First Uranium shares languish

Brendan Ryan | Mon, 17 Aug 2009 12:08

[miningmx.com] -- FIRST Uranium’s share price has been depressed since mid-June, when it released poor March quarter results. The latest results for the June quarter will do little to improve the situation.

First Uranium is dual-listed on the Toronto and Johannesburg stock exchanges. Its primary listing is on the TSX where by far the greatest number of shares trade, providing the most accurate measure of investor sentiment.

The group’s share price plunged from C$8 at the beginning of June to C$4.75 on June 17 after release of the March quarter numbers. They subsequently slipped further and currently sit at around C$3, compared with a 12-month low of C$1.02 in October 2008.

First Uranium made a loss of $3.9m in the June quarter (2008 June quarter - $3.28 profit), mainly because its Ezulwini mine is now deemed to be in commercial production. Ezulwini’s costs were previously capitalised and the mine is not yet operating anywhere near full production capacity.

According to CEO Gordon Miller, “the limited production and low revenues resulted in a substantial loss as the mine’s fixed operating costs were spread over a limited amount of early stage production.

“Ezulwini is expected to turn cash positive in quarter three of the 2010 financial year.”

But the key issue for shareholders has to be First Uranium’s ability to fund the balance of the capital expenditure required to finish Ezulwini as well as the Mine Waste Solutions (MWS) project, which received its new order mining rights during the quarter.

MWS has also been granted environmental approval for construction of its new tailings deposition site, which should be completed by the first quarter of financial 2011.

Miller said: “Future expansion will be subject to capital availability. Having access to capital and maintaining the flexibility to react to negative, unforeseen events are clearly prudent objectives in these uncertain markets.”

Miller said that, as of end-June, the remaining capital required to complete projects at Ezulwini and MWS was $266m, of which $232m will be spent in the next 12 months.

He added that First Uranium has organised a one-year loan of $20m (about R160m) from parent company Simmer and Jack (Simmers). It is also “in negotiations with a South African bank to establish additional access to longer-term debt capital”.

Miller said he believed the company’s cash resources of $123m at end-June and the cash forecast to be generated from both its operations - along with the Simmers facility - would “provide sufficient funding to complete the current capital projects at the two operations”.

He said: “Should management in future determine that the funding is not sufficient, it will at that time look to a potential new South African project financing facility, if it is available, or reprioritise development and expansion activities to reduce potential funding requirements.”

That is not going to go down too well with investors. They kicked in C$61.5m through a placement at C$3 a share in December and another C$106.7m at C$7 a share in May, when First Uranium took advantage of improving stock market conditions to raise funds for its capital projects.

Miller told Miningmx the proposed project financing facility was mainly for insurance against possible future volatility in the rand-dollar exchange rate, which had already bumped up First Uranium’s capital costs by $50m.

He said: “Expenditure on Ezulwini is now largely complete and the mine is ramping up production. The bulk of the funds is needed for MWS where most of the work contracts have now been committed, so further reducing the volatility risk.”

First Uranium has signed a letter of intent to supply uranium to South African power utility Eskom for its Koeberg nuclear station, with the terms to be finalised in September.

Turning to the uranium market, Miller quoted the Ux Consulting Company predicting favourable prospects for a more sustained price recovery in the medium term, particularly if North American and European buyers become more active.

He said: “This is expected as unfilled requirements are much higher in 2011 and 2012, relative to 2010. Meanwhile, purchasing by China and India should continue at a brisk pace, especially if these countries come close to meeting their announced build-out target for nuclear power generation.”