Uranium One’s writedown shocker but acquisitions save the day
Uranium One has announced third quarter 2008 results that include write downs of USD 2.8bn, of which most is attributable to its erstwhile flagship, the Dominion mine in South Africa, which was placed on care-and-maintenance on 10 October 2008. The size of the write down may be compared to Uranium One’s market value, which currently stands at USD 436m.During the latest quarter, Uranium One wrote down mineral interests, plant and equipment to the tune of USD 1.8bn on Dominion, USD 0.7bn on US exploration properties, USD 0.2bn on Honeymoon and Australian exploration, and USD 0.1bn on Hobson (US), La Palangana (US) and Shootaring Mill (US).According to statements from the company released on Friday, the fair value of Dominion at 30 September 2008 has been estimated as its "salvage value" of USD 50.5m.Uranium One’s stock price has moved from highs in 2007 of CAD 35 a share - the stock holds a primary listing in Toronto - to recent lows of 60 cents a share, a fall of 99%. The stock was most recently quoted at CAD 1.13 a share.Uranium One has persistently refused to supply even the vaguest answer as to how much shareholder cash Dominion has been wolfing down. Just over a year ago, it had been for more than two years that Neal Froneman, erstwhile CEO of Uranium One, had widely advertised that Uranium One’s cash cost for uranium oxide at Dominion would be around USD 18.00/lb.Uranium oxide prices had been rising for some years, from less than USD 10/lb, and would peak out at USD 138/lb in June 2007, to move slowly down to recent lows around USD 45/lb. The first estimate of production for 2008 at Dominion was a huge 2.8m lbs, suggesting cash flow profits of about USD 200m for the year.In October 2007, Uranium One cut Dominion’s projected 2008 output to 1.7m lbs and again in February this year to 0.55m lbs. Froneman stepped down as CEO at that stage, to be replaced on an interim basis by Jean Nortier, who was later confirmed as CEO, just as Dominion’s "pre-commercial" uranium oxide output projection for this year was again cut, this time to 0.32m lbs, some 89% less than Froneman’s original projection of 2.8m lbs. Put another way, Dominion was downgraded from a mine to a project. Now there are no more projections for Dominion.However, Uranium One used Dominion as a hook to stage a number of acquisitions, which now appear to have saved the day. Uranium One today said that its attributable production estimates for 2008 have been revised to 2.8m lbs of uranium oxide from 3.1m lbs previously, "as a result of the decision to place Dominion on care and maintenance, lower than expected production from South Inkai and the later than expected start-up of pilot production at Kharasan"Total production for 2009 is now estimated to be 3.5m lbs pounds of uranium oxide, comprising 1.8m lbs from Akdala, 1.5m lbs from South Inkai and 0.2m lbs from Kharasan. The three mines are in Kazakhstan Total production for 2010 is estimated to be 5.6m lbs, including initial production from the Moore Ranch Project in Wyoming, which is expected to commence during the second half of 2010, and excludes initial production from the Honeymoon Project in Australia.During 2009, the average cash cost per pound of uranium oxide is expected to be around USD 15/lb, sold from Akdala. The cash cost at South Inkai is expected to be around USD 28/lb in 2009, with a cost per pound sold of about USD 20 by the end of the year.With the Dominion debacle behind it, Uranium One can move on, but some shareholders may still demand to know why Dominion never performed vaguely close to that projected by SRK Consulting, in its "independent technical report" published in October 2006, and as endorsed by Uranium One’s board of directors.Dominion’s woeful performance and closure came as no surprise, however, to mining experts familiar with the findings of an evaluation of Dominion, published on 13 September 1996, by the-then Gold and Uranium Division Geology Department of Anglo American Corporation of South Africa.