Uranium (G)one

[miningmx.com] — URANIUM One recently posted record revenues and an
89% improvement in earnings from mining operations of $263m. It was the sort of
performance for which the company’s founder, Neal Froneman, must have wished.

The fact is, however, this was profit derived from mines in distant Kazakhstan of a
wholly different nature to the Dominion mine in Klerksdorp, once Uranium One’s
flagship asset, and the reason it’s still listed on the JSE (even though Uranium One is
a foreign company).

Froneman, now CEO of Gold One International after resigning from Uranium One in
2008, wasn’t alone in his somewhat misjudged uranium ambitions.

Rand Uranium was another in the tried-and-failed category; an unlisted uranium
producer that was predicated on re-mining the large tailings accumulated at
Randfontein Estates.

Now comes the dismemberment of First Uranium Corp, an act of corporate surgery
that effectively pulls the bedsheet over all of South Africa’s major uranium pureplays.

High hopes laid low.

Ironically, Froneman has stepped in to buy both Rand Uranium’s assets and Ezulwini,
a pillar of First Uranium’s investment case; a strategy that he denies is “getting back
into uranium by stealth’.

But more of that later.

So how did the demise of SA uranium production come about?

At the time, SA’s mining entrepreneurs were reopening uranium assets, the uranium
spot price had travelled some $100/lb to a record $136/lb in 2007. It was a market
adjustment that provoked some zealous enthusiasm for production.

As for new production from SA, how hard could it be? The country always used to be a
uranium producer, it was stated. Supplying the world with fresh production was just a
case of flicking the switch, they said. Of course, by the time the uranium spot price
had sunk back to $40/lb, there were already signs that SA production and processing
of uranium oxide were proving more difficult than forecast.

“The problem with the uranium companies of a few years ago is that we all
underestimated the difficulty of mining the underground reserves,’ says Froneman.

“Instead, they should have been operated for their gold with uranium byproducts,’ he

Although Froneman says he has no intention of getting back into the uranium industry
in the same way he trailblazed with Uranium One, he still thinks uranium can be
mined successfully as long as the focus remains on what are essentially gold assets.
Crucially, South Africa’s uranium production was only ever as by-product of gold.

The old-timers must have known this, hence some will remember it was the Anglo
American Gold and Uranium division, (the forerunner of AngloGold when it was
managed by Clem Sunter).

First Uranium sank $400m into Ezulwini. Froneman has bought it for $70m.

Froneman’s plan is to strip out the excesses in the operation and focus on value.

Ezulwini produced 60 000oz of gold last year but Gold One is aiming at half of that
production. In an effort to keep itself afloat, before its inevitable demise, First
Uranium had already downsized the asset to a level Froneman thinks is appropriate.

One of the other beneficiaries of First Uranium’s closure is Bernard Swanepoel, CEO of
Village Main. He has a bunch of convertible debentures and a 5.6% stake in First
Uranium, a legacy of having bought Simmer & Jack Mines, which had an investment in
First Uranium. As a creditor of First Uranium, Village stands in line to receive about
R411m as the uranium company winds up.

Incidentally, Swanepoel will distribute the bulk of the proceeds from First Uranium to
his shareholders, which he feels are in Village Main for its gold. “If you were to
characterise us, we’re the DRD of old, 10 years ago,’ he says of a company that
traded on its ability to wring value from marginal gold ounces, especially when the
price of gold was flying high.

– This article first appeared in Finweek. If you want to subscribe to the digital
format of Finweek visit www.zinio.com.