Uranium One battles weaker sales with lower costs

Uranium One (UUU-T) seems to be reading from the same script as other uranium producers as the company is meeting softer demand with greater operating efficiencies.

Following on the heels of Cameco’s (CCO-T, CCJ-N) financial results, the Toronto-based company said it, too, would have to put Greenfield projects on hold due to the current weak environment.

The move furthers the sentiment amongst investors that it may be some time before the heady days prior to the crash of 2008 return.

The key sign of any turnaround will be the re-starting of Japanese reactors. When that happens, spot prices are expected to move and re-valuations of uranium miner’s equity should follow.

Until then, Uranium One is making due by offsetting weak prices and softer sales by delaying capital expenditures and boosting its operating efficiency.

The company reported earnings per share of 2 cents, which narrowly missed the Street’s expectation of 3 cents per share.

The company’s financial statements were troubled by lower-than-expected sales volumes in the quarter — which was also reported by Cameco, but unlike its more senior counterpart, Uranium One managed lower-than-expected cash costs as an offset.

Sales volumes for the quarter came in at 2.9 million lbs. of U3O8, missing CIBC analyst Matthew Gibson’s expectation of 3.5 million lbs. by a decent margin. But cash costs came in at US$16/lb., and while that number was higher than cash costs of US$14/lb. a year ago, given the rising costs that miners have faced over the last year, the number was better than expected.

Total production for the quarter came in at 3.1 million lbs. of U3O8, and the company stood by its guidance of 11.6 million lbs. of production and 11 million lbs. of sales for the year. It expects to produce 12.5 million lbs. of U3O8 next year and 13 million lbs. in 2014.

The quarter was also notable for getting to commercial production quicker than expected at its Kharasan mine 250-km northwest of Shymkent in southern Kazakhstan. The in-situ mine is expected to contribute 500,000 lbs. of U3O8 to the company’s total production for 2013.

Although Kharasan proceeded with better than expected efficiency, the company said expansion at its Zarechnoye mine, which is also in Kazakhstan, would be deferred.

Zarechnoye, which sits roughly 200-km west of Shymkent, is already producing in-situ uranium from the Zarechnoye Main deposit. The company had, however, planned to push the Zarechnoye South deposit into production as well but says that the current low spot price combined with the recent decrease in the deposit’s resource base have forced it to shelve the development for the time being.

Zarechnoye South had been expected to go into production next year and contribute roughly 1.7 million lbs. of U3O8 per year.

The move to delay the development is part of the company’s plan to defer a total of US$60 million in capex that was planned at its six mines in Kazakhstan.

Uranium spot prices are currently at their lowest level in over three years as the metal is currently trading in the US$40 per lb. range.