazakhstan operations of US$16/lb during 2009, compared with US$14/lb in 2008. Total cash costs of US$17/lb were reported 1Q10.
* Russian state-controlled miner ARMZ (AtomRedMetzoloto) deal with Uranium One will see ARMZ's parent Rosatom move to at least a 51% effective holding in UUU (announced 8 June '10). ARMZ will contribute interests in 2 Kazak ISR mines to UUU (50% holding in Akbastau; and 49.7% holding in Zarechnoye) plus US$610m. The deal is expected to close late 2010. UUU consolidated uranium production in Kazakhstan is expected to rise to 16mlbspa post deal (from 10mlbs) at total cash costs of production under US$20/lb.
* The deal with UUU could propel ARMZ into the top 3 global uranium producers and give the company a solid platform for global expansion, including into Namibia where it is reported to have budgeted US$1bn for exploration and development. Rosatom is looking to expand its access to uranium supply globally.
* USA, Wyoming uranium projects advancing: Peninsula Minerals announced an initial JORC Resource at the Lance ISR project in the Powder River Basin (15.1mlbs U3O8 grading 504ppm); Ur-Energy final production permits expected 2H10 at Lost Creek ISR project -- potential project commissioning 1H11; Uranium One expecting production from Powder River Basin projects Christensen Ranch and Irigaray 2011 -- acquisition of these projects was completed Jan '10 (US$35m); Titan Uranium completed PFS on Sheep Mountain -- potential production 1.5mlbspa U3O8 via conventional mining, 11 year mine life, capex US$118m, opex US$28.7/lb.
* In May 2010, the Australian Federal Government announced intentions to introduce a resource rent tax (RSPT) of 40% on Australian resource projects from 1 July 2012.

"Uranium mine supply growth in Kazakhstan threatens to weigh down the sector cost curve in the short to medium term. Production growth from Kazakhstan has been phenomenal in recent years with production reaching 36mlbs U3O8 in 2009 up 62% from 2008 levels of 22mlbs. 2010 production is forecast to reach 47mlb. Production is low cost and frequently below US$20/lb. As evident earlier in the year, a floor price of around US$40/lb seems to be holding well but there is no significant utility demand to drive the market up. Timing of purchases from China continues to be the main unknown and has the potential to influence short term price trends," John Wilson, Managing Director of RCR said.

About Resource Capital Research

Resource Capital Research ("RCR") (www.rcresearch.com.au) was founded in 2004 and is based in Sydney. RCR provides investors with in-depth reports on current investment opportunities in the mining sector both in Australia and globally. The focus is on small and mid cap resource companies, within the gold and uranium sectors, ranging from exploration stage through development and production. John Wilson the principal of the firm and analyst has over ten years' experience analysing mining companies in Sydney and on Wall Street including for major investment banks.

The report is available at www.rcresearch.com.au. The next Uranium Sector Review will be published in the September Quarter, 2010. The gold and iron ore reviews are also released quarterly.

Abbreviations: WNA -- World Nuclear Association, ktpa -- thousand tonnes per annum, lb -- pound, Mlb pa -- million pounds per annum, U3O8 -- uranium oxide.

For further information please contact:
John Wilson
Analyst
Resource Capital Research
Phone: (+61- 2) 9252 9405
Email: Email Contact