Tumultuous ride for Uranium One (April 14, 2008)

Investors in Uranium One (UUU-T, SXRZF-O) weren’t too happy to hear that the company posted a net loss of US$17.6 million (5 a share) for the financial year ended Dec. 31, 2007.

Its 2007 net loss wasn’t as great as the US$43.1 million loss it suffered in 2006, but the results still sent the company’s stock tumbling.

The news caused about 15 million shares to trade hands and the stock to drop 55 per share to $3.38 — a shade above its 52-week low of $3.04 and a steep discount to the $18.39 share price it commanded just a year ago.

The industry newcomer certainly had a challenging year. Falling production forecasts, delays and other troubles prompted the resignation of its chief executive, Neal Froneman, earlier this year. Froneman was replaced by interim chief executive Jean Nortier.

The company posted revenues of US$134 million on sales of 1.6 million lbs. uranium oxide, up from 2006 revenues of US$50.4 million on sales of 1 million lbs.

Mining operations earned US$101.8 million, up from US$32.7 million in 2006, after the deduction of operating expenses and depreciation and depletion charges.

At the end of December, the company had cash and cash equivalents of US$252.2 million, significantly more than the US$61.8 million it held at the end of December 2006.

On a conference call announcing the results, chief financial officer Robin Merrifeld said the company does not disclose burn rates but said the company had sufficient cash available.

“We don’t expect to have any cash flow problems for the next twelve to eighteen months,” Merrifeld said.

When asked if the companymight pay dividends in 2008 or 2009, the answer was no.

“We will require all of the profits we generate from our assets in Kazakhstan to develop our book value,” Merrifeld said. “We don’t expect to have any excess cash to be able to declare dividends this year or next.”

Production remained steady last year at its flagship uranium mine in southern Kazakhstan. Uranium One’s 70%-owned Akdala mine tabled production of 2.6 million lbs. U3O8 (of which its attributable share was 1.83 million lbs).

Cash costs at the low-cost operation came in at US$11 per lb. but are forecast to rise to US$12 per lb. this year.

Two of its advanced development- stage projects — the Dominion mine in South Africa and South Inkai in southern Kazakhstan, started producing uranium in 2007.

Pre-commercial production at the Dominion mine totalled 171,300 lbs. U3O8 and the plant’s pressure-leach circuit was commissioned in December.

Overall, however, underground mine development was slower than expected. Electrical power supply disruptions and equipment breakdowns were significant issues. In addition, grades of treated material were lower than expected due to higher than expected leaching of near-surface uranium resources, higher than expected mining dilution and lower than expected grade for the surface tailings materials processed through the plant. The plant was also operating below throughput capacity.

At Uranium One’s 70%-owned South Inkai uranium project in southern Kazakhstan, attributable pre-commercial production was 39,600 lbs. The design capacity of the South Inkai project is 5.2 million lbs. a year, a rate that will be reached by 2011, the company says.

Uranium One expects to complete the production complex at South Inkai in the middle of this year and believes it will receive an industrial production licence in the first half of next year.

In November, Kazakhstan’s parliament enacted legislation giving the government the right in certain circumstances to renegotiate previously concluded subsoil use contracts. But Uranium One says the legislation is not directed at the uranium industry.

At its 30%-owned Kharasan uranium project, also in Kazakhstan, construction work is scheduled to be completed by the end of this year. Acidification of the first well-field began in March. An industrial production licence is expected in the first half of next year.

Management has made some headway in the disposal of non-core assets, including Aflease Gold in South Africa, in which it holds a 67% stake. It entered into an agreement to sell a portion of its stake (152.2 million shares) in the asset for about US$40 million.

That transaction is expected to close later this month. It also has an option to sell the balance of its shareholding for about US$49 million. Proceeds will be used to pay for capital spending on its development projects.

On other fronts, Uranium One spent US$19.2 million last year on exploration in the U. S., South Africa, Canada, Australia and Kyrgyzstan.

The outlook for this year and next appears sound. The company is forecasting attributable production to reach 3.1 million lbs. uranium oxide, including 1.8 million lbs. from Akdala and 1.3 million lbs. of pre-commercial production from its development projects. But that forecast is down from its original projection for 2008 of 7.4 million lbs. uranium oxide and a revised estimate released in October 2007 of 4.6 million lbs.