Uranium One hunts African assets

Allan Seccombe | Thu, 11 Mar 2010 06:23

[miningmx.com] -- Uranium One is looking for uranium assets in Africa to diversify its production base away from Kazakhstan, which will provide the bulk of its rapid ramp up in production to 6.8 million pounds of U3O8 this year, said CEO Jean Nortier.

TSX- and JSE-listed Uranium One is finalising a capital raising of C$250m to put towards growth, with an earlier C$270m raised in a deal with a Japanese consortium providing it the money needed for acquisitions and development during 2009.

Uranium One is awaiting ministerial approval in South Africa for the sale of its Dominion Mine to an un-disclosed party. This does not mean it will not look for uranium prospects in South Africa, but the focus is further afield, Nortier told Miningmx.

“Most of the opportunities in the uranium industry lie within Africa. There are other opportunities elsewhere such as in Australia, but the opportunities which make the most sense for us are in Africa and that doesn’t mean South Africa,” he said.

The hunt is on in countries like Niger, Namibia and Tanzania for example.

“We are very much focused on growing. Whether it will come off in 2010, I don’t know. We had two very successful transactions last year in Kazakhstan and the United States, so we’ll try our best but there are no quarantees,” he said.

In February this year, Uranium One said it was raising C$250m in a bought deal of convertible unsecured subordinated debentures which should close on 12 March.

While the C$250m gives Uranium One a hefty war chest, Nortier cautioned that uranium assets are expensive and it may need to raise further capital, but this would be a decision made once a target has been found.

Uranium One turned in a sound set of operating results but the financials were less impressive, dragged down by a lower uranium price. Sales volumes jumped 44% in 2009 compared to 2008, hitting a record 3.2 million pounds (lb).

Revenue for the year was roughly flat at $152m because of an average realised price of $48/lb against $68/lb a year earlier. The company posted an adjusted net loss of $36.5m against adjusted net earnings of $22.3m. Nortier put the loss down to an accounting entry for the disposal of the Dominion mine.

There are no immediate plans to stop a listing on the JSE, where five percent of its shareholder base is. "We may just be back on the African continent in the near future and South Africa is a very good place to operate from," he said.

STRONG OUTPUT GROWTH

Uranium One plans to increase output to 6.8 million lb this year – with sales of six million lb -- and eight million lb next year, with Powder River Basin in Wyoming coming into production. This year, Akdala will produce roughly the same amount of uranium, around 1.9 million lb. South Inkai and Karatau will both ramp up towards full production.

South Inkai is Uranium One’s biggest mine. The mine should reach full production at the end of this year and costs should come down from around $20/lb to $18/lb next year excluding inflation adjustments. The cash cost includes a $3/lb mineral extraction tax in Kazakhstan. The cost base is slightly higher than its other mines because it is a deeper mine.

Average cost of production in 2009 was $16/lb and Nortier said he expected that level to remain this year.

Explaining the jump in production from 3.6 million lb to 6.8 million lb, he said the acquisition of the fourth asset in Kazakhstan, a 50% stake in the Karatau project, was effective in late December. The production results for the first two months of 2010 of 1.2 million lb taken on an annualised basis pointed to 7.2 million lb output for the year.

Looking ahead at prices of U3O8, which are currently around $40/lb, Nortier said the supply/demand imbalance remained intact, with miners supplying just two thirds of demand.

“Despite that, we’ve had a very sluggish uranium price over the past 12 months and I don’t necessarily think that will change in the next 12 months. But if we look three to five years out we are extremely bullish,” he said.

The uranium market was described by Nortier as “small and immature”, which meant all transactions were concluded between buyers and sellers setting up contracts and there was very little exchange traded uranium and the market took a while to adapt to fundamentals.

“We’ve hit a very nice floor around the $40/lb mark. We have come off the frothy highs and seem to be at a very good support base. When we lift off this support base is very difficult to forecast,” he said.

United States uranium mines tend to be quite expensive to operate, with Wyoming being the one region that is competitive. "The chances of us significantly expanding in the United States is unfortunately limited because the assets are high-cost assets," he said.

In Australia, the Honeymoon project, which is a joint venture with Mitsui, is close to completion and uranium production should start before year-end. It has a six year life and the partners are exploring the prospect to bump that up. The mine will produce 900,000 lb a year.