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Uranium One: dead cat bounce or recovery
Brendan Ryan and Sikonathi Mantshantsha
Posted: Wed, 16 Apr 2008
[miningmx.com] -- SHARES in troubled uranium company Uranium One have recovered sharply over the past couple of weeks, apparently because some investors feel the worst news is now in the open and has been discounted in its price.
The share is quoted on the Toronto and JSE exchanges, with its main following in Toronto, where Uranium One bottomed in late March at C$3,04/share.
At that point it had lost more than 80% of its value in a year after reaching an all-time high of just more than C$18/share in April 2007. Since then it's bounced as high as C$4,38 and is currently oscillating around CS$4 - 31% up on its recent low.
The entire uranium sector has taken a beating in line with the sharp drop in the uranium spot price over the past six months. But Uranium One is by far the worst in its sector - companies actually producing uranium as opposed to those still prospecting
for the stuff.
Uranium One got to C$18 on the back of a corporate strategy of international expansion and mergers. It's fallen back to earth through a combination of a weaker uranium price and severe production shortfalls at its developing Dominion Mine.
Investor sentiment was shaken by the abrupt departure of former CEO Neal Froneman and it hasn't been improved by the less-than-candid disclosure of information by acting CEO Jean Nortier.
Nortier refuses to disclose the monthly "cash burn" at Dominion; nor will he break down the company's forecast 2008 capital expenditure of US$200m, which would give an indication of that "cash burn".
So I reckon it's a "dead cat bounce", and investors would be wise to hold off buying the share until they see real evidence that the mining and metallurgical problems at Dominion are being solved.
ArcelorMittal SA
After mading headlines for all the wrong reasons last year,
ArcelorMittal SA isn't about to fade from the limelight this year.
After a R692m fine by South Africa's competition authorities last year (against which it's appealing), ArcelorMittal is involved in another anti-competition dispute with Barnes Fencing Industries, which if successful could cost the company 10% of revenue on its low carbon wire rod products of around R300m.
Yet another dispute with the SA Revenue Service could potentially cost the steel conglomerate R403m, bringing its overall potential liability figure to more than R1.4bn.
After the R692m fine brought about by mining company Harmony Gold's unhappiness with the steel producer, other major clients might decide to look for alternative suppliers. As if ArcelorMittal's anti-competitive practices over the years weren't enough to irk customers, it has already raised its prices three times this year, citing high worldwide input costs.
OPPORTUNITIES
* High global steel
prices are set to remain that way for the foreseeable future.
* Its newly rebuilt blast furnace at its Vanderbijlpark works is back in service and is set to contribute more than 10% to liquid steel production.
* Infrastructure investment spending by Government is in full swing, which will lead to more demand for steel for at least the next decade.
RISKS
* A R1.4bn liability - equivalent to almost 20% of operating profit - is no small sum and should give shareholders a few sleepless nights, even for a company the size of ArcelorMittal SA.
* South Africa's electricity shortages will be a major challenge, in addition to its poor relations with major clients.
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