Restless SXR Uranium One Steps Up the Pace

SXR Uranium One (SXR-T, SXRFF-O) has come a long way in less than two years; formed at the end of 2005 with the aim of becoming a senior uranium producer, the company is closing in on its goal with a mine slated for commissioning this month and the recent acquisition of uranium producer UrAsia Energy.

The company announced initial production from its flagship Dominion Reefs uranium mine in South Africa in late February, and followed that up with the announcement that UrAsia Energy shareholders had approved its takeover offer of 0.45 of its shares for each UrAsia share.

The merger gives the combined company UrAsia’s 1.8 million lbs. of U3O8 production from Kazakhstan.

Uranium One’s position as the acquirer in the deal is, however, somewhat questionable since the share swap will result in UrAsia shareholders holding about 60% of the combined company, leaving Uranium One shareholders with roughly 40%.

Seemingly not satiated by the deal, Uranium One announced that it was buying U.S. Energy Corp.’s (USEG-Q) Shootaring Canyon uranium mill in Utah, as well as a collection of uranium exploration properties in the southwestern U.S. for 6.6 million of its common shares plus $750,000 in cash.

“Upon completion of the UrAsia and U.S. Energy transactions, we will become a globally diversified uranium producer with uranium assets in the world’s five major uranium resource jurisdictions — South Africa, Australia, the United States, Canada and Kazakhstan,” said Neal Froneman, Uranium One’s president and chief executive, in a statement.

Beyond the acquisitions, the company is also growing organically, with construction at Dominion proceeding on schedule.

The project is expected to cost roughly US$152 million to build and will produce 3.8 million lbs. U3O8 by 2011 at an average cost of US$14.50 per lb., net of gold byproduct credits.

Processing of underground uranium ore started in late February with the commissioning of the atmospheric leach circuit at the mill. The mill also includes a pressure-leach circuit that uses two autoclaves that will be brought on-line this year.

The first autoclave is expected to be working this month, and will bring throughput to 100,000 tonnes per month. The second autoclave — slated to come on-line in August — will raise capacity to 200,000 tonnes per month.

In 2006, the company was able to grow indicated resources at Dominion by 303% to 36.4 million tonnes grading 0.81 kg per tonne U3O8, or 64.9 million lbs U3O8. Inferred resources grew by 25% to 219.4 million tonnes grading 0.38 kg per tonne U3O8, for 183.6 million lbs. U3O8.

The company says it can grow those resources further with its recent acquisition of prospecting rights on ground adjacent to Dominion. The company says there is substantial exploration potential on the shallow strike extensions within the properties.

As for its hedged production, Uranium One has agreed to sell 4.7 million lbs. U3O8 between 2008 and 2012 to Western utilities with market-related pricing and escalating floor price protection.

Cash flow growth

Uranium One’s financial results from 2006 show a company that was growing revenue marginally and taking heavy losses. However, with Dominion coming on-line this year and its next largest project, Honeymoon, beginning production in 2008, substantial cash flows are not far away.

For 2006, the company reported revenue of US$3.3 million, compared with US$2.7 million in 2005, crediting higher gold prices for the gains. The company sold roughly 5,000 oz. of gold, largely from stockpiles at its Bonanza gold project in South Africa.

Operating losses rose to US$50.7 million with a net loss of US$43.1 million, or 38.33 per share, compared with year-earlier operating losses of US$27.3 million and a net loss of US$41.7 million, or 58.67 per share.

SXR says those losses were due to administrative and exploration costs and were in line with expectations.

On the positive side, the company increased its non-current assets by US$131.8 million to US$290.3 million as a result of additions to property, plant and equipment at Dominion, Honeymoon and at its Modder East gold project — which is managed by its gold spinoff company Aflease Gold (AFO-J).

Cash balances rose to US$327.5 million compared with just $10.9 million in 2005. The bulk of the funds came from shares issued and a convertible debenture.

As for Uranium One’s second most important project — Honeymoon, in South Australia — the company has completed its feasibility study and begun construction.

Honeymoon has an indicated resource of 1.2 million tonnes grading 0.24% U3O8 for 6.5 million lbs. U3O8.

The project has a production level estimate of 880,000 lbs. U3O8 per year assuming a 70% recovery rate, with average cash operating costs over the life of the project estimated at US$14.13 per lb.

Uranium will be extracted by in-situ leaching, and the project is fully permitted, with a mining licence for 20 years.

Uranium One says the project has a short lead-time of less than 18 months, with production slated to begin early in 2008.

Aflease spinoff

While Uranium One is about uranium, it is also partial to gold. But so that its fondness for the yellow metal doesn’t interfere with its uranium pure-play status on the Street, the company created spinoff Aflease Gold.

Controlled by Uranium One, Aflease holds its East Rand assets, overseen by a separate operational management team.

A feasibility study on Aflease’s main project — the Modder East gold project — was finished in 2006. The project hosts a probable reserve of 1.3 million oz. gold grading 4.02 grams gold per tonne, an indicated resource of 2 million oz. grading 2.79 grams gold, and an inferred resource of 1 million oz. grading 2.5 grams.

With all the activity at Uranium One, raising capital is obviously a prime consideration for the company.

In 2006, Uranium One raised US$137.6 million via a private placement, and also completed a common share prospectus offering for US$143.4 million. In addition, it did a convertible debenture prospectus offering that raised US$128.9 million.

The financing activity, the company says, has put it in a position to see its projects through.

“Uranium One maintains a strong balance sheet and has sufficient liquidity and capital resources to fund its current commitments,” the company says in its most recent management discussion and analysis report.