First Uranium (FIU-T, FUM-J) is close to completing two financing deals that together will allow the company to fund capital expenditures at its two uranium-gold projects in South Africa and bring them to production.
The most recent transaction, a bought-deal private-placement financing of $61.5 million announced in January, consists of 20.5 million units at $3 each. Each unit consists of one share and half a warrant, with a whole warrant entitling the holder to buy a share at $4.15 for 24 months after closing. The deal is being handled by a syndicate of underwriters led by Macquarie Capital Markets Canada, Scotia Capital and National Bank Financial and is anticipated to close on Feb. 11.
First Uranium also signed a US$125-million deal with Gold Wheaton Gold (GLW-V, GLWGF-O) in November, US$50 million of which was advanced in December.
The remaining payment of US$75 million, expected by March 12, should give First Uranium all the money it needs to finish up construction at its Mine Waste Solutions (MWS) and Ezulwini projects in South Africa. Both projects are already producing some gold while construction continues, but uranium production has not started yet.
The Gold Wheaton transaction allows the company to buy an estimated 525,000 oz. in future gold production from First Uranium at a price of US$400 per oz., compared with a spot price of about US$900 per oz. at presstime. Assuming a constant gold price of US$900 per oz., the discount is worth US$263 million. (However, since the discount reflects future cash flows, the net present value, or NPV, is lower.)
The deal does not specify a fixed 525,000 oz. in production. Instead, Gold Wheaton will receive the discounted price on 25% of First Uranium’s gold production from MWS, which reprocesses mine tailings in the Klerksdorp area of South Africa’s North West province, 160 km west of Johannesburg. The tailings were left by the past-producing Stilfontein, Hartebeesfontein, Buffelsfontein and Ellaton gold mines.
First Uranium will sell Gold Wheaton at least 20,000 oz. in discounted gold this year. Should Gold Wheaton not advance the second payment of US$75 million, it will be entitled to a discounted price on only 10% of MWS’s gold production.
First Uranium’s second project, Ezulwini, is a past-producing uranium- gold mine the company is reviving.
“What we have are large, long-life operations,” says Gordon Miller, First Uranium’s president and CEO. “We are setting them up to be low-cost, high-margin businesses.”
But there are substantial differences between the company’s two operations, Miller says.
“One is an underground mine which was a historic producer of gold and uranium. The other is a surface tailings reprocessing operation where we have managed to consolidate tailings in the Klerksdorp region from mines that have operated there for the last fifty years.”
Miller says the company started commissioning and ramping up production from its gold plants late last year, and is in the process of starting up its uranium plants. He anticipates commissioning a total of three uranium plants on both sites within the next two quarters, allowing the company to ramp up uranium production.
First Uranium anticipates a 68% gold recovery at MWS, for average annual production of 142,000 oz. gold over a 15-year mine life.
Despite low gold grades, cash costs are forecast at only US$279 per oz. due to the nature of the operation. The tailings are at surface, and are mined using high-pressure water cannons, turning them into slurry that is fed to the gold recovery plant.
First Uranium anticipates that two uranium plants at MWS should be operational in the third quarter, and a third next year. The company plans average annual production of 1.4 million lbs. uranium oxide over a mine life of 14 years, for total production of 19.4 million lbs., based on a 34% uranium recovery. Projected cash costs are US$21 per lb. of uranium oxide.
At a cutoff grade of 0.28 gram gold per tonne, the tailings consist of proven and probable reserves of 325 million tonnes grading 0.28 gram gold and 0.008% uranium oxide, equivalent to 2.9 million oz. gold and 55 million lbs. uranium oxide. First Uranium estimates that it will be able to recover 2.1 million oz. gold, thus the Gold Wheaton transaction entitles the company to buy a quarter of gold production from MWS.
In addition to the reserves, the tailings also contain 230,000 oz. gold and 5.6 million lbs. uranium oxide in 10 million tonnes of measured and indicated resources, and 21 million tonnes of inferred resources.
The uranium plants would use flotation to produce a concentrate, and leach uranium using sulphuric acid. Uranium plant tailings would be fed to the gold plants. Atmospheric leaching would be used in the beginning, and upgraded later to pressure leaching to enhance performance.
Based on gold and uranium prices in November, combined gold and uranium revenues are projected at US$8.91 per tonne of throughput, while processing costs, including capital expenditures, are forecast at US$4.30 per tonne, for a gross profit of US$4.61 per tonne of throughput. At a discount rate of 8%, the project’s NPV is US$641 million. However, since these gross profit and NPV numbers were calculated prior to the Gold Wheaton transaction, it is likely that both figures will decrease, diminishing shareholder returns.
Currently, there is one gold plant in operation, with a throughput of 21,000 tonnes per day, or 630,000 tonnes per month. A second plant is scheduled to start operating later this year, and a third next year, raising throughput to 63,000 tonnes per day by March 2010. At full production, MWS is projected to produce 200,000 oz. gold and 2 million lbs. uranium oxide per year, but these high production numbers would be met for only a few years, while the highest-grade tailings are mined.
There are 800 workers onsite, of which 650 work on construction and 150 in production. As construction winds down, a 250-strong permanent workforce would remain.
Ezulwini
Ezulwini is a past-producer, formerly named Western Areas, shut down in 2001. It is near the town of Westonaria in Gauteng province, 40 km from Johannesburg. To bring the underground operation back into production, First Uranium is refurbishing a shaft, developing the mine, and build gold and uranium plants.
The mine has two mineralized zones, the upper Elsburg and the middle Elsburg. The upper Elsburg is mineralized primarily with gold and has been mined extensively since the 1960s. The middle Elsburg contains both gold and uranium, and is relatively unexploited.
The company intends to mine both zones. In the upper Elsburg, some of the remaining mineralization can be mined now that Gold Fields (GFI-N), the owner of the neighbouring South Deep gold mine, has installed water plugs between the two mines. However, most of the resources are in the middle Elsburg.
First Uranium gives resource figures for the project, but no reserves are reported. Measured and indicated resources are 14 million tonnes grading 6.1 grams gold per tonne, equivalent to 2.8 million oz. gold. Inferred resources stand at 194 million tonnes of 4.7 grams gold, or 29 million oz. gold. Cutoff grades of 3-4 grams gold were used. (A January technical report gives lower inferred resources of 159 million tonnes grading 5 grams gold per tonne. The company says that the resource figure is lower since resources in the Zuurbekom zone are excluded.)
Of the measured and indicated resources above, 4.4 million tonnes grade 0.074% uranium oxide, for 7 million lbs. uranium oxide. Of the inferred resources, 113 million tonnes grade 0.076% uranium oxide, for 204 million lbs. uranium oxide.
Costs at Ezulwini are estimated at US$69 per tonne, while revenues are projected at US$147 per tonne, for a gross profit of US$78 per tonne. This gives the project an internal rate of return (IRR) of 400%, and an NPV of US$924 million at an 8% discount rate.
< p>Mine life is projected at 17 years, and it is anticipated to produce 5.8 million oz. gold and 18.4 million lbs. uranium oxide. Average production is projected at 341,000- 352,000 oz. gold and 1.1-1.2 million lbs. of uranium oxide per year. Estimated cash costs are US$340 per oz. gold, and US$25 per lb. uranium oxide. The mine is expected to reach a throughput of 2 million tonnes per year, with a maximum throughput of 2.6 million tonnes per year. A 96% gold recovery is forecast, while uranium recovery is projected at 80%.
Miller reports that refurbishing of the shaft and steelwork is almost complete. Following completion, the shaft pillar will be de-stressed.De-stressing is not a new technique. After installing a hanging tower to convey the skips through many levels of the mine, it is important to move the vertical stress of the mine away from the section of the shaft where the new tower has been installed. This can be done by mining out an annulus around the shaft, which has the effect of creating a detour around the section of the shaft where the hanging tower is.
The technique, which makes for a safer shaft that requires less maintenance, has been used at other projects in Africa, including the South Deep mine at a much deeper level.
Miller says that all the infrastructure is in working order, including the hoist, winders, pumps, diesel generators, etc.
As soon as shaft refurbishment is complete, workers employed in that activity will switch to mine development. Hoist capacity is 250,000 tonnes per month, but Miller estimates the mine will take about three years to ramp up to a 200,000- per-month throughput. Two mills, each with a capacity of 50,000 tonnes per month, have been commissioned, and two more will be added as mine throughput increases.
A 200,000-tonne-per-month gold plant was commissioned late last year, and is projected to produce 6,900 oz. gold in the first quarter. The plant will ramp up production along with mine throughput. Ezulwini is in the process of commissioning a 100,000-tonne-per-month uranium plant. The company hopes to ship uranium oxide in the first quarter.
There are currently 2,000 workers onsite, of which 500 work on construction. As construction winds down, production will ramp up and more miners and plant employees will be recruited. Miller anticipates a labour force of 4,000 at full production.
In the year to March 2010, First Uranium projects combined production of 270,000 oz. gold and 1.2 million lbs. uranium oxide for both MWS and Ezulwini.
First Uranium says that Ezulwini has expansion potential. The company believes that the middle Elsburg zone may extend into the neighbouring Zuurbekom property for as much as 15 km of strike length. The company intends to explore Zuurbekom in future to test this theory. And there are other mineralized zones on Ezulwini that are yet to be explored.
In view of serious disruptions to electricity supply in South Africa last year, First Uranium has diesel generators on its projects to ensure availability. Sulphuric acid availability in the country is good, but prices have spiked in the past. Should acid prices surge again, the company may decide to build a sulphuric acid plant, making use of a pyrite flotation plant that it owns.
The largest shareholder in First Uranium is Simmer and Jack Mines (SJACF-O, SIIF-J), which owned a 62.3% stake before the private placement. In addition to his position at First Uranium, Miller is CEO of Simmer and Jack.
First Uranium is in compliance with Black Economic Empowerment (BEE) law, since black-owned companies hold at least 26% of the two subsidiaries that operate MWS and Ezulwini.
The largest black-owned investors are Vulisango Holdings and Waterpan Mining Consortium, both of which are represented on the boards of the two subsidiaries.
On Sept. 30, prior to receiving its first payment from Gold Wheaton, the company had working capital of US$26 million. Long-term liabilities were US$103 million in senior convertible debentures, plus US$30 million in other long-term liabilities.
The company has signed a term sheet and mandate for debt financing of up to 900 million rand (about US$89 million.)
First Uranium has 131.1 million shares outstanding, and 134.3 million shares fully diluted. Once the private placement closes, it will have 151.6 million shares outstanding, and 165.1 million shares fully diluted.
At presstime, First Uranium shares were trading at $4.39. The stock has traded in a range of $1.02- 10.80 over the past 12 months.
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