Uranium One sell down
Brendan Ryan
Posted: Fri, 11 Apr 2008
miningmx.com
[miningmx.com] -- URANIUM ONE SHARES plunged 14% to close at a new 12-month low of C$3,38 on the Toronto Stock Exchange (TSX) when the troubled company recently released its results for the year to end-December 2007.
The numbers came out just before trading on the JSE closed on 31 March, but the Johannesburg bourse followed suit the next morning.
The price was knocked down 400c to R28/share - again, a new 12-month low - and 200c below the previous low of R30 reached when former CEO Neal Froneman quit on 21 February.
The share price has since recovered somewhat and currently is trading around C$4,00 with some investors buying on the basis that the company's troubles are now fully discounted in the price.
Reason for the plunge was negative reaction to the outlook for Uranium One despite the best efforts of acting CEO Jean Nortier to paint a favourable picture. Nortier had to deal with a barrage of queries from analysts and fund managers at question time.
Those ranged from Uranium One's cash position to the possibility of a rationalisation and/or sale of some of its uranium assets, to a string of queries regarding the problems with the mine and the uranium recovery plant at its Dominion operation.
Nortier toughed it out on Dominion, insisting that operating performances from the mine and the plant will improve steadily over time. But he refused to provide certain key information, such as the monthly "cash burn" at Dominion and the amount of capital expenditure budgeted for it this year.
Yet some of the statistics contained in the detailed accounts seem to bear out market estimates that Dominion could be costing up to R60m/month.
Dominion hasn't yet been brought to the final stage of commercial production, which has been delayed due to serious operating problems at the mine and the plant.
Until it's declared to be in commercial production, all expenditure, including new equipment bought and the funds needed to cover operating losses, is capitalised.
The results report that "mine development costs" at Dominion from 20 April to end-December 2007 were US$20.6m (around R165m), while plant development costs over the same period were $55.4m (about R443m).
The total development cost of R608m is equivalent to about R67m/month before any offsetting revenue from the limited amounts of uranium oxide (U3O8) produced is taken into account.
Uranium One's capital budget for 2008 is estimated at $200m (around R1.6bn) but Nortier refused to break that down despite repeated attempts by questioners to get him to do so. "We don't disclose the breakdown of the $200m," he told one analyst, who suggested that around $50m was earmarked for the Honeymoon project in South Australia and that most of the balance would be used to fund Dominion.
Dominion will be spending money on additional underground development to try to rectify production problems, as well as installing an extra boiler at the plant.
Dominion has to produce at a rate of 50,000lbs of U3O8 a month to meet its revised production target of 590 000lbs for 2008. The plant was initially supposed to produce 2m lbs this year. Yet it's already well behind that revised schedule, producing just 12,000lbs in January and 18,000lbs in February.
Nortier says the volume and grade of underground production from the mine, along with the recovery efficiency of the plant, should rise later in the year, resulting in increased production.
One of the major problems on the mining side is that the grade of the ore coming from underground is lower than expected. Dave Hodgson - a non-executive director who has been appointed acting COO - confirmed to a questioner that one key issue was grade dilution, because stoping widths were greater than planned.
That increases the volume of waste material mined with the uranium-bearing ore. Nortier says Uranium One's financial position is sound and he doesn't expect to sell "anything on the uranium side" during 2008.
Uranium One is selling its 67% stake in gold subsidiary Aflease Gold - a "non-core" asset that's now being run by Froneman. Uranium One vice-president Chris Sattler refused to identify the buyer saying there was a confidentiality agreement and that Uranium One wasn't required to provide that information.
It was subsequently confirmed by Mvelaphanda Holdings (Mvela) CEO Mark Willcox that African Global Capital - a private investment fund which Mvela helped set up in January - is the buyer of the stake.
The sale will bring in $89m - but that means an accounting loss of around $90m, because the stake sits in Uranium One's books at a carrying value of $180m.
Nortier says Uranium One will still make a hefty profit on the sale, as the asset was originally bought for $15m. It was revalued at $180m for the purposes of last year's reverse takeover. |
