First Uranium still teeters on the brink

[miningmx.com] — FIRST Uranium is still teetering on the brink. The
company on Thursday once again revised its production target downward, while its
operations continue to burn cash.

A short-lived rally in the company’s shares has also come to an end. Having lost
more than 80% in value during 2011, the stock had a run of 56% in its JSE-listed
shares over the past 10 days, up from R1.42 on January 13, to R2.22. At the close
of trade on Thursday, the stock was back at R2.00.

The latest news came from an operations report issued on Thursday, wherein First
Uranium said gold sales and uranium production were down 5% and 14% respectively
from the previous quarter, due to work stoppages and grade problems.

Management revised sales from surface operator Mine Waste Solutions downwards to
between 98,000oz and 100,000oz, having forecasted an initial 105,000oz to
115,000oz. Underground mining subsidiary Ezulwini was never going to achieve its
(already revised) targets of 70,000oz to 80,000oz of gold and 110,000 to 130,000
pounds of uranium following the restructuring it announced in December – with
management admitting as much in Thursday’s statement.

New targets for Ezulwini haven’t yet been set. The restructuring process is still
ongoing, but BMO Capital Market’s Edward Sterck told Miningmx he forecasted sales
of 57,000oz of gold and 90,000 pounds for uranium.

More worryingly, First Uranium burnt another $4m during the three months, with only
$11m remaining in its bank account at the end of December. Not only does Ezulwini
soon need to start spending less cash than what MWS can generate; the group also
has to find a way to honour two series of convertible notes totalling C$172m and
C$150m respectively, of which the $150m matures in June.

GROWING CONCERN

Apart from finding solutions to its operational and cash woes, First Uranium also
battles regulatory hurdles as it continues to seek clarity from the Department of
Mineral Resources over a mining right for Mine Waste Solutions.

Its legal tussles with landowners and environmental lobby groups also seem to
persist, even though it succeeded in having an appeal against its water use licence
dismissed by South Africa’s Water Tribunal earlier in January. Mariette Liefferink, CEO
of the Federation for a Sustainable Environment (FSE), told Miningmx the appeal was
dismissed because the Tribunal found the lobby group to have no locus standi, and
not because the appeal had no merit. She said the FSE would now pursue the matter
in the High Court.

In addition, she said, Mine Waste Solutions would probably continue to face lawsuits
from private landowners due to uraniferous spillages from the pipeline system on
private land, the most recent of which occurred on January 10. (Subsequent to
publication, Mine Waste Solutions denied that a spillage occurred on January 10 –
Ed.
)

Sterck, however, said he was optimistic about First Uranium’s chances of survival.
Pointing to a reduced rate of expenditure over the December quarter, he said the
key to First Uranium’s future was the imminent turnaround of Ezulwini.

“With restructuring under way at Ezulwini and the Franco Nevada offtake agreement
changing from committed ounces to a percentage of production, it is possible that
First Uranium may be able to improve its cash depletion/generation ability going
forward,’ he said.

“Nonetheless, it remains a tight financial situation.’

SHOULD THE WORST HAPPEN

With AngloGold Ashanti refusing to rule out a future move for First Uranium – it
bought a 20% stake in July – some analysts speculate that Ezulwini may fit well with
Gold One International’s operations at Rand Uranium.

AngloGold’s interest is seen as mainly limited to Mine Waste Solutions.

One industry source close to First Uranium said Rand Uranium’s underground
operations would tie in nicely with Ezulwini, which boasts its own gold plant. Rand
Uranium currently uses Harmony’s Doornkop plant to process its ore.

For its part, First Uranium said its previously-considered initiatives to leverage
available capacity of the gold and uranium infrastructure at Ezulwini, including the
toll treatment of third party ore, have been placed on hold due to the restructuring.