Uranium Market Outlook from Royal Bank of Canada

Based on our (Royal Bank of Canada) analysis, only 26 million pounds of additional uranium can be brought into production between $40 per pound and $60 per pound and an incremental 60 million pounds can be added at prices between $75 per pound and $90 per pound

The Royal bank is still projecting increases in mined uranium of about 3500 tons for 2011 over 2010 and 6000 tons for 2012 over 2011. The Royal Bank has performed a thorough mine by mine and country by country analysis going out to 2020.

They are expecting China to have 90 GW of nuclear power generation in 2020 and a minimum of 80 GW of nuclear energy in 2020.

Looking back at our supply forecasts from mid-2006 to present, we have observed a very clear pattern: The expected supply from 2006 through 2010 has dropped dramatically. Looking at our current forecast compared to the third quarter of 2006,we see supply reductions of 10 million to 20 million pounds for 2006 through 2011. Most of these shortfalls have been driven by either problems with existing operations or delays in new mine production, with an emphasis on the latter.

Looking to the future, the pattern is reversed; our supply forecast for 2012 to 2015 is much higher today than it was in 2006. Most of the increase in forecast supply is due to new or expanded projects, in particular Kazakh projects. However, we think caution is warranted. We do not see any reason why the problems that plagued new supply between 2006 and 2009 should disappear completely; rather, we think there is a good chance that future supply forecasts will again disappoint. We think this fact needs to be reflected in the current uranium price and, in our view, it is not.

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