Gold and uranium producer First Uranium is forging ahead with a number of projects at its two South African operations, which will position it as a significant low-cost producer.

Listed on the JSE and the Toronto stock exchange, the company is continuing to develop the underground Ezulwini mine, in Gauteng, as well as expanding its Mine Waste Solutions (MWS) tailings recovery operation, in the western portion of the Witwatersrand basin.

First Uranium CEO Gordon Miller tells Mining Weekly that, once the full spread of capital projects, worth an estimated R5,1-billion, is completed by June 2010, the company will be on track to becoming a profitable low-cost producer of both commodities.

To date the company has constructed and commissioned gold and uranium plants at the Ezulwini operation, where it is building up to full production capacity to process 200 000 t/m. It is expected that the mine will turn cash positive by December 31, 2009.

By June 2010, the company aims to have completed its current construction programme at MWS. Here the first two of three uranium plant modules are nearing com- missioning while the third gold module and third stream of the uranium flotation circuit must still be built and commissioned.

“The challenge facing the company is in ensuring that we execute on our final construction programme at MWS. By June next year, we expect that both the gold and uranium plants will be operational and that MWS will also be cash positive, which is a significant milestone for the company,” says Miller.

He adds that another important near-term challenge will be the capital spend required to bring the projects to completion.

When reporting results for the September quarter, the company indicated that the funding required to complete the current capital projects at both sites was $217-million.

It was expected that these funds would be obtained from a variety of sources.

The first is a one-year-term credit facility for R160-million finalised with shareholder and fellow local miner Simmer & Jack Mines in August this year.

In November, First Uranium announced that it had entered into a second gold- streaming deal with Gold Wheaton, of Canada. The deal is expected to be finalised at the end of November 2009 and will see Gold Wheaton buying 7% of the estimated 5,8-million ounces of the life-of-mine gold production at Ezulwini for $50-million upfront and then the lesser of $400/oz and the prevailing spot price as the gold is delivered. In terms of the agreement, Ezulwini will deliver at least 16 500 oz in 2010, 19 500 oz in 2011 and an average of 26 000 oz/y thereafter.

The remaining funds would be sourced from cash arising from the forecast sales for gold and uranium.

A further challenge relates to securing the permit from regulators to construct a new life-of-mine tailings storage facility at MWS.

In November, the company reported that, after regulators had initially granted permission for the new tailings storage facility to go ahead, the authorisation was suspended.

“Permission was suspended pending a review by the regulators, with whom we are working very closely, as well as other interested parties to get the process back on track. We are confident that we will get the necessary permits once that process has run its course,” says Miller.

“Once we have completed the capital invest- ment and resolved the permitting issue, the outlook for the company is very good from both a gold and a uranium perspective,” says Miller.

He reports that, from March 2010, the tailings operation will have an estimated 13-year mine life while the Ezulwini underground mine will have a remaining life of about 15 years.

“Over that period of time, we expect to be producing gold and uranium at good prices. In the long term, we forecast prices of around $50/lb for uranium and $788/oz for gold, and at those levels we would expect to be very profitable,” says Miller.

Average cash costs at Ezulwini are forecast at $340/oz for gold and $25/lb for uranium over the life-of-mine. At the MWS tailings site, average costs are expected to be even lower at $279/oz for gold and $21/lb for uranium.

Over the life of the Ezulwini mine to 2025, the company has projected yearly sales of 340 000 oz of gold and 1,1-million pounds of uranium. At MWS, projected average yearly sales to 2023 are 140 000 oz of gold and 1,4-million pounds of uranium.

“In terms of the market outlook over the long term, our operators have a great deal of experience in running uranium and gold plants during the volatile cycles that characterise the commodity market.

“So, even though the gold market is robust at the moment, with prices at all-time highs of around $1100/oz, we realise that may not be sustainable. But we do believe prices will be high enough in the long term for us to remain very profitable over the next 15 years,” says Miller.

Although the company has dispatched the equivalent of 15 000 lb of uranium for calcining, it has yet to be shipped to a converter, so it does not count as a sale.

“This means that we are not yet partici- pating in the uranium market; however, we will be fairly soon. The market for uranium has been volatile in recent months, with the spot price bouncing between $40/lb and $50/lb and lately softening to about $43/lb.

“Once our uranium plant is in full pro- duction, we are looking to participate in long-term contracts, which have tended to remain consistent around the $65/lb level,” says Miller. “Over the next three to five years, we foresee that uranium prices will rise.”

Miller says that the number one lesson the company has learnt from history and the volatility of the market is the importance of building operations to be low cost over the long term.

“This is the best hedge against market volatility and it is the way we have designed our operations,” he says. “We also have the distinct advantage of mining gold and uranium from a single source, with the under- ground mine and our tailings deposits containing both gold and uranium. We have two saleable products between which we can split the costs, ensuring we are a very low cost producer. Once we are fully up and running, this will stand us in good stead to be profitable and resilient regardless of commodity prices going forward.”

While the company has not yet concluded uranium supply contracts, it has entered into a letter of intent to supply State-owned electricity utility Eskom with uranium for the Koeberg nuclear power station between 2011 and 2017. The intended agreement is structured to deliver a portion of the uranium at the prevailing spot price and the remainder based on an escalated price. An agreement is expected to be finalised by the end of December and will be subject to the completion of a due diligence by Eskom and the company satisfying certain conditions, including obtaining Reserve Bank approval.

On the hot topic of black economic empow- erment, Miller says the company was on the right track from the very start.

“In order to obtain our mining rights, we were asked by the authorities to be compliant straight away. We have been complying with broad-based black econo- mic-empowerment (BEE) principles in terms of the local management team and boards to ensure proper involvement and participation by historically disadvantaged South Africans.”

In the area of share ownership, the com- pany has already met the 2014 levels of compliance of above 26% BEE ownership.

“This has certainly placed us head and shoulders above many others in this field and assisted us in making progress with regard to accessing mining and prospec- ting rights,” says Miller. “And we intend to continue keeping pace with BEE require- ments going forward and ensuring we are compliant in every aspect.”