VANCOUVER — Uranium One (UUU-T, SXRZF-O) has announced record production results from its Kazakhstan mines and an increase in resources at one of those mines as the company’s share price labours to recover from its May crash.
In the second quarter, Uranium One’s share of production from its Kazakhstan operations reached 833,900 lbs. U3O8. That’s an 18% increase compared with the first quarter of the year, when the company’s attributable production was 708,500 lbs.
Uranium One has three in-situ leaching uranium mines in Kazakhstan: Akdala, South Inkai and Kharasan. At Akdala, production is in line with expectations and by the end of June, 58 new wells had been installed. The company plans to install 164 wells by the end of the year.
South Inkai is still in the ramp-up phase and production is increasing as expected. As of the end of June, the company had installed 134 new wells; by the end of the year, the mine should have 343 new wells in total. By that time, commissioning of the drying circuit at the new mine should also be complete. The drying circuit has been designed with sufficient capacity to treat solutions from both Akdala and South Inkai, which will eliminate the need to use external facilities for drying and calcining.
Uranium One also announced a new resource estimate for South Inkai, based on an extensive drill campaign completed in support of the mine’s 2008 industrial production approval application. The new estimate upgraded more than half of the old resource, which was all classified as inferred, to indicated status. The resource also grew. South Inkai is now home to 34.1 million indicated tonnes grading 0.053% U3O8, as well as 42.8 million inferred tonnes averaging 0.047% U3O8. Combined, the resources host 84 million lbs. U3O8. Uranium One’s portion of that resource comes to 58.8 million lbs.
And at Kharasan, precommercial production was still below expectations during the second quarter. A new management team is trying to address the issues resulting in well underperformance and to that end has installed new wells in existing fields and reworked some existing wells to improve flow rates. The actions increased average flow rate; the average uranium concentration also increased, though both remained below guidance.
Uranium One shares gained 18¢ on the news to close at $2.72 apiece. The gain, while modest, is still welcome as the company struggles to recover from a share price fall to $1.66 in early June after having touched $4 the previous month. The slide followed news in late May that Kazakhstan’s president, Nursultan Nazarbayev, arrested the president of state-owned uranium company Kazatomprom and launched a police investigation into charges of improper sales of uranium assets. News reports pointed specifically to the sale of a 30% stake in the Kyzylkum joint venture as an illegal transaction; Uranium One owns 30% of the joint venture, along with partners Kazatomprom and a group of Japanese firms. The partners run Khorasan, Kazakhstan’s largest uranium mine.
Nervous investors fled from Uranium One, pushing its share price down $1.30 to $1.99 in just one day. It slid further before the company demonstrated its confidence in Kazakhstan with a deal to buy JSC Atomredmetzoloto’s (ARMZ) 50% stake in the producing Karatau mine for 117 million shares and US$90 million in cash. The shares represent a 16.6% stake in Uranium One; ARMZ has agreed to not raise its ownership level above 19.95% for a five-year period without Uranium One’s consent.
As of late 2007, Karatau held 9.8 million indicated tonnes grading 0.115% U3O8 and 900,000 inferred tonnes at the same grade, for 31.3 million lbs. U3O8. The acquisition boosted the company’s 2010 production guidance by 35%, to 7.5 million lbs. uranium oxide from 5.6 million lbs. The low-cost operation is also expected to lower Uranium One’s weighted average cash operating costs to below US$20 per lb. sold.
Uranium One and ARMZ have filed applications for all of the required regulatory approvals for the purchase, including a joint application for Kazakh government approval. The partners expected to complete the deal by the end of the year.
The Toronto-based uranium producer has the cash to pull off the deal because in February, the company closed a private placement, also for 117 million shares, with a Japanese consortium comprising Tokyo Electric Power Co., Toshiba Corp., and the Japan Bank for International Cooperation. The placement put $270 million in Uranium One’s coffers. For its part, aside from a 17% ownership stake, the Japanese consortium also has the option to purchase up to 30% of Uranium One’s available production from assets in which the major owns the marketing rights.
Uranium One has a 52-week trading range of 60¢-$4.55 and 470 million shares outstanding.
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