Last Chance Under 20c?, page-18

Hi Fangk,

I disagree with your premise that PDN is overvalued due to its non-producing status at present.

This is the most prudent decision by management - preserve the R&R and hunker down, conserving cash until the inevitable price increases and LT contracting cycle commences.

By undertaking this action they, along with CCJ and Kazatomprom, are in effect accelerating the timeline that this turn around will occur.

Their collective supply discipline is also causing behavioural changes from other, non utility buyers of U, that further leverages off this supply reduction. For example:

- UPC raised $23m last Q and bought 675k lb

- Yellowcake just raised US$196m and will buy 8.1m lb from Kazatomprom with the capacity to buy a further 1m lb on the spot market due to raising US$26m more than targeted

- Tribeca is trying to set up a Uranium focused fund, seeking c. A$100m

- L2 Capital has been rumoured to also be looking into entering the U sector

- CCJ, has not only idled production at McArthur River, but they are set to enter the Spot Market in 2H 2018 as their inventory drawdown is near completion and potentially buy 8m lb this year. If they keep a major mine idled in 2019 (McArthur River or Cigar Lake) then they will need to source c. 16m lb from the Spot Market in 2019.

These actions all mean that the supply overhang which utilities thought was going to stretch well into the future is fast disappearing. This in turn is starting to cause them to re-evaluate their current practice of buying U on the Spot Market ... all it now requires is for the first Utility to break ranks.

When you read this article below:

http://www.mining.com/web/bankers-gone-awol-race-build-lithium-mines/

... you can easily apply it to the U sector. Bankers are going to be VERY reluctant to provide funding to early stage projects unless they have locked in LT contracts at >$50-$65 lb. Thus, there is no hope of any supply surge in response to U prices being even 2x the current spot price.

This is even more so with the U explorers/ developers sitting in the long shadow of NXE's Arrow project.

This, IMO, will prevent many of them getting funded at all. Arrow is still several years away from production and thus creates a structural impediment for new mine development in the coming years (i.e. bankers will look at Arrow and think there is no way they will fund an inferior project that will be at a competitive disadvantage to Arrow when it inevitably gets built).

Those miners with assets in place (PDN), sit low on the cost curve (PDN), have long LOM (PDN), and have a small required capex to get into/ back into production (PDN) are going to do very well in the next cycle.

When you consider the tangible assets that PDN has (replacement value) and the R&R they also hold (+20y LOM) but also the intangible assets (fully permitted and proven producing mines x 2 = time advantage) and the EV is, IMO, very very cheap.

This is why special opportunity funds are grabbing so many shares whilst the former debt providers sell down their unwanted shares.

Then it is just a game of patience.

Cheers
John