First Uranium lowers value of operations (March 25, 2010)

Vancouver – First Uranium (FIU-T) has been forced to significantly adjust the estimated value of its South African operations after cost escalations and permitting issues.

Releasing two technical report updates in as many days, the company has lopped in half the net present value (NPV) of both its Ezulwini mine and its Mine Waste Solutions (MWS) tailings recovery operation.

At the already operational Ezulwini mine, First Uranium has been hit with higher electrical power costs, lower productivity assumptions and a strengthened South African rand versus the American dollar. The company has adjusted the NPV of the mine, at an 8% discount rate, from $924 million in early 2009 to $437 million today. The internal rate of return (IRR) has been adjusted from 398% to 524%. Both IRR and NPV were calculated using a long-term gold price of $775 per oz., $56 per pound uranium and a U.S. dollar to rand exchange rate of seven.

The operating cost per tonne milled is now $106.42, compared to the $64.90 cost expected. The mine is now only expected to produce an average of 781,000 lbs. uranium each year, instead of 1.08 million lbs., and will churn out only 283,000 oz. gold annually, instead of 341,000 oz.

The mineral resource has stayed constant at 13.85 million measured and indicated tonnes grading 6.16 grams gold per tonne. Uranium has been downgraded to a byproduct, as it is only expected to produce 14% of the mine’s revenue.

Meanwhile, at the company’s MWS tailings recovery operation, First Uranium is still feeling the effects of the temporary withdrawal of the project’s environmental authorization by the South African government. The company has temporarily scaled back the project to a single gold plant from two, after the financial blowback from the suspension. The second plant, along with the tailings storage facility, is expected to be back online by May 2011.

The updated valuation for MWS is now $211 million, at an 8% discount rate, compared with $419 million in March 2008. The IRR has gone from 75% then to 34% today.

The company estimates it will now cost $427 to produce each ounce of gold at the MWS project, compared with $347 per oz. in 2008.

First Uranium will reap some savings from smaller capital costs, which have shrunk from $241 million to $188 million.

The resource estimate at the MWS has also changed, with a much greater resource in the proven category. In 2008 proven reserves were 99.4 million tonnes grading 0.3 gram gold and 0.08% uranium and probable reserves were 226 million tonnes grading 0.27 gram gold and 0.07% uranium. Today proven reserves are 196 million tonnes grading 0.28 gram gold and 0.07% uranium, and probable reserves are 126.8 million tonnes grading 0.28 gram gold and 0.08% uranium.

The news comes shortly after the resignation the company’s CEO, Gordon Miller. He has been replaced by Deon van der Mescht, who is a former CEO of Simmer and Jack Mines, a major shareholder of First Uranium. As part of a recent financing deal, the company’s board will also be restructured on March 31, 2010.

Since June 2009, when First Uranium reported increased cost estimates for the MWS and a loss of $16.3 million for the financial year ending March 31, the company’s stock price has made a steady decline from a high of $8 last May to a recent low of $1.07.

However, the board shake-up, the reinstated environmental permit and a recently established $150 million in financing are expected to allow some recovery.

Bart Jaworski, an analyst at Raymond James, has put a target price of $2.40 on the company. In his most recent note Jaworski wrote that while the latest news is moderately negative, he still sees value in the name despite the slightly higher permitting risk.

First Uranium’s stock price has dropped 29¢, or 18%, on four days of losses following the news. The company’s 52-week share price range is between $1.07 and $8.00; the company has 166.8 million shares outstanding.