[miningmx.com] — GOLD production from First Uranium’s Ezulwini mine has fallen badly below target in the March quarter, according to CEO Deon van der Mescht in a “business milestones update’ released on Friday.
Production was expected to be lower because of repair work that had to be carried out in the shaft, but was worse than anticipated because of output lost through safety stoppages and an illegal work stoppage.
Van der Mescht reported that “a projected total of 11,644 ounces of gold were sold for quarter four 2011, compared to 19,477oz of gold sold for the three months ended December 31 2010′.
That has dropped First Uranium’s gold production from Ezulwini for the year to end-March to 59,940oz from the revised estimate of 70,000oz made by Van der Mescht in January, when the shaft problems were first reported.
First Uranium had initially planned to produce 80,000oz of gold from Ezulwini in the year to end-March. The production results for the March quarter released on Friday do not cover the financial implications of this for the company.
All mining operations at Ezulwini were suspended for four days following the death of a mineworker on March 12, while production from Ezulwini’s “room and pillar section’ – where the fatality occurred – was suspended for seven days.
The room and pillar section accounts for more than 30% of Ezulwini’s total output.
The company raised C$50m at the beginning of March at C$1 a share, immediately ahead of the tsunami that hit Japan triggering the crisis at the Fukushima nuclear complex which, in turn, hammered uranium company share prices across the board.
On the JSE First Uranium shares dropped from above 700c to below 500c before recovering to current levels of around 600c.
Van der Mescht said good progress had been made on the various projects at the Ezulwini mine and the Mine Waste Solutions (MWS) tailings recovery operation.
He said: “The Ezulwini mine’s uranium plant is in the final stages of its re-commissioning, which will enable us to return to uranium production.
“The Ezulwini shaft maintenance programme has progressed well and is currently ahead of schedule. The capital projects at MWS have advanced well over the last eight months, to the extent that the commissioning of the Phase 2 expansion programme has commenced one month ahead of schedule.’
Van der Mescht added the early commissioning of the Phase 2 expansion on MWS meant the company could make an early start on the completion test required to be successfully carried out by September this year.
That’s a make or break issue for First Uranium, relating to the deals in which Gold Wheaton has provided $175m upfront to First Uranium in return for the right to purchase gold from the company on favourable terms over the life of the operations.
There was a $42m completion penalty attached if the MWS plant was not completed on schedule; it missed the deadline.
Gold Wheaton agreed to modified terms in June last year as part of the financial package negotiated to keep First Uranium going.
It accepted 14 million shares in First Uranium, along with a commitment to complete the third gold plant module at MWS and meet technical completion tests before September 1 2011.
If those conditions are not met, then First Uranium has to pay $1.5m to Gold Wheaton monthly through to December. If the conditions are still not met by December 1, First Uranium will have to pay the outstanding $30m penalty in cash or shares at the election of Gold Wheaton.
News that an organisation called the Federation for a Sustainable Environment (FSE) has lodged an appeal against the integrated water use licence held by MWS needs to be viewed against this background.
Van der Mescht said: “After consulting with external legal counsel, the company is of the view that the appeal is not legally valid and therefore does not suspend the duly granted, existing water use licence.
“Additionally, we have continued to try to engage with the FSE to explain the project’s strong environmental credentials.’
