Fall 2022: NextEra Energy and Cameco

Recommendation for NextEra Energy | Board of Directors

Discussion Materials | January 22, 2023

Deal Team

FIR

Rohan Gadkari

From: Austin, TX

Indiana University, Kelley School of Business | 2026

Majors: Finance, Business Analytics

Steven Papadatos

From: Wichita, KS

Indiana University, Kelley School of Business | 2026

Majors: Finance, Business Analytics

I. Executive Summary

II. Company Overview

III. Macroeconomic and Industry Analysis

IV. Strategic Recommendation

V. Valuation

VI. Strategic Alternatives

VII. Appendix

Page 4 Page 6 Page 9

Page 12

Page 16

Page 19

Page 21

I. Executive Summary

Executive Summary

• NextEra Energy, headquartered in Juno Beach, FL, is the largest global utilities and electric power company

Overview

Scope of Proposal

• The company leads the electric and gas utilities industry with the most solar and wind energy production, and continues to expand their operations in nuclear fission and natural gas facilities

• NextEra’s consistent organic growth and optimistic financial outlook positions the company well to acquire a leading uranium supplier to accelerate operations into the future of high-powered energy production

Strategic Assessment

• This proposal will cover industry segments ranging from utilities and electric power to uranium

• NextEra, as an industry leader in energy production and nuclear power plant operations, is in prime position to explore vast opportunities in nuclear energy as the company works to eliminate carbon emissions

• Financial Investment Review (FIR) utilizes its seasoned expertise in the industry to present the best possible investment for NextEra’s future and seize the opportunity to take the uranium production market by storm

Proposal

• NextEra’s prominence as a leading company in the energy market allows for the acquisition of Cameco Corporation to streamline the company’s supply chain and expand its market segmentation and share

• Cameco Corporation is a leader in the uranium industry and is currently implementing a multi-year plan to ensure the long-term sustainability of its uranium mining, enrichment, and distribution operations

• NextEra should actively look for inorganic growth through M&A while also supporting their favorable outlook

Given NextEra Energy's market placement, Financial Investment Review recommends the acquisition of Cameco Corporation at an offer price of $31.90 per share and an implied equity value of $12.7 billion with a proposed financing split of $1.5B in cash, $6.7B in debt, and $4.5B in equity offerings.

II. Company Overview

Company Overview

Company Description Company Outlook

• NextEra Energy generates, transmits, distributes, and sells electric power to retail and wholesale customers across the United States

• The company generates electricity through wind, solar, nuclear, coal, and natural gas facilities; develops, constructs, and operates long-term contracted assets that consists of clean energy solutions, such as renewable generation facilities, battery storage projects, and electric transmission facilities

• NextEra also sells energy commodities; and owns, develops, constructs, manages and operates electric generation facilities in wholesale energy markets

• Asset and traditional M&A is a major contributor to NextEra’s vision as they have acquired 3 companies, 2 natural gas plants, and dozens of water and water waste facilities in the last 5 years

• The company is ranked No. 1 in the electric and gas utilities industry on Fortune's 2022 list of "World's Most Admired Companies," recognized on Fortune's 2021 list of companies that "Change the World" and received the S&P Global Platts 2020 Energy Transition Award for leadership in environmental, social and governance

• NextEra Energy has developed plans to deploy $85-$95 in capital towards growth projects to expand clean energy production and aim towards increasing their zerocarbon dioxide emissions rate to 70% by 2025

• The company is dialing their focus on their Real Zero initiative that strives for zero carbon emissions at zero incremental cost increases; currently the company advertises their net zero operations that show improvements in carbon emissions

• NextEra has improved carbon dioxide emissions by 58% since 2005 and aims for entirely clean energy production by 2045, with 11% coming from nuclear energy and 89% coming from renewable energy and battery storage processes

Company Overview

Financial Summary (USD, in mm)

Total Revenue: 19,838.0

EBITDA: 7,983.0

EBIT: 3,502.0

Net Income: 3,829.0

Capital Expenditures: (17,901.0)

Market Capitalization: 167,994.8

Total Enterprise Value: 238,428.8

Cash and ST Investments: 2,508.0

Total Debt: 64,825.0

Total Assets: 156,409.0

Stock Performance (NYSE:NEE)

Jan 2017: NextEra Energy sells NetFiber to Crown Castle International for $1.5 billion

July 2018: NextEra Energy Acquires Florida City Gas, a natural gas distribution company, for $530 million

Dec 2018: Completes purchase of two natural gas power plants from Southern Company

March 2019: Announces SolarTogether, the largest community solar program in the United States

Dec 2020: NextEra Energy acquires eIQ Mobility to enter into fleet vehicle market

March 2021: Completes purchase of GridLiance, the owner of over 700 miles of highvoltage transmission lines, for $660 million

Jan 2022: JPMorgan Chase starts using NextEra’s Optos software to optimize energy use and decrease carbon footprints in the financial services industry

June 2022: Announces increased adjusted earnings per share expectations for 2022-2025

July 2022: NextEra Water acquires 23 water and five wastewater utility systems

III. Macroeconomic & Industry Analysis

Macroeconomic Analysis

• Current Inflation rate at 6.45% and projected to decline to 3.2% by the end of 2023

Outlook

• Fed fund rate expected to hike to 4.25-4.5 by March and 5-5.25 by year end of 2023

• 10% contraction in housing market expected in 2023

• Government spending to be a neutral GDP contributor

Trends

• Uranium market is currently producing at a fraction of 2013 levels.

• Treasury rates have consistently increased following the COVID-19 pandemic, with rates currently at 3.5%

• Business investment to see 3% growth in 2023

• CPI to decrease from 10% (H2 2022) to 3.5% (2023)

Opportunities

• Brent oil is expected to decrease from $104 a barrel in 2022 to $90 a barrel in 2023

• Bullish outlook on precious metals, gold is estimated to be worth $1,860 per ounce in 2023

• The spot price of Uranium U3O8 has increased from $25 in 2020 to $39 in 2022

10-Year Treasury Constant Maturity Rate From

2013-2023

Industry Analysis

Uranium Market Size, Share, and Revenue Mining and Enrichment Industry Key Statistics

• The global Uranium market size in 2021 was $2.6 Billion, with a CAGR of 3.6%. The market is expected to reach $3.3 Billion in 2027

• Cameco currently holds 9% market share, while in 2016 the company held 17%. Cameco is known as the largest producer of uranium in the USA

• Optimistic outlook with uranium demand expected to almost double by 2040 and uranium enrichment only expected to increase by 10%

• Disproportionate growth in uranium enrichment and uranium mining could indicate a future shortage of uranium, with an opportunity for companies with uranium enrichment operations

Trends: Increase in Production and Price of Uranium

• Since 2016, global production of uranium has fallen from 63,207 metric tons to 48,332 metric tons in 2021

• Uranium producers are operating under regular capacity and maintaining uranium stockpiles to hold off on selling for higher prices

• However, uranium producers are returning to normal output as a direct result of projected increases in uranium prices to $70/lb by the end of 2023 and $107/lb by 2030

Trends: Push for Zero Carbon Emissions

• 32% of NextEra’s energy production is fossil fuels. NextEra is implementing a 22-year plan to gradually convert this to nuclear and renewable energy by 2045.

• Nuclear energy produces the least amount of greenhouse gas emissions of any energy source.

• Nuclear fission produced less emissions than wind and solar energy despite making up 10% of global electricity output. Wind energy produced 7% and solar produced 4%.

IV. Strategic Recommendation

Strategic Recommendation

• Cameco Corporation (NYSE: CCJ) is a leading Tier 1 company based in four countries that specializes in the mining, refining, and enrichment of uranium

Cameco Corporation General Overview

• Cameco has complete ownership of 14 operations, which include uranium mines, uranium projects (sites being researched for uranium mining potential), refineries, and fuel manufacturing operations.

• Cameco has 40% ownership of the Inkai mine in Kazakhstan. Cameco has a deal with the Kazakhstani government to use the Trans-Caspian shipping route for operations, avoiding Russian infrastructure

• Cameco deferred majority production of uranium at its American mines in 2016 and currently spends approximately $10 to $15 Million annually in maintenance costs. This removed 190 million pounds of uranium. Cameco has a plan to slowly increase the amount of uranium these plants produce. In 2021, Cameco produced 75% below productive capacity. Cameco estimates to produce 40% below productive capacity in 2024.

Cameco 5 Year Stock Performance

Strategic Recommendation

Total Revenue

$1,350.5

Cameco has developed a multi-year plan to ensure long-term profit over the next few years

1. Cameco will ramp up mining capacity to return to pre-2016 levels. Cameco will have the MacArthur River/Key Lake mine back to 100% operational capacity by 2024.

2. Cameco is investing heavily in microreactors. Cameco is currently invested in or partnering with numerous companies that specialize in microreactors.

3. Cameco is currently sponsoring three exploration projects, with two in Australia. Cameco has a majority stake in all three of these exploration projects.

Cameco Revenue from 2010 – 2021 (millions of Canadian dollars)

Exploration/Mining

• Alpha Nuclear – Personal alpha dosimeters to protect uranium miners and nuclear facility operators

Enrichment

• Global Laser Enrichment (GLE) – A highly efficient separation process of the U235 molecule

Generation

• eVinci™ Microreactor – Portable reactor core intended for use in remote locations

• Integrated Molten Salt Reactor – Commercial implementation of small modular reactor

• X-energy Xe-100 – Small modular reactor that can be assembled in a 4-pack

Price Increases in the Fuel Cycle

Strategic Recommendation

Globalization

Performance

Catalysts

• NextEra has numerous operations in the USA and Canada. Through the acquisition of Cameco, NextEra will gain additional infrastructure in nuclear energy and uranium production in the USA and Canada, plus Australia and Kazakhstan

Mutual M&A Activity

• NextEra has a history of M&A activity and is currently undergoing numerous acquisitions. Cameco focuses M&A activity to gain proprietary technology and for technology development. NextEra will be the majority owner of numerous patented technologies through this acquisition alongside facilities and machinery that Cameco operates.

Revenue Synergies

• Ownership of Cameco’s uranium mines, enrichment and conversion plants, and fuel production facilities would offer NextEra the opportunity to sell excess uranium and fuel for nuclear plants. With 20-25% of the US’s clean energy output coming from nuclear energy, NextEra would be the company to meet rapidly growing demand.

Synergies

• Improving NextEra’s uranium capacity and nuclear energy production will increase the company’s revenue for their nuclear services while still maintaining their planned advancements in wind, solar, and natural gas.

Cost Synergies

• Uranium mining, conversion, enrichment, and fuel production all being done in-house through Cameco would improve economies of scale for NextEra

• Reduced expenses for NextEra as they no longer have to insource refined and enriched uranium from international suppliers

Potential Concerns & Mitigations

• Changes in the regulation or public perception of the safety of nuclear power plants may adversely affect the construction of new plants, the relicensing of existing plants and the demand for uranium

• With Cameco having operations in Kazakhstan, Australia, Canada, and the United States, supply chain issues and logistics backlog are potential challenges that NextEra will have to adapt to and conquer

• Effect of expensive debt softened by NextEra and Cameco’s strong financials (debt-to-equity ratios of 0.4 and 0.52 respectively)

V. Valuation

Discounted Cash Flow

VI. Strategic Alternatives

Strategic Alternatives

Denison Mines is a uranium exploration and development company with interests focused on the Athabasca Basin region of northern Saskatchewan, Canada. The company has 95% ownership of the Wheeler River uranium project where they extract, process, and sell mined uranium deposits to uranium enrichment and fuel production companies.

Centrus Energy supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, Belgium, and internationally. The company operates through their Low Enriched Uranium (LEU) and Technical Solutions segments. LEU provides the enriched natural uranium components necessary to operate nuclear power plants and Technical Solutions offers services for maintenance and operations on reactors and plants.

Energy Fuels engages in the extraction, recovery, exploration, and sale of conventional and situ uranium recovery (dissolution pumped into mine to allow uranium to flow to the ground freely) in the United States. The company owns and operates the Nichols Ranch project, the Jane Dough property, the Hank project located in Wyoming, the Alta Mesa project located in Texas, and the White Mesa Mill in Utah.

VII. Appendix