[miningmx.com] — IF THERE’S one lesson investors should take away from the meltdown at Uranium One it’s this: treat comments by CEO Jean Nortier and his predecessor Neal Froneman with scepticism.
Both remained staunchly optimistic over the past 18 months as Uranium One’s share price plunged south and market speculation grew about problems with both the mining operation at Dominion and its metallurgical plant.
The bottom line is that Dominion was finally shut last week and Uranium One’s price had lost 95% of its value over the past 12 months, falling to C$0,64 from C$12,95/share on the Toronto Stock Exchange.
The rumours about Dominion had been around from the outset of the project but they started to gain credence around July last year. The allegations were that Froneman had overstated the grade of the deposit and understated the mining costs and had also overestimated the recovery efficiency of the pressure leach plant being built.
The allegations were consistently denied by Froneman and other key executives, including vice-president Robert van Niekerk, who had line responsibility for Dominion.
However, the unease grew as Uranium One started to cut back on its production forecasts for Dominion for 2007 and 2008. In July last year Froneman maintained Dominion would meet its production target of 500 000lb of U308 during 2007 and 2m lbs for this year.
The following is what he told a conference called in November 2007 after the first revision to those numbers. “There’s absolutely no change in the quality of assets – there are no fundamental flaws.’
Froneman gave an upbeat presentation to the Mining Indaba in early February and then baled out on 21 February, claiming it was time for a career change. The day Froneman left, Nortier was appointed CEO and revealed that Dominion produced only 171,000lbs during 2007 and its 2008 target was being cut to 590,000lbs.
I wrote at the time that “for a CEO to bale out with immediate effect from a company clearly under such stress, indicates only one thing – and that’s huge trouble.’
So it has proved, although Nortier remained doggedly optimistic. He told the BMO Nesbitt Burns conference held in Miami on 25 February that the design of the Dominion mine and plant was “still appropriate’ to reach designed production, although he extended the ramp-up period.
When he announced the closure of Dominion in October, Nortier said the decision had been taken following a detailed life of mine planning process “which has shown the project would require a sustained recovery in uranium prices as well as significant additional capital investment in order to become economically viable’.
Nortier told a questioner in a conference call the latest estimate on cash working costs at Dominion was in the “mid-$50/lb’. That’s the project Froneman boasted would run at cash costs of $18/lb over 2007.
There’s an obvious question: When, precisely, did Uranium One management realise
Dominion wasn’t going to be viable? Was it, perhaps, when Froneman quit? Or maybe even earlier?
The cost to shareholders in impairment charges will run to billions of rand.
Froneman reckons he did nothing wrong at Uranium One. He couldn’t care less after getting out with more than R32m after cashing in share options in November 2006.
He’s now running Aflease Gold. Investors buying that share should heed the famous proverb “caveat emptor’.
This article first appeared in the November 6 edition of Finweek magazine.
