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First Uranium shares clobbered

Brendan Ryan | Wed, 17 Jun 2009 18:35
[miningmx.com] -- FIRST Uranium shares plunged 21% in early trading in Toronto on Wednesday after the company published results for the year to end-March containing a litany of bad news on its South African operations.

The list included an increase in forecast working costs, higher anticipated capital expenditure, lower expected uranium production and delays in bringing scheduled uranium expansions on line.

First Uranium shares had already dropped 25% from C$8 on June 5 to C$6 by the close of trading on the Toronto Stock Exchange (TSX) on Tuesday. The shares slumped to about C$4.75 after release of the latest results.

CEO Gordon Miller attributed the decline in First Uranium’s share price ahead of the release of Wednesday’s results to a general downtrend in uranium stocks, linked to weak uranium prices.

He added a number of uranium companies had fallen more sharply than First Uranium.

But the drop in spot uranium oxide prices from $55/pound in December had bottomed out at $40/lb in early May and the price is now back at about $53/lb.

Also, weakness in uranium stocks has not been across the board. Uranium One has held up remarkably well over the past two months, recovering swiftly from the 40% slump that resulted from the scare over its operations in Kazakhstan.

Major uranium producer Cameco has traded in a steady range between about C$28 and C$30 over the past two months.

First Uranium has taken advantage of the firmer stock market conditions this year to pull in funds. In January it raised C$61.5m through issuing shares at C$3 each; in May it raised a further C$106.7m by issuing shares at C$7 each.

The main adverse impact is on First Uranium’s mine waste solutions (mws) operation near Stilfontein, which is now focusing on producing more gold and less uranium.

Miller said this reflected First Uranium’s view on movement in the uranium price over the next two years, compared with the outlook for gold.

There are now plans to bring the second gold production module into operation as originally projected by the end of the second quarter of 2010; the second uranium module has been pushed back to the third quarter of 2010.

Management has also decided to delay construction of sections of the third uranium plant “until such time that higher uranium prices are expected to occur”.

The new strategy is to reconfigure the plant design and change the mine plan to produce 100% of planned gold but only 91% of planned uranium output over the life of the operations.

“Management also plans to accelerate the change from an atmospheric leach process to a pressure leach process concurrent with the commissioning of the third gold plant module.

“The acceleration of the pressure leach process is expected to enhance gold recoveries and reduce operating costs significantly.”

Despite this, operating cash costs at mws are expected to rise from $21/lb to $25/lb of uranium oxide produced, and from $279 to $319 per ounce of gold produced over the life of the project.

Management has also revised capital costs from the previous estimates made two years ago. It has come up with a figure of $451.6m, about $140m higher than previously estimated.

First Uranium has shelved plans to build an acid plant at one of its operations which was previously viewed as necessary because of the rising cost of obtaining sulphuric acid.

That has changed and First Uranium has signed a three-year strategic agreement for the supply of sulphuric acid.

At the Ezulwini operation near Randfontein, Miller said the focus had shifted to ramping up underground production. However, he said: “The increase in mine production is expected to be gradual over several years.”

Miller indicated that First Uranium was now looking at merger and acquisition activity as a priority under current market conditions, in which he felt the firm held an advantage with both its plants now in production.

He said: “In South Africa the company is seeking and assessing synergistic and/or strategic acquisitions and/or partnerships. At the same time, several South African projects in close proximity to the company’s operations are becoming more attractive, thus shifting the emphasis of First Uranium’s growth agenda.”

In reply to a question at Wednesday’s teleconference, Miller said corporate action was not likely in the short term but added: “there are lots of opportunities and we are building relationships with operators in the region”.