Fission Uranium
Transcription
Fission Uranium
CANADA FCU CN Price (at 20:59, 09 Jan 2015 GMT) Valuation Outperform C$1.01 C$ 2.73 - DCF (WACC 8.0%) Fission Uranium Maiden resource surprises on the upside 12-month target C$ 2.25 12-month TSR % +122.8 Volatility Index Very High GICS sector Energy Market cap C$m 367 Market cap US$m 309 30-day avg turnover C$m 0.8 Number shares on issue m 363.1 Event Investment fundamentals Impact Year end 30 Jun Revenue EBITDA Recurring profit Reported profit Gross cashflow CFPS CFPS growth EPS rec EPS rec growth Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity P/BV 2014A 2015E 2016E 2017E m m m m m C$ % C$ % C$ % % % x % x 0.0 -8.3 -5.5 -4.8 -7.4 -0.03 nmf -0.02 nmf 0.00 0.0 -3.3 -2.3 -36.9 -12.2 1.4 0.0 -7.4 -5.2 -12.2 -3.9 -0.01 65.1 -0.01 36.9 0.00 0.0 -2.9 -2.0 -49.8 -16.6 1.4 0.0 -8.0 -5.6 -11.7 -3.4 -0.01 17.4 -0.01 -1.7 0.00 0.0 -2.8 -2.0 -48.0 -22.3 1.4 0.0 -8.0 -5.6 -11.6 -3.4 -0.01 2.0 -0.01 1.8 0.00 0.0 -2.6 -1.9 -48.0 -18.1 1.4 FCU CN vs TSX, & rec history Fission released a maiden resource on the newly named Triple R deposit, on its Patterson Lake South project, on the SW margin of the Athabasca Basin. There is no question in our mind this is an impressive result and should move the stock materially higher due to its 1) high-quality resource that demonstrates compelling economics, 2) growth potential, which remains impressive; and 3) ultimate take-out potential. The total mineral inventory is 105.4 m lbs @ 1.50%, comprised of 79.6m lbs @ 1.58% in the indicated category and 25.9m lbs @ 1.30% in the inferred category. The resource has a high-grade core with an estimated TMI of 58m lbs @ 19.66%. We have updated our model with an enhanced grade profile in the early years of mining, and tweaked our capital and operating costs – which together cancelled each other out, resulting in no change to our estimated C$2.73/sh NAV@8%. We continue to believe the exploration potential of the PLS property remains attractive and the likelihood that additional resources will be found is, in our opinion, a near certainty. In addition we believe producers will take an interest in the PLS project. At US$8.00/lb in-situ, based on the current resource we can see Fission being taken out for as much as C$900m. Our Commodities team forecasts uranium to remain in oversupply until the end of the decade, but still maintain a long-term U3O8 price of $60/lb. We recognize certain project risks including the length of time to permit development and the fact that there is no processing facility in the neighbourhood. We don’t consider any of these issues to be show-stoppers. Earnings and target price revision Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, January 2015 (all figures in CAD unless noted) We revised our model and forecasts for corporate spend. As a result, 2015 CFPS changed to $(0.01) from $0.00. We reiterate our C$2.25 target price and Outperform rating. Price catalyst 12-month price target: C$2.25 based on a NAV methodology. Analyst(s) Catalyst: Ongoing winter drill program results followed PEA (2Q15). Ron Stewart +1 416 848 3512 [email protected] Mohamed Abo Daff +1 416 848 3537 [email protected] Action and recommendation 12 January 2015 Macquarie Capital Markets Canada Ltd. Our target is based on a 0.8x multiple to our discounted Net Asset Value of C$2.73 derived from our mine model for PLS. We recommend buying FCU to investors looking for best-in-class uranium development stories. Please refer to page 8 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. Macquarie Research Fission Uranium The resource The maiden resource is comprised of three separate zones the R00E, R780E and R780E (other) and hence has been newly named the Triple R deposit. Resources, presented in Figure 1, were estimated based on a 0.1% U3O8 cut-off grade. The total mineral inventory is 105.4 m lbs @ 1.50% comprised of 79.6m lbs @ 1.58% in the indicated category and 25.9m lbs @ 1.30% in the inferred category. The resource has a high-grade core with an estimated TMI of 58m lbs @ 19.66%. Fig 1 The Triple R deposit, maiden resource estimate Zone Indicated (@ 0.1% U3 O8) ROOE R780E (Main) Tonnes (000's) High Grade Low Grade R780E (Other) Total Indicated 126.0 110.0 1,898.0 157.0 2,291.0 Pounds U3 O8 (000's) Gold Ounces U3O8 (%) Gold (g/t) 1.15% 18.21% 0.69% 0.97% 1.58% 0.15 2.77 0.39 0.67 0.53 3,194 44,148 28,864 3,356 79,562 1,000 10,000 24,000 3,000 38,000 3.57% 26.35% 1.26% 0.68% 0.33% 1.30% 1.50% 0.59 3.77 0.89 0.56 0.22 0.61 0.55 669 13,860 648 8,797 1,910 25,884 105,446 3,000 1,000 11,000 2,000 17,000 55,000 Inferred (@ 0.1% U3O8) ROOE R780E (Main) 8.5 23.9 23.3 R780E (Other Zones) 585.0 Low Grade Halo 260.0 Total Inferred 900.7 Total Mineral Invntory (TMI)* 3,191.7 * Total Mineral Inventory (TMI) is a non-compliant term High Grade Low Grade Source: Company documents, Macquarie Research, January 2015 We looked at the in-situ value of the rock using a spot uranium price of $35.00/lb and based on an assumed a contract price of $60/lb. What we find is that the TMI has an in-situ value of around $1,200/tonne on spot prices and around $2,000/tonne on our assumed contract price. Applying the same math to the high-grade zone, we find the rock has an in-situ value of over $15,000/tonne using spot prices and a staggering $26,000/tonne using contact prices. Our model We maintained our model estimate of 2.55m tonnes mined over a 15-year mine life, but modified our assumed grade profile to reflect a 3.0% grade for the first ~6 years of production followed by ~8 years at an average grade of 0.72%. Based on our mine plan a little less than 10m lbs of the total resource have not been modelled but could, in theory allow the mine to continue for another 3 years. We have not added any value for the by-product gold that might be recovered. The resource we used in our model is presented in Figure 2, below. Fig 2 Macquarie model mine resource and residual inventory Zone High Grade Mine Resouce (Initial 6 yrs) Lower Grade Mine Resouce (8 yrs) Total Mined Residual Resouces Tonnes (000's) 1,090 1,460 2,550 642 U3O8 (%) Gold (g/t) 3.03% 0.72% 1.70% 0.68% 0.75 0.46 0.59 0.43 Pounds U3O8 (000's) 72,800 23,100 95,800 9,646 Gold Ounces 25,500 20,900 46,400 8,600 Source: Macquarie Research, January 2015 12 January 2015 2 Macquarie Research Fission Uranium Our revised model parameters are presented in Figure 3, below along with our previous model assumptions. We increased our assumed mining cost to US$2.75/tonne from $1.25/tonne previously and increased our sustaining capital from around $40m to $70m over the mine life. Our model assumes both an equity and debt financing totalling around $500m in 2018. We have assumed a $200m equity financing and $300m in debt at a 7.5% interest rate. A comparison of our old and new model parameters along with the financial outcome is presented in Figure 3. Fig 3 Macquarie model parameters and outcome Parameter Assumed Price Reserves & Production Tonnes Grade Contained U3O8 Recovery Construction Start Productin Start Mill Throughput Life of Mine Uranium Production Mine Life Average Uranium Production Operating Cost Mining Cost Strip Ratio Total Mining Cost/ton of Ore Processing Cost G&A Total Cost per Ton Processed Capital Cost Pre-Production Capital Sustaining Capital Financials NPV @ 5% NPV @ 8% IRR Units US$/lb Macquarie Estimates (Previous) 60 Macquarie Estimates (Current) 60 000's % U3O8 2,550 1.8% 2,550 1.7% 000 lbs % Date Date tpd 000 lbs U3O8 years lbs/a 101,164 95.0% 2019 2021 500 96,133 15.00 6,409 93,670 95.0% 2019 2021 500 91,891 15.00 6,126 US$/tonne Waste:Ore US$/tonne US$/tonne US$/tonne US$/tonne 1.25 7.0 10.00 300.00 10.00 320.00 2.75 7.0 22.00 300.00 45.00 367.00 US$m US$m 430.0 42.0 450.0 70.0 US$m US$m % 1,315 882 48.00% 1,335 976 58.00% Source: Macquarie Research, January 2015 Exploration upside To date mineralization has been defined over a 2.25km east-west strike length in four separate zones; the R600W, R00E, R780E and R1620E. Resources were estimated from the R00E and R780E zones only. The deposit is described as a shallow, basement-hosted and structurally controlled deposit. The high-grade core is centred on a NNE striking, near-vertical fault surrounded by a lower-grade halo. Inclined drilling completed last year helped define the geometry of the mineralized system. 12 January 2015 3 Macquarie Research Fission Uranium We believe the exploration potential of the PLS property remains attractive and the likelihood that additional resources will be found is, in our opinion, a near certainty. Due to the nature of their deposition, uranium deposits are rarely found as single discrete deposits; rather the mineralizing systems form districts that are usually comprised of a cluster or collection of deposits. Such is the case on the Eastern margin of the Athabasca Basin. Fig 4 Plan view of the Triple R deposit mineralized zones Source: Company documents, January 2015 Take-out potential, PLS trumps a weak market Despite the fact that investors have had little appetite for the uranium sector, we believe producers will take an interest in Fission and its PLS project. We looked back as far as 2010 and found 14 transactions in the uranium sector, which were completed at an average price of around $4.35/lb. We consider the Denison acquisition of Fission Energy in early 2013 and Rio Tinto’s acquisition of Hathor in late 2011 to be better proxies for an acquisition of Fission Uranium. These two transactions had an average value of just over US$8.00/lb. If we apply that to Fission Uranium, based on the current resource we can imagine a take-out price of north of US$800m. In Canadian dollars, with an exchange rate of 0.85 that would imply a price on Fission of around over C$900m. 12 January 2015 4 Macquarie Research Fission Uranium Fig 5 Uranium transactions since 2010 Date Target 5-Jan-15 Uranerx 17-Sep-13 Rockgate Capital 26-Aug-13 Alpha Minerals 12-Aug-13 Mega Uranium (Lake Maitland) 6-Jun-12 Rockgate Capital 24-May-13 Strathmore Minerals 16-Jan-13 Fission Energy 11-Dec-13 ARSA (Karoo Basin, South Africa) 26-Aug-12 Yeelirrie (BHP) 14-Feb-12 Extract Resources 25-Oct-11 Titan Uranium 19-Oct-11 Hathor Exploration 17-Dec-10 Aurora Energy (Fronteer Gold) 15-Dec-10 Mantra Resources Average Average of Denision and Rio Tinto Acquisitions Acquirer Energy Fuels Denison Mines Fission Uranium Toro Uranium Mega Uranium Evergy Fuels Denison Mines Penninsula Energy Cameco Tarus Minerals Energy Fuels Rio Tinto Paladin Energy ARMZ Value Resources (US$m) (m lbs) 161.0 19.1 9.0 45.3 181.0 n/a 33.0 26.0 8.0 45.3 21.0 71.5 51.0 8.9 50.0 50.1 430.0 144.5 2,264.0 512.9 268.0 30.4 609.0 57.9 257.0 136.3 1,080.0 101.4 387.3 96.1 330.0 33.4 Grade EV/ Resource (US $/lb) (U3O8) 0.091% 8.46 0.069% 0.19 n.a n/a 0.037% 1.26 0.069% 0.18 0.113% 0.30 1.270% 5.78 n/a 1.00 0.131% 2.98 0.044% 4.41 0.021% 8.80 8.627% 10.51 n/a 1.89 0.042% 10.65 0.956% 4.34 4.95% 8.15 U Spot Price at Annoucement (US $/lb) 36.0 35.0 34.0 36.0 40.0 40.0 42.0 44.0 49.0 52.0 53.0 53.0 51.0 61.0 44.7 47.5 Source: Company reports, Macquarie Research, January 2015 Risks, opportunities and a look ahead Despite the high-quality nature of the resource, there remain some project-specific risks that should be noted. The first risk we would like to highlight is that permitting of uranium development projects can take time. Hathor (taken out by Rio Tinto – RIO AU, A$58.50, Outperform, TP: A$72.00, Adrian Wood), in their 2011 PEA on the Roughrider project in the Athabasca estimated that the environmental assessment would take an estimated 36 to 48 months to complete. Given that the Triple R deposit sits under a shallow lake, we would assume that the environmental review would take at least that length of time. A second noteworthy risk is that there is no uranium processing facility in the vicinity of the PLS project. As a result we have incorporated $450m in preproduction capital spending into our model. A third risk is associated with Macquarie’s view of the uranium market in general. We believe Uranium will remain in oversupply until at least 2020 driven primarily by Chinese stockpiles. Our Commodities team forecasts a gradual price increase from $35/lb to $53/lb through 2019 and assumes a long-term price of $60/lb [LINK]. Notwithstanding these risks, we believe Fission will continue to add value by advancing the project. They are currently conducting a winter resource delineation drill program and are expected to follow that with a preliminary economic assessment in 2Q15. The company had just under C$30m in cash at the end of 3Q14 so we assume they remain fully funded through these work programs. Valuation and Sensitivity to Uranium Prices Our model derives a fully-funded NAV8% of C$2.73/sh based on a long-term uranium price of $60/lb, which means that FCU is currently trading at ~0.4x NAV. We note that using current spot prices for uranium, our NAV drops to ~C$1.00-1.35/sh (for uranium prices between $35-40/lb), which is generally in line with FCU’s current market value. We maintain that there is significant value embedded in this story even at drastically lower Uranium prices. A +/-10% swing in Uranium prices impacts our NAV8% by +/-15%. 12 January 2015 5 Macquarie Research Fission Uranium Fig 6 Macquarie valuation sensitivity to uranium prices $2.73 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 $65.00 $70.00 $75.00 $80.00 $85.00 $90.00 $95.00 0.0% $0.45 $1.27 $2.10 $2.92 $3.74 $4.56 $5.38 $6.21 $7.03 $7.85 $8.68 $9.50 $10.32 $11.15 $11.97 2.0% $0.39 $1.05 $1.70 $2.36 $3.02 $3.68 $4.33 $5.00 $5.66 $6.32 $6.98 $7.64 $8.30 $8.96 $9.62 4.0% $0.33 $0.86 $1.39 $1.92 $2.46 $2.99 $3.52 $4.05 $4.59 $5.12 $5.66 $6.19 $6.73 $7.26 $7.80 6.0% $0.28 $0.72 $1.15 $1.58 $2.01 $2.44 $2.88 $3.32 $3.75 $4.19 $4.63 $5.06 $5.50 $5.94 $6.37 8.0% $0.24 $0.60 $0.95 $1.31 $1.66 $2.02 $2.37 $2.73 $3.09 $3.45 $3.81 $4.17 $4.53 $4.89 $5.25 10.0% $0.21 $0.50 $0.80 $1.09 $1.38 $1.68 $1.97 $2.27 $2.57 $2.87 $3.17 $3.46 $3.76 $4.06 $4.36 12.0% $0.19 $0.43 $0.67 $0.92 $1.16 $1.40 $1.65 $1.90 $2.15 $2.40 $2.65 $2.90 $3.15 $3.40 $3.64 14.0% $0.17 $0.37 $0.57 $0.78 $0.98 $1.19 $1.39 $1.60 $1.81 $2.02 $2.23 $2.44 $2.65 $2.86 $3.07 16.0% $0.15 $0.32 $0.50 $0.67 $0.84 $1.01 $1.19 $1.36 $1.54 $1.72 $1.89 $2.07 $2.25 $2.42 $2.60 Source: Macquarie Research, January 2015 12 January 2015 6 Macquarie Research Fission Uranium Fission Uranium (FCU CN; C$1.01, Outperform, TP: C$2.25) Incom e Statem ent Total revenue Cost of Sales Operating margin Depreciation EBT Total tax Net Incom e Unit US$m US$m US$m US$m US$m US$m US$m 2014 0 0 0 0 (4) (1) (5) 2015E 0 0 0 0 (15) (3) (12) 2016E 0 0 0 0 (16) (4) (12) 2017E 0 0 0 0 (16) (4) (12) 2018E 0 0 0 0 (24) (6) (17) Adjusted EBITDA Adjusted Net Incom e Adj. EPS FD US$m US$m US$ (8) (5) (0.02) (7) (5) (0.01) (8) (6) (0.01) (8) (6) (0.01) (8) (11) (0.03) Cash Flow Statem ent Operating cash flow Cash flow from investing Cash flow from financing Net change in cash CFPS FD Unit US$m US$m US$m US$m US$ 2014 (7) (21) 41 29 (0.03) 2015E (4) (16) 44 50 (0.01) 2016E (3) (5) 30 71 (0.01) 2017E (3) (10) 0 58 (0.01) FCF (Macquarie) FCF (Forw ard curve) FCF Yield US$m US$m % (7) (1020) (309%) (8) (402) (122%) (8) 37 11% (13) 118 36% Balance Sheet Cash and equivalents Working Capital Debt Total S/H equity Enterprise Value Unit US$m US$m US$m US$m US$m 2014 29 26 0 237 - 2015E 50 45 4 273 285 2016E 71 67 4 300 263 2017E 58 54 4 296 276 Price assum ptions USD/CAD Production Patterson Lake South (100%) Total Uranium production Uranium cash costs per ounce Valuation P/E P/CF Copper EV/EBITDA (consolidated) 2018E P/NAV (9) (30) 500 NAV Breakdow n (8% discount) 519 (0.02) Uranium Operations Patterson Lake project NPV (39) Regional project 153 46% Developm ent NAV 2018E 519 514 304 487 115 Cash Total debt Corp/G&A Total NAV (undiluted) Operating Multiple Unit 2014 1.00 2015E 1.03 2016E 1.10 2017E 1.10 2018E 1.10 Unit 000mlbs 000m lbs US$ 2012 0 0 0 2013 0 0 0 2014 0 0 0 2015E 0 0 0 2016E 0 0 0 Unit x x x x 2012 NMF NMF NMF 0.37 2013 NMF NMF NMF 2014 NMF NMF NMF 2015E NMF NMF NMF 2016E NMF NMF NMF US$m US$ / Sh C$ / Sh % Total 981 90 2.43 0.22 2.70 0.25 99% 9% 1,071 2.65 2.95 108% 29 (4) (102) 0.07 (0.01) (0.25) 0.08 (0.01) (0.28) 993 0.80 2.46 2.73 3% (0%) (10%) 100% Source: Company reports, Macquarie Research, January 2015 12 January 2015 7 Macquarie Research Fission Uranium Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return This is calculated from the volatility of historical price movements. All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Medium – stock should be expected to move up or down at least 30–40% in a year. Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Low–medium – stock should be expected to move up or down at least 25–30% in a year. Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Recommendation proportions – For quarter ending 31 December 2014 Outperform Neutral Underperform AU/NZ 51.80% 31.80% 16.39% Asia 58.06% 27.37% 14.57% RSA 45.07% 30.99% 23.94% USA 44.42% 50.10% 5.48% CA 60.54% 35.37% 4.08% EUR 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients) FCU CN vs TSX, & rec history RIO AU vs ASX 100, & rec history (all figures in CAD currency unless noted) (all figures in AUD currency unless noted) Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, January 2015 12-month target price methodology FCU CN: C$2.25 based on a NAV methodology RIO AU: A$72.00 based on a DCF methodology Company-specific disclosures: FCU CN: The primary analyst for Fission Uranium has visited its material operations and development assets within the past year; the company has furnished local transportation and accommodations as part of these site visits. Macquarie Capital Markets Canada Ltd. or one of its affiliates managed or comanaged a public offering of securities of Fission Uranium Corp in the past 12 months, for which it received compensation. Macquarie Capital Markets Canada Ltd. or one of its affiliates managed or co-managed a public offering of securities of Fission Uranium Corp in the past 12 months, for which it received compensation. MACQUARIE CAPITAL MARKETS CANADA LTD./MARCHÉS FINANCIERS MACQUARIE CANADA LTÉE. or one of its affiliates managed or co-managed a public offering of securities of Fission Uranium Corp in the past 12 months, for which it received compensation. RIO AU: The analyst and/or associated parties own or have other interests in securities issued by Rio Tinto Limited. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates has provided Rio Tinto Limited with investment advisory services in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. Date 01-May-2014 Stock Code (BBG code) FCU CN Recommendation Outperform Target Price C$2.25 Target price risk disclosures: FCU CN: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. RIO AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. 12 January 2015 8 Macquarie Research Fission Uranium Analyst certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 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