Uranium One‘s (uuu-t) first-quarter profits rose 33% to US$14 million over the same period last year, which saw a net loss of US$1.4 million, but was still below market expectations.
On news of the results, Uranium One’s stock dipped 3% to close at $3.95 per share.
Adjusted net income for the quarter was US$14.7 million, or US2¢ a share, up from an adjusted net loss of US$10.5 million for the same period of 2010.
Canaccord Genuity analyst Orest Wowkodaw writes in a May 12 report that the first-quarter results were “relatively disappointing” and that adjusted earnings were below his estimate of US$47.9 million, or US5¢ per share, and the First Call Consensus of US5¢ per share. He says this was “largely due to the timing of uranium deliveries, as operating results were in line.”
Uranium One boasted total attributable production of 2.4 million lbs. uranium oxide (U3O8), which was one-third more than the 1.8 million lbs. churned out a year earlier, and in-line with Canaccord’s estimates.
The miner says the increase is due largely to the inclusion of production from its recently acquired interests in the Akbastau (50%) and Zarechnoye (49.67%) uranium mines in Kazakhstan. Akbastau and Zarechnoye produced 366,900 lbs. and 231,000 lbs. of U3O8 , respectively.
Despite in-line production, Wowkodaw notes that the first quarter’s total U3O8 sales of 1.7 million lbs. were about 25% below Canaccord’s forecast of 2.2 million lbs.
He writes that though U3O8 sales were 120% more than the weak first quarter of 2010, which saw 800,000 lbs. sold, it was 41.6% below the previous quarter’s 2.9 million lbs. U3O8 sold.
On a May 11 conference call, CEO Chris Sattler noted that he expects a “gradual ramping up of sales over the next three quarters,” compared to the “light” first quarter sales, with the heaviest delivery being in the last two quarters.
The company reported low operating costs with the total cash cost per lb. sold coming in at US$14, compared to US$18 per lb. U3O8 sold in the year-ago period.
However, average realized price was US$61 per lb., below the spot price of US$68 per lb. for the quarter.
Sattler explained the discrepancy between the two prices by the company’s “trailing price mechanisms” which uses the uranium prices from the month prior to delivery or the trailing six-week average. “In a rapidly rising uranium price environment,” Sattler said, “the company will always lag the average spot price for the quarter.” Adding the opposite is true in a falling price environment.
Revenue for the quarter came in at US$101.9 million.
Wowkodaw notes that due to the lower price realizations and deferred U3O8 sales volume, total revenue for the quarter was about a third less than Canaccord’s forecast.
For 2011, the company forecasts total attributable production of 10.5 million lbs. U3O8 , with an average cash cost per lb. sold of US$18. It predicts it will sell about 9.5 million lbs. U3O8 this year and 12 million lbs. during the next.
Wowkodaw says Canaccord is maintaining a buy rating on the stock, but lowered its target price to $4.65 per share from $4.85, noting while the ongoing Fukushima disaster in Japan will affect uranium prices, the “buy rating is supported by the company’s impressive growth profile and low-cost operating position.”
Uranium One plans to beef up its profile by buying Mantra Resources (mrl-t, mru-a) and its Mkuju River uranium project in Tanzania from Russia’s Atomredmetzoloto (ARMZ) within two years under a revised deal, instead of one year.
In March, ARMZ lowered its A$8-per-share bid to acquire Mantra to A$7.02 a share after the Japanese nuclear disaster.
Under the new deal, Uranium One must also buy 15% of Mantra’s shares (worth about US$150 million) from ARMZ within six months of the deal closing, which is expected to be sealed in June.
Nyota, which is part of the Mkuju project, is estimated to produce about 4.2 million lbs. of U3O8 per year over its 12-year mine life, at an average life of mine cost of US$22 per lb. (before royalties).
The miner also notes that in the wake of Fukushima, uranium demand dropped, causing uranium spot prices to sink to US$49 per lb., which has rebounded since, and are currently at US$56 per lb.
Uranium One predicts that the global uranium demand over the next decade may drop by 5%, but expects that China, India, and Russia would be the major drivers of future uranium demand with their plans to build more reactors.
It adds that 70% of new global production this decade would come from Kazakhstan and Africa, adding Kazakhstan is targeting production of 19,600 tonnes of U3O8 this year.
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