First Uranium faces grilling

Top analysts describe how First Uranium needs USD 150m cash, just to stand still.

Posted: Thursday , 04 Feb 2010

JOHANNESBURG -

Specialist analysts at RBC Capital Markets are warning that Toronto- and Johannesburg-listed First Uranium faces insolvency, unless, among other things, it completes a rights issue to raise between USD 125m and USD 150m.

First Uranium, the world's worst-performing uranium stock, of about 120, experienced further bouts of stock price smash ups this week, triggered by the release on Tuesday of yet further cuts in forecast production, which in turn inspired a warning from Gold Wheaton that First Uranium may have to cough up penalties of USD 42m to Gold Wheaton.

First Uranium, which operates the behind-schedule uranium and gold producing MWS retreatment entity, and also the refurbished Ezulwini mine, both in South Africa, had previously sold forward portions of its gold production, for upfront cash, to Gold Wheaton.

On Tuesday, First Uranium CEO Gordon Miller failed to show for a presentation he was due to give at the Indaba, a major international annual mining conference, in Cape Town. On the sidelines, Johannesburg-listed Simmer & Jack- which until late 2006 held 100% of First Uranium, before it was spun out and listed in Toronto, is busy reorganizing itself after years of boardroom battles, culminating in the recent resignation from Simmers of, among others, Gordon Miller as CEO and also Nigel Brunette, a farmer, as chairman. Brunette was and is also chairman of First Uranium.

RBC analysts say the "best case" scenario, barring First Uranium being acquired, would see the company receive the recently withdrawn MWS tailings permit within the next two weeks, coupled with a USD 125m to USD150m equity issue. RBC believes that "this would allow First Uranium to complete its capital programs and bring MWS back to its planned production levels before June 2010 (in order to avoid a penalty to Gold Wheaton)".

RBC analysts have assumed a USD 150m equity issue at CAD 1.00 a share. First Uranium traded above CAD 13.00 a share early in 2007, and is currently trading at CAD 1.14 a share. In the past year alone, the stock has lost USD 1bn in market value.

In a "mid case" scenario, the RBC analysts describe a delayed permit for the MWS tailings (until 2012), and a capital injection of USD 150m "to ensure the company remains solvent . . . This case would also include a USD 42m penalty payable to Gold Wheaton". The analysts argue that "debt is highly unlikely and equity will be challenging and dilutive". At this point, First Uranium has a market value of USD 220m.

Under a worst case scenario, the analysts foresee that "First Uranium is unable to secure a permit for its tailings, is unable to raise new funding and is forced to declare insolvency".

First Uranium is capital starved, all right. When it listed in Toronto early in 2007 it raised a net USD 179m in cash. From its formation in 2006 up to 30 September 2009, First Uranium has spent USD 465m on capital expenditure at Ezulwini and MWS.

Cash deficits have been funded by further rights issues, the sale of convertible debentures, and the sale of portions of forward gold production from First Uranium to Gold Wheaton. The first deal there raised USD 123m; the second, in November 2009, raised a further USD 50m. First Uranium has also loaned around USD 20m from Simmer & Jack.

In terms of First Uranium's Toronto prospectus, dated 12 December 2006, a CAD 7.00 a share initial public offering of 29m shares was underwritten by RBC Dominion Securities Inc., Canaccord Capital Corporation, National Bank Financial Inc., GMP Securities L.P., Sprott Securities Inc., Orion Securities Inc., Raymond James Ltd. and Wellington West Capital Markets Inc. Perhaps all of them, along with the Pink Panther, are now on the trail of Gordon Miller and Jack and The Beanstalk.