Uranium in the News

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Uranium fundamentals remain 'really, really positive' – First Uranium

Mining Weekly - www.miningweekly.com

By: Martin Creamer
October 3, 2008

The fundamentals for uranium remain “really, really positive”, says First Uranium CEO Gordon Miller.

He says that this is because uranium is perceived as being a relatively clean fuel for baseload power generation.

He points out that those countries that have a large proportion of nuclear power generation have much lower carbon footprints than countries generating baseload power from coal.

The bottom line, he adds, is that it is relatively easy to determine what the demand for uranium is going to be because of the number of nuclear plants in operation and plans for additional nuclear stations.

Uranium demand growth is thus directly related to nuclear plant growth.

While the energy alternatives like solar and wind are clean, wind does not blow continuously and the sun does not shine at night, giving nuclear a niche as a provider of carbon-free baseload power.

The uranium price has been in the $60/lb to $65/lb range in the spot market, which is effectively the short-term delivery market.

While the spot price of uranium is volatile, the term price is less so for contracts with longer delivery lead times that are more stable.

On the current financial illiquidity leading to the consolidation of the uranium-mining sector, Miller says the large uranium deals of the last few years, after a lull of decades, has resulted in many explorers coming to market only to find that capital for explorers has all but dried up.

With liquidity an issue, the stocks of exploration companies have traded down significantly, given their risk profiles and their times to production.

Against this background, consolidation is a way for troubled companies to survive and Miller believes that consolidation in the junior sector “may well happen”.

The sell-off of uranium equities in the last six months has been significant.

Miller tells Mining Weekly that, while there had been a sell-off of equities in general, the sell-off of uranium equities had been even more pronounced.

While the market still rates the company as a developer, it is about to become a producer in the “very short term”.

“We believe that will change ratings in terms of the risk ratings that investors apply to various equities as we change from developer status to producer status,” Miller says.

Being a “dual” commodity miner is “very significant” for the TSX- and JSE-listed First Uranium from a cost point of view, as it contributes to a lowering of overheads, says Miller.

Moreover, First Uranium’s coproduct advantage is far more significant than the typical byproduct company in which one of the contributions overshadows the other.

In First Uranium’s case, contributions from both uranium and gold are sizeable.

“The advantage is that it costs you the same to mine it. Whether we are mining gold or uranium doesn’t matter; it is only the processing costs that vary,” Miller adds.

Dual mining is, moreover, just one element of First Uranium’s low-cost repertoire; the other element is where it sets its cutoffs, and the margin it is striving to achieve.

“Our objective is to be a low-cost producer, so we have set pretty high thresholds in terms of cutoffs, both for the tailings operation as well as for the Ezulwini start-up,” Miller points out.

First Uranium is producing gold at both Ezulwini and Mine Waste Solutions.

Uranium is currently mined at Mine Waste Solutions, but not recovered, and will be recovered from early next year from new uranium modules under construction.

Mine Waste Solutions is producing about 12,000 oz of gold a quarter, which the company is looking to double early next year.

Ezulwini, which has also started gold production, will be ramping up “very signifi- cantly” from March 2009.

First Uranium’s Ezulwini plant on the West Rand will begin production of uranium before the end of the year.

The company is also currently mining uranium at its Mine Waste Solutions operation nearby, but it has not yet been recovering that uranium, although it is being processed through the gold plant.

“We will begin recovering that uranium from early next year from the uranium plant, which is progressing very well,” Miller reports.

“In the early stages of the subprime crisis, we saw gold coming off from highs of $1,000/oz, and there is every possibility that it could go back there once again,” Miller says.

First Uranium’s long-term forecasts see the gold price coming down to $700/oz, but being pretty robust in the next few years.

“It’s always difficult to speculate as to what gold is going to do. There were a lot of dissenters who said gold would not get to $1 000/oz and it did, so there is every possibility that it could be back there again,” he says.

“At Mine Waste Solutions right now the cash costs are $400/oz and we are selling gold at close to $800/oz, and there’s your margin. “It’s a very, very attractive business at this point in time and much the same will happen at Ezulwini as we start ramping up production,” he says.

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