JOHANNESBURG (miningweekly.com) – JSE- and TSX-listed First Uranium would delay future development expenditure at its Mine Waste Solutions (MWS) tailings recovery operation in South Africa, after the withdrawal of environmental approval (EA) for a tailings storage facility had disrupted certain “well-advanced” corporate financing opportunities.
The company said on Tuesday that the North West province’s withdrawal of the environmental authorisation for the tailings storage facility at MWS and the slower-than-anticipated production build-up at Ezulwini could “severely compromise” its financial position.
CEO Gordon Miller said that management would seek to resolve the authorisation issue “as quickly as possible” and that it was reviewing strategic alternatives for financing.
The company had been engaged in “intensive discussions” with officials of the North West government regarding its decision to withdraw the EA for the new facility, which was designed to accommodate future tailings deposition at the MWS tailings recovery project.
Miller said that the company would scale back production at MWS and that it would suspend the commissioning of a third gold plant, which was due for completion in May.
He added that production at MWS would be scaled back from two gold plants to one at the end of March. The reduced production would enable the company to maximise the availability of its current deposition capacity until the permitting issue had been resolved, but would also result in lower revenues and increase the amount of financing required.
Vancouver-based Gold Wheaton, which has a contract to buy 25% of the gold produced at MWS at a fixed price, said separately that the curtailment announced on Tuesday could trigger a $42-million penalty payment due to Gold Wheaton if the project does not pass a technical completion test by June 1.
"Gold Wheaton is extremely disappointed in the steps that First Uranium has taken as a result of its permitting and financial issues," Gold Wheaton CEO David Cohen said.
Meanwhile, First Uranium said that the construction of the first uranium plant module at MWS would be concluded by the end of the month, at which time commissioning would start. The plant would start producing yellowcake in the second half of the year.
Under the revised construction schedule the MWS No 5 dam would provide sufficient tailings deposition capacity for the one gold plant until the end of December 2011.
Subject to the reinstatement of the EA and the receipt of additional capital in the near term, the project would be able to continue along its originally planned production trajectory of 35 000 oz/quarter.
The ability to secure the environmental go-ahead, as well as funding sooner, would allow acceleration of the yearly gold production rate to 140 000 oz and uranium production to 960 000 lb as originally planned.
First Uranium noted that from the point at which the EA and funding are secured, MWS would require a six-month window to conclude the necessary construction activities to realise the increased production rate.
Meanwhile, Miller also reported that the Ezulwini mine development plan was ahead of schedule, but that the mine production forecast had been revised in response to slower-than-expected production ramp up to date and the capital constraints.
The ramp-up was progressing more slowly than originally anticipated owing to the challenges of training and building up the efficiency of the mining crews with the result that the mine had yet to generate positive operating cash flow.
In the fourth quarter, the Ezulwini mine was expected to open up over 400 m for a total of over 3,1 km of available mining face underground and record its first sale of uranium.
During the quarter ended December 2009, First Uranium produced 10 054 oz of gold from the Ezulwini mine, a 26% increase compared with the previous quarter, and 21 891 oz of gold from the MWS tailings recovery project, a 63% increase compared with the previous quarter.
During the quarter, the company also continued to optimise its uranium production at the Ezulwini mine and has shipped its first container of 23 760 lb of uranium in the form of yellow cake for processing in the US.