Vancouver – In mid-2007 the price of uranium was sitting just under US$140 per lb. and shares of Toronto-based Uranium One (UUU-T) traded as high as $18. Now, 15 months later, the spot price for a pound of U3O8 has fallen to US$44 and Uranium One shares can be had for 85.
But the falling price is impacting more than the company’s share price: the uranium major announced this week that it has put its production-ready Dominion project on care and maintenance.
“We will not shirk away from making decisions that are difficult but necessary to sustain our business,” said president and CEO Jean Nortier in a conference call. “This announcement is a case in point.”
Dominion is a shallow underground mine 150 km southwest of Johannesburg, South Africa. Uranium One started development work at Dominion in early 2006, when a feasibility study predicted a 30-year mine life, a cash cost of only US$14.50 per lb. U3O8 net of gold credits, and a 32% internal rate of return.
But development has never gone smoothly at Dominion. The 2006 study estimated the mine would produce 2.8 million lbs. U3O8 in 2008 but that number has been steadily downgraded as development and commissioning consistently fell behind expectations. Early this year the company revised the Dominion production target to 590,000 lbs. U3O8; by August it had to reduce expectation again, this time predicting Dominion would produce only 320,000 lbs. Now it will not even reach that target.
Nortier explained that the serious decline in the price of uranium coupled with significant inflation-related increases in costs and a slower-than-expected development period at Dominion resulted in a significant deterioration in the project’s economics. The poor economics became abundantly clear in the newly completed life-of-mine planning process and budget for the project.
“The project would require sustained increases in the price of uranium as well as significant additional capital investment in order to become economically viable,” said Nortier. “Uranium One cannot at this time incur additional capital costs.”
The new Dominion mine plan indicated a cash cost after gold credits of around US$55 per lb. U3O8, which is clearly problematic with a current U3O8 spot price of US$44 per lb. In addition the project still required $150 to $200 million in capital expenditure before it started returning a profit in late 2011 or 2012.
Uranium One had also planned an aggressive exploration program at Dominion to increase reserves. Nortier says the company is still considered whether it will continue with the program on a reduced basis.
At the end of 2007 Dominion held 81.1 million tonnes of indicated resources grading 0.63% U3O8 plus 174.8 million inferred tonnes averaging 0.36% U3O8.
The cost to put Dominion on care and maintenance has not been finalized; the company says it will calculate the cost in time to include that number in its upcoming quarterly financial report. Nortier estimated it will cost roughly $3 million at the start, followed by perhaps $1 million per month for upkeep.
Even with Dominion on care and maintenance Uranium One still has a lot on its plate. The company has a 70% interest in the Betpak-Dlal Joint Venture, which operates the producing Akdala uranium mine and the advanced development stage South Inkai project, both in the Suzak region of South Kazakhstan Oblast. Akdala commenced commercial production in 2004 and currently produces 2.6 million lbs. U3O8 annually. South Inkai is in pre-commercial production and is expected to produce 910,000 lbs. U3O8 this year. Uranium One recently upgraded that production target, from only 500,000 lbs., because the mine has consistently outperformed during ramp-up.
The Kharasan project, in which Uranium One holds a 30% interest, is also in South Kazakhstan Oblast. At Kharasan development is underway. The first well field was acidified in March but a slower-than-expected increase in the uranium concentration in solution has delayed the start of pilot production.
The company also has several projects underway in the United States. A feasibility study concluded that the Moore Ranch project is feasible. A 2-million lb. per year central processing plant plan gives the project an after-tax net present value of US$81 million. Life-of-mine cash operating costs come in at US$13.70 and the project requires US$33 million in capital expenditure. Moore Ranch is home to 4.3 million tons of probable reserves grading 0.054% U3O8.
Uranium One also owns 99% of the Hobson uranium processing facility and the LA Palangana project, some 120 km west of Corpus Christi in Texas. The Hobson facility started processing ore in 1979; it saw a major renovation and expansion in 1984 but was put on care and maintenance in 1988. Uranium One recently finished refurbishing the fully permitted facility. Pre-commercial production is expected to get underway in 2009, delayed slightly by permitting at La Palangana, an in-situ recovery development project that will feed Hobson.
As of the end of September, Uranium One had US$99 million in the bank. Then, early in the fourth quarter, the company drew down $65 million from the $100-million line of credit it had with the Bank of Montreal and the Bank of Nova Scotia. Nortier says they have sufficient cash to see the company through this quarter and expect to use very little from the credit funds.
And Nortier says the company remains bullish on the long term fundamentals for the price of uranium.
Be the first to comment on "Uranium One puts Dominion on care and maintenance"