Uranium Equity Adjustments Hitting A Century

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1 Justin Reid, Phone (416) , David Wargo - Associate, Phone (416) , dwargo@cormark.com Uranium Equity Adjustments Hitting A Century Unless otherwise denoted, all figures shown in US$ Investment Thesis: The growing demand for power, an overweight reliance on fossil based fuels, and an increased awareness of environmental emission concerns have all contributed to a renewed interest in nuclear generated power. Globally there is an aggressive reactor build campaign underway that will put further pressures on the demand for uranium. Due to a 25-year depressed market for uranium, where 47% of demand had been filled by finite secondary sources, a significant lack of new uranium resource development has led to a growing shortfall, forecast to materially impact the market by Currently global uranium supply is very tight, with primary and secondary sources just meeting demand. Any disruption in supply, political trade disruptions between major players and continued participation by investment vehicles and hedge funds in the commodity could drive the market into an immediate deficit position. Highlights: Increasing Uranium Price Deck Through $100/lb We have increased our price deck in-line with our expected appreciation of the uranium price capped in 2012 at $125/lb. We have increased our long-term assumption from $50/lb to $55 in an attempt to reflect the inflationary pressures impacting the cost of marginal production in the future. Equity Valuations Adjusted Though we have increased our price deck substantially and valuations have expanded accordingly we have eroded our valuation multiples as premium valuations historically applied have attempted to quantify much of the upside that we hope is captured by the adjustment to our commodity here.

2 We Are Not Sure How High The Uranium Price Could Go With the uranium price currently sitting at $95/lbs, up $30/lb through 2007 continuing the 90% increase through 2006, it has become difficult to forecast short to mid-term targets for the commodity. In the market right now there are five powerful drivers; the Cigar Lake delay, the central core-effect for new reactors, investment and hedge fund participation, continued production misses by major producers, and the refocus of majors on the commodity. Together these continue to put significant upward pressure on the commodity. Our previous work has discussed these market drivers in detail (2007 Uranium Equity Report, February 14, 2007) needless to say these drivers persist, and in some cases have intensified through the first quarter of Cameco has released its 5-phase plan for remediation at Cigar Lake. Currently production is set to begin at the back end of 2010 (1.5MMlbs forecast) ramping to full production in This remains in line with our current estimates however it should be noted that significant risk remains. The disclosed plan is based upon phase one surface directed grouting proving successful; this remains in question. In addition we feel that the time schedule and capital budget increases are aggressive. The likely hood of continued delays at Cigar Lake beyond those guided are significant and we suggest further increases in capex beyond the C$1BB released are inevitable. Though we expect delays to continue, Cigar Lake remains a world-class asset, and the production from this mine will be paramount in recognition of the aggressive nuclear expansion plans of many nations. Though it may seem on the surface illogical, the uranium market requires Cigar Lake to come on line in a timely manner in order for the uranium price to continue appreciation. If Cigar Lake was to fail, we would expect a substantial decrease in global nuclear growth and as such newly planned production may be able to meet requirements (depending on the magnitude of any compression of growth). The production misses of 2006 by major producers (down 6% from 2005 levels and 9.7MMlbs beyond expectations of 112MMlbs) look set to continue through We expect McClean Lake to continue its underperformance, grade issues at Olympic Dam to persist and the first unplanned supply disruption has occurred as a recent Typhoon ripped through northern Australia, causing operations at ERA s Ranger Mine to shutdown, the pit to flood, and force majeure on deliveries to be evoked. Hedge funds and Investment vehicles have remained just as active through the first quarter of 2007 as they did through When 80% of annual production is contracted and competition of remaining supply is spread between hedge funds, investment vehicles, producers and utilities rapid appreciation in the spot market stemming from transactions of very small volumes should persist. Its Becoming Tough To Keep Up With The Pace Adjusting Through $100/lb We have made three adjustments to our uranium forecasts 1) We have increased our forward uranium curve to $105 in 2007 appreciating through 2012 at $125/lb. We maintain that based upon current production forecasts and revised Cigar Lake estimates we may see the market return to balance in 5-7 years, this will be partially offset in 2013 by the cancellation of the HEU agreement that supplies approximately 26MMlbs equivalent onto the market per year. We suggest that we may not see the uranium price start to decrease for 5-7 years when supply catches up with demand or alternate sources of fuel are determined. At this time we project that the long term uranium price will be maintained in a band between $45-$60 dollars, which by our calculations represents the minimum uranium price required to deliver moderate returns when considering the last marginal pound of production. We have increased our long-term price from $50 to $55 in an attempt to quantify the inflationary pressures witnessed within the mining industry, and the impact these pressures would have on the cost of marginal production. We do

3 not expect to see prices return to historical levels, as we are now operating within an expanding industry driven by critically low inventories and lagging supply development. Cormark Securities anticipates a robust uranium market for the next few years. Adjusting Uranium Forecast: We have adjusted our uranium forecasts (Table 1) to reflect a reasonable continued appreciation of the commodity through We have capped our uranium price estimates at $125/lb starting in 2009 and continue at this level through We suggest that the price may peak in 2013 as Cigar Lake is projected to reach full production during this time, and if successful, substantial planned production may materialize. These supply expansions will be offset by the termination of the HEU agreement in 2013 if it continues until contract expiry. We highlight that the potential for disappointment with regards to new production exists and as such the length of time to market balance could extend. Currently (Friday March 30), Mestena Minerals in Texas is having its monthly sealed envelope auction for 100M lbs of material for delivery next month. Over the last 15 months this auction has provided insight and benchmarks within a commodity market having very little transparency. With the current spot price at $95/lb, and based upon the appreciation we have witnessed after prior auctions the possibility of uranium breaking through the century mark is large. The term price remains unchanged at $85/lb, but this is not truly reflective of the long term market as the producers are signing market related contracts in an attempt to extract as much upside in the commodity as possible. The lack of fixed price contracts has stalled the term price before. Table 1: Revised Uranium Estimates Uranium Long Term Revised $105 $115 $125 $125 $125 $55 Previous $75 $90 $90 $85 $85 $50 Source: Cormark Securities

4 Adjusting Equity Recommendations Table 2 shows our revised estimates for those Uranium Companies under active coverage by Cormark Securities. There have been no changes to our recommendations though targets have increased in most instances. As our revised price deck reflects what we believe a more reflective view of the near-mid term market for the commodity some of our multiples have contracted (producers decreasing from 18x to 15x), developers decreasing to 1x NAV or lower depending on level of asset advancement; our valuation for exploration companies remains unchanged. Table 2: Revised Estimates REVISING ESTIMATES C$ CFPS (US$) NAV Valuation Rank Recommend. Target Price 2007E 2008E 2009E Est. Multiple Issuer: 1 Aurora Energy Buy (S) Revised $24.00 $15.49 NA NA NA $ x NAV Previous NA NA NA $ Cameco Corporation Buy Revised EPS ($C) $51.75 $46.88 $2.19 $3.45 $2.25 $ x 2008 EPS Previous EPS (C$) $50.40 $1.74 $3.15 $2.08 $ Denison Top Pick Revised $20.50 $13.96 $0.01 $1.23 $1.35 $ x 2008 CFPS Previous $16.20 $(0.06) $0.80 $0.95 $ Energy Metals Corp Buy Revised $15.60 $13.91 NA $0.43 $1.02 $ x NAV Previous $13.70 NA $0.33 $0.71 $ Paladin Resources Buy Revised $10.20 $9.31 $0.07 $0.61 $0.91 $ x 2008 CFPS Previous $10.00 $0.06 $0.38 $0.70 $ Strathmore Minerals Market Perform No Change $4.70 $4.90 NA NA NA $ x NAV 7 SXR Uranium One Buy Revised $20.50 $16.15 $0.30 $1.33 $1.42 $ x 2008 CFPS Previous $19.20 $0.26 $1.16 $1.14 $ Tournigan Gold Buy Revised $4.40 $2.97 NA NA $0.06 $ x NAV Previous $4.40 NA NA $0.06 $ UEX Buy (S) Revised $9.25 $6.95 NA NA NA $ x NAV Previous NA NA NA $ Ur-Energy Revised $6.00 $4.68 NA NA $0.62 $ x NAV Previous $5.10 NA NA $0.38 $ UraMin Inc. Buy (S) Revised $8.00 $6.15 NA $0.10 $0.97 $ x NAV Previous $6.20 NA $0.05 $0.57 $4.43 Source: Cormark Securities

5 1. Cameco Corporation: We have increased our target to C$51.75 from C$ We have revised our model accounting for the recently released remediation plan for Cigar Lake. The 5-phase plan is based upon successful completion of each preceding phase. The opportunity for continued delays, and increase in overall capex remains great. However CCO remains the world s largest producer of uranium, though legacy contracts cap earnings potential moving forward. 2. Denison Mines Ltd: DML has extended its bid for Omega Corp and as of publication had secured 31% of the outstanding shares. Our recommendation remains unchanged (Top Pick) and our target increased from C$16.20 to C$20.50 as a result of increased revenue potential when exposed to further upside in the commodity price. 3. Paladin Resources: We have increased our target from $10.00 to $10.20 and maintain our buy recommendation. We have modified our model to reflect the recently released Kayelekera feasibility study. We maintain the Company s 50% stake in Valhalla and have adjusted our Langer production profile in-line with the recent update. Langer is currently operating at 70% capacity and remains on track to hit full commercial production by mid-summer. 4. SXR Uranium One: We have increased out target to C$20.50 from C$19.20 and maintain our buy recommendation. The shareholder vote on the UUU/SXR proposed merger is April 5 th and we expect transaction to be approved. To date no alternate bidders have entered the game and we maintain our proforma valuation for the New Co. Commissioning has begun at Dominion and based upon our recent site visits (March 18 th ) the mine and plant remains on track to meet 2007 exit guidance. 5. Energy Metals Corporation: We have increased our target to C$15.60 from C$ EMC continues on an aggressive path towards production in Texas while continuing to advance its Wyoming assets. We anticipate that EMC will represent the first new US producer via ISL this cycle. 6. Ur-Energy: We have increased our target to C$6.00 from C$5.10 derived using a 0.8x NAV10%. We maintain that developers will re-rate as the group moves toward production eventually trading at a premieum to Net Asset Value, however URE has yet to fully lay out its production schedule, though we expect this shortly. URE remains an excellent investment opportunity for those searching for market exposure to near term production, US focused assets, which have the potential to be acquired, during what we consider will be a year of consolidation. 7. Tournigan Gold: We maintain our Buy recommendation and C$4.40 target. The increase in valuation as a result of our increased commodity forecast has been offset by a revision to our model as we push potential production form Jahodna back from 2009/2010 by 12 months. The Company continues to have drilling success at Jahodna and we expect that a new calculated resource should increase the existing resource. The pre-feasibility from Kremnica remains delayed and as such we have had to push potential production from this gold asset from 2009 to early TVC is actively advancing all of its assets and has commenced active exploration in the US focused on its breccia pipes within the Arizona strip. 8. Uramin: We have increased our target to C$8.00 from C$6.20 and maintain our Buy (S) recommendation. We have adjusted our model on Trekkopje to reflect increased production of 5MMlbs p.a from 3MMlbs previously. The Company is continuing with its BFS on the project and has guided to a potential 8MMlbs p.a at the operation. Until we see the final results of the study we will maintain a conservative stance as we have yet to see a carbonate heap leach operation completed at the average of 0.014% U3O8. As such considerable upside exists if the BFS proves successful.

6 9. UEX, AXU: Our targets remain unchanged for our explorers. We maintain our assumed resource multiples for these Companies. All three have aggressive exploration campaigns planned for STM: We maintain our C$4.70 target and have reduced our recommendation from Buy (S) to Market Perform due to price appreciation. We, Justin Reid and David Wargo, hereby certify that the views expressed in this research report accurately reflect our personal views about the subject company(ies) and its (their) securities. We also certify that we have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report.

7 RECOMMENDATION TERMINOLOGY Cormark s recommendation terminology is as follows: Top Pick our best investment ideas, the greatest potential value appreciation Buy expected to outperform its peer group Market Perform expected to perform with its peer group Reduce expected to underperform its peer group Our ratings may be followed by "(S)" which denotes that the investment is speculative and has a higher degree of risk associated with it. Additionally, our target prices are set based on a 12-month investment horizon. For Canadian Residents: This report has been approved by Cormark Securities Inc. ( CSI ), member IDA and CIPF, which takes responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CSI. For US Residents: Cormark Securities (USA) Limited ( CUSA ), member NASD and SIPC, accepts responsibility for this report and its dissemination in the United States. This report is intended for distribution in the United States only to certain institutional investors. US clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CUSA. Every province in Canada, state in the US, and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, some of the securities discussed in this report may not be available to every interested investor. This report is not, and under no circumstances, should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared for general circulation to all clients and does not have regard to the particular circumstances or needs of any specific person who may read it. This report is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein. The information and any statistical data contained herein have been obtained from sources believed to be reliable as of the date of publication, but the accuracy or completeness of the information is not guaranteed, nor in providing it does CSI or CUSA assume any responsibility or liability. All opinions expressed and data provided herein are subject to change without notice. The inventories of CSI or CUSA, its affiliated companies and the holdings of their respective directors, officers and companies with which they are associated may have a long or short position or deal as principal in the securities discussed herein. A CSI or CUSA company may have acted as underwriter or initial purchaser or placement agent for a private placement of any of the securities of any company mentioned in this report, may from time to time solicit from or perform financial advisory, or other services for such company. The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or the income they produce may fluctuate and/or be adversely affected by exchange rates. No part of any report may be reproduced in any manner without prior written permission of CSI or CUSA.