TORONTO (miningweekly.com) – Shares in TSX- and JSE-listed First Uranium plunged 30,7% in Toronto on Wednesday, after the company said it will produce slightly less uranium and delay building uranium-processing capacity at one of its South African operations, and that capital and operating costs will likely be higher than previously indicated.
First Uranium's shares dropped C$1,86, to C$4,19 apiece by 16:10 ET. By comparison, the Standard & Poor’s/TSX Composite Index fell 2,3% on Wednesday.
The miner has two operations in South Africa – the Ezulwini underground mine and the Mine Waste Solutions (MWS) tailings-recovery project. It has used a modular approach at both operations to start and then expand gold and uranium production over time.
Currently, it is producing gold from both assets, and began uranium production at Ezulwini last month.
During the March quarter, 108 622 t of ore was milled at Ezuwlini, at an average recovered grade of 1,22 g/t of gold, to produce 4 267 oz of the precious metal, First Uranium reported on Wednesday.
Mining was restricted last year by shaft rehabilitation work, but the focus at Ezulwini has now shifted back to underground mine development and ramping up underground production of mineral-rich ore.
At MWS, the company treated 1,7-million tons of tailings through the gold plant during the quarter, at an average recovered grade of 0,19 g/t, and produced a total of 10 513 oz of gold.
However, the firm has not met its own construction targets, most recently with the Ezulwini uranium plant commissioned three months later than forecast, while the first two uranium plant modules will be completed later than planned at MWS.
“We are not satisfied....we think we can do better,” CEO Gordon Miller said on a conference call.
To that end, the company has appointed a second COO, Scot Sobey, to oversee operations at MWS, while Syd Caddy will now focus exclusively on the Ezulwini mine.
The focus at MWS is now on building the second gold plant module, for completion by the end of September. This will be followed by module one of the uranium plant by the end of December, and the third gold module by mid-2010.
The firm has also re-evaluated its long-term metal price assumptions and updated the capital cost outlook for what remains of its construction projects, Miller said.
Given the weaker uranium spot price and strong gold outlook, First Uranium will tweak the final phase of construction at MWS so that the operation is now expected to produce only 91% of its planned uranium production, while gold output will remain unchanged.
Overall, the reconfiguration will result in “a more efficient capital investment programme and an optimised cash flow profile", Miller emphasised.
Management has decided to delay portions of the third uranium plant module "until such time that higher uranium prices are expected to occur".
However, the new plan calls for an immediate start to the construction of the third gold plant module, as well as the third stream of the uranium flotation plant, and the change from an atmospheric leach process to a pressure leach process will be accelerated concurrent with the commissioning of the third gold plant module.
The acceleration of the pressure leach process is expected to enhance gold recoveries and reduce operating costs "significantly", Miller said.
The company has received a power-supply commitment from utility Eskom, which means it will not need to operate expensive diesel-fuelled generators at MWS, but this cost saving has been more than offset by price increases elsewhere, especially for cyanide.
As a result, the estimated life-of-mine production costs have escalated to around $25/lb of uranium and $319/oz of gold, compared with previous forecasts of about $21/lb and $279/oz respectively.
The total capital cost of the MWS plants, including the accelerated pressure-leach process and final completion of the third uranium plant, is expected to be approximately $451,6-million, of which $129,6-million has been spent to date.
The company does not expect any significant increases to the capital cost figure in the future, Miller said.
Miller said on Wednesday that the company continues to look for corporate activity opportunities, both in North America and through regional consolidation around its South African assets.
Several projects in close proximity to First Uranium's operations are becoming "more attractive", he said.
"There's nothing that is on the horizon right now, but there are certainly lots of opportunities and we continue to build relationships with operators in the region."