| Mon 16 Nov 2009, 7:28 | | FUM - First Uranium Corporation - First Uranium Reports Results For Q2 2010 |
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FUM
FIU
FUM - First Uranium Corporation - First Uranium Reports Results For Q2 2010
First Uranium Corporation
(Continued under the laws of British Columbia, Canada)
(Registration number C0777384)
(South African registration number 2007/009016/10)
Share code: FUM ISIN: CA33744R1029
FIRST URANIUM CORPORATION
NEWS RELEASE - November 13, 2009
FIRST URANIUM REPORTS RESULTS FOR Q2 2010
All amounts are in US dollars unless otherwise noted.
For a full discussion of financial and operating results, the Financial
Statements and Management Discussion & Analysis, please see the Company`s
website, www.firsturanium.com under "Investor Centre / Interim Reports"
Toronto and Johannesburg - First Uranium Corporation (TSX:FIU, JSE:FUM)
(ISIN:CA33744R1029) ("First Uranium" or "the Company") today announced that
for the three-month period ended September 30, 2009 ("Q2 2010") the Company
recorded a net loss for the quarter of $18.4 million or $0.11 per share as
compared with a loss of $1.1 million or $0.01 per share in the same quarter
of the prior year ("Q2 2009"). The substantial increase in the
consolidated loss was attributable to the loss incurred at the Ezulwini Mine
combined with the significant foreign exchange loss on translation,
notwithstanding higher production and gross profit at the Company`s Mine
Waste Solutions tailings recovery operation ("MWS").
The Ezulwini Mine converted to a full time operation prior to the beginning
of Q2 2010. This enabled a sharp intensification of mining activity during Q2
2010 with a 76% increase in the gold content mined, a 110% increase in the
gold recovered and a 89% increase in the overall gold recovered grade
compared to Q1 2010. The financial benefit of these production increases
were not fully realized in Q2 2010 as the gold plant was also processing low-
grade ore from the de-stress cuts in the Upper Elsburg ("UE") ore body of the
Ezulwini Mine, which are designed to reduce pressure on the load-bearing
shaft pillar of the UE ore body and to open up mining of the high-grade ore
in the shaft pillar. Now that the de-stress cuts have been completed, gold
grades from the UE ore body have already begun to significantly improve.
At MWS, the recent commissioning of the second gold plant module resulted in
the Q2 2010 tonnage throughput increasing by 35% compared to Q2 2009 and Q1
2010. This was the primary reason for the 22% increase in revenues and
increased operating profit margin from MWS compared to Q1 2010. This increase
was partially offset by a temporary increase in the unit cost of production
compared with the previous quarter as, during the final stages of
commissioning, the second gold plant shared the elution capacity at the first
gold plant module. This resulted in less gold recovered than will be the
case now that each module has its own elution circuit.
Gordon Miller, First Uranium`s President and Chief Executive Officer
commented, "First Uranium has come a long way in its brief history. At the
Ezulwini Mine we have completed a difficult project to refurbish the mine
shaft and have both the uranium and gold plants built and operational. We
have also made great strides in developing our underground mining operations.
At the Mine Waste Solutions tailings recovery operation, we are processing
ore at 66% of our planned capacity, have two of the three planned gold plants
up and running and are nearing completion of the construction of our first
two uranium plant modules.
"We continue, however, to encounter challenges. The most recent of these has
been the suspension of authorization to proceed with the construction of the
new tailings deposition site at MWS; authorization which we had welcomed only
a few months ago. To address this concern and find a resolution, management
is actively engaged in discussion with all interested parties and is
confident that this can and will be resolved. Management has also formulated
and may have to implement an interim strategy, which would extend the
deposition capacity on existing tailings dams.
"It is clear, however, that although the vast majority of the work is now
behind us and this company is well on its way to successfully completing a
remarkable growth phase, we are vulnerable to cash flow constraints in what
remains of the build up phase. As stewards of our shareholders` investment
in this company, we believe it prudent to bolster our balance sheet and are
taking steps to do just that, including the recently announced gold stream
transaction to raise $50 million."
During Q2 2010, First Uranium:
- commissioned the second gold plant module at MWS, doubling its gold
production capacity;
- increased its treatment of tailings through the MWS gold plant from Q1
2010 by 35% for a total of 2.5 million tonnes;
- increased gold produced by MWS by 22% from 11,007 ounces in Q1 2010 to
13,422 ounces in Q2 2010 at a Cash Cost of $409 per ounce (as defined in
the notes to the Consolidated Results of Operations table in this news
release);
- commenced construction of the third gold plant module at MWS;
- increased ore hoisted from the Ezulwini Mine from 64,965 tonnes in Q1
2010 by 52% to 98,831 tonnes in Q2 2010;
- increased the recovered grade of ore from the Ezulwini Mine from an
average grade of 1.3 grams of gold per tonne in Q1 2010 to an average
recovered grade of 2.6 grams of gold per tonne in Q2 2010;
- increased production of gold from the Ezulwini Mine by 89% from Q1 2010
to 7,952 ounces of gold;
- completed the de-stress cuts required to open up mining of the high-
grade ore in the shaft pillar of the UE gold-only ore body at a grade of
7.79 grams per tonne at the Ezulwini Mine;
- increased the workable face length for the Middle Elsburg gold and
uranium ore body to 754 metres with a gold grade of 3.13 grams per tonne
and a uranium grade of 0.44 grams per tonne in Q2 2010; and
- finalized a one-year term credit facility of ZAR160 million ($20.5
million) with Simmer & Jack Mines, Limited (Simmer & Jack) on August 14,
2009.
Subsequent to Q2 2010:
On November 5, 2009, First Uranium entered into a second agreement with Gold
Wheaton (Barbados) Corporation ("GW"), whereby GW for a payment upon closing
of $50 million will purchase 7 percent of the estimated 5.8 million ounces of
the life-of-mine gold production from the Ezulwini Mine ("the Ezulwini Gold
Stream Transaction") at a price of the lesser of $400 per ounce or the
prevailing spot price. Subject to certain conditions and approvals, which
management expects to be fulfilled, the Ezulwini Gold Stream Transaction is
expected to close in late November 2009. Additional detail is provided in
the Company`s Management Discussion and Analysis for the period ending
September 30, 2009.
Also on November 5, 2009, MWS submitted a response to South African
regulators regarding a notification on October 18, 2009 of their intention to
withdraw the positive Record of Decision ("RoD") to construct a new life-of-
mine tailings storage facility ("TSF"), which is designed to store all of the
future tailings depositions of the remaining life of the operation. Although
management is fully confident that the TSF permitting will be resolved, the
length of delay might become material, so an interim tailings deposition
strategy has been developed.
Financial considerations with respect to the completion of capital projects
The Company`s financing results to date, while substantial, are not
sufficient to enable it to fund all aspects of its operations and
consequently the Company must, in part, rely on cash generated from the
operations to fund the remaining capital expenditure at MWS.
The Ezulwini Mine has recently completed most of its capital projects and is
now in a production ramp-up phase. It is anticipated that the Ezulwini Mine
will turn cash positive by December 31, 2009. The MWS operations are
profitable and generating cash, but the MWS capital projects still require
cash in excess of that currently being generated. The capital intensive phase
will continue for the next nine months, after which MWS is also anticipated
to turn cash positive.
At September 30, 2009, the funding required to complete the current capital
projects at the Ezulwini Mine and MWS was $217 million, of which $193 million
is planned to be spent in the next twelve months. At September 30, 2009, the
Company had existing commitments of $72.9 million. In addition, due to the
permitting delay relating to the construction of its new TSF as discussed
above, the Company may also be required to incur additional capital.
The slower ramp-up of production at the Ezulwini Mine, delays in
commissioning additional plant modules at both the Ezulwini Mine and MWS and
increased capital requirements have resulted in less cash being generated by
the Company than previously anticipated. As a result, the Company is now
required to secure additional sources of funding to ensure that it will be
able to meet its spending and purchase obligations as they become due and
advance its planned projects at MWS.
Available cash resources of $60.0 million at September 30, 2009 together with
the cash generated from the sale of gold and uranium would not be sufficient
to fund completion of the current capital projects at MWS. The $50 million
proceeds from the Ezulwini Gold Stream Transaction, as noted above, is
expected to fully address this cash shortfall, but without these funds, the
Company would have to significantly delay or curtail capital expenditures in
order to meet its current obligations as they fall due. Management has no
reason to believe that the Ezulwini Gold Stream Transaction will not close as
scheduled. However, should this occur, the Company may not be able to meet
its future obligations and continue to operate in the normal course as a
going concern.
It is evident from the foregoing that cash constraints may yet arise in the
future should the operations not generate the projected revenues for any
reason, and there is a need for a stronger balance sheet. Management has
therefore been actively pursuing various other financing options and is
reprioritizing certain development and expansion activities to minimize
funding requirements and optimize the Company`s cash position.
Consolidated Results of Operations
Production Summary % 2010 2009 %
Q2 2010 Q2 2009 Change YTD YTD Change
Ezulwini Mine
Tonnes hoisted 98,831 44,532 122% 163,796 62,703 161%
Tonnes milled 94,599 44,014 1,149% 187,067 44,014 100%
Ounces of gold 7,952 - 100% 11,746 - 100%
produced
Ounces of gold 7,047 - 100% 10,425 - 100%
sold
Average selling 1,022 - 100% 1,001 - 100%
price per ounce
($)
MWS
Tonnes reclaimed 2,476 1,839 34.6% 4,311 3,504 23.0%
(000s)
Average gold
recovery grade 0.17 0.20 (15.0)% 0.18 0.18 -
(grams/tonne)
Ounces of gold 13,422 11,821 13.5% 24,429 20,351 20.0%
reclaimed
Ounces of gold 11,739 12,118 (3.1%) 22,415 19,859 12.9%
sold
Average gold 1,007 870 17.8% 959 874 10.8%
selling price per
ounce ($)
Average gold (427) (380) 12.9% (395) (423) (6.6%)
cost per ounce
reclaimed ($)
Average Cash Cost
per ounce of gold (409) (363) 12.7% (372) (404) (7.9%)
reclaimed ($)(a)
Summary of Consolidated Financial Results
(in thousands of dollars, except per share amounts)
Revenue 19,025 10,546 80.4% 31,920 17,351 84.0%
Ezulwini Mine 7,202 - 100% 10,435 - 100%
MWS 11,823 10,546 12.1% 21,485 17,351 23.8%
Cost of sales
(excluding (24,434) (4,532) 439% (40,017) (7,872) 408%
amortization)
Ezulwini Mine (18,949) - 100% (30,918) - 100%
MWS (5,485) (4,532) 21% (9,099) (7,872) 15.6%
Amortization (1,324) (199) 565% (2,561) (388) 560%
Ezulwini Mine (1,075) - 100% (1,999) - 100%
MWS (249) (199) 25.1% (562) (388) 44.8%
Gross (loss) (6,733) 5,815 (216%) (10,658) 9,091 (217%)
profit
Ezulwini Mine (12,822) - (100%) (22,482) - (100%)
MWS 6,089 5,815 4.7% 11,824 9,091 30.1%
Other income 743 625 18.9% 1,023 997 2.6%
Other (8,823) (7,512) 17.5% (15,622) (15,008) 4.1%
expenditures(b)
Operating loss(c) (14,813) (1,072) 1,282% (25,257) (4,920) 413%
Investment income 238 1,173 (79.7%) 944 3,005 (82.9%)
Interest and (3,822) (3,788) 1.0% (7,380) (5,937) 30.4%
accretion
expenditures
Fair value loss on (703) - 100% (1,180) - 100%
derivative
liability
Accretion expense (521) (381) (1,013) (762) 32.7%
on asset 36.7%
retirement
obligations
Foreign exchange 2,364 3,285 (28.0%) (14,044) 2,761 6,275%
(loss) gain
Loss before income (17,257) (783) 2,104% (47,930) (5,853) 719%
taxes
Income tax charge (1,184) (323) 267% (3,775) (1,048) 2,261%
Loss for the (18,441) (1,106) 1,567% (51,705) (6,901) 6,492%
period
Basic and diluted (0.11) (0.01) 1,000% (0.32) (0.05) 540%
loss per common
share
Notes:
(a) "Cash Costs" are costs directly related to the physical activities of
producing gold and include mining, processing and other plant costs;
third-party refining and smelting costs; marketing expense, on-site
general and administrative costs; royalties; on-mine drilling
expenditures that are related to production and other direct costs.
Sales of by-product metals are deducted from the above in computing cash
costs. Cash costs exclude depreciation, depletion and amortization,
corporate general and administrative expense, exploration, interest, and
pre-feasibility costs and accruals for mine reclamation. Cash costs are
calculated and presented using the "Gold Institute Production Cost
Standard" applied consistently for all periods presented. The Gold
Institute was a non-profit industry association comprised of leading
gold producers, refiners, bullion suppliers and manufacturers. This
institute has now been incorporated into the National Mining
Association. The guidance was first issued in 1996 and revised in
November 1999. Total cash costs per ounce is a non-GAAP measurement and
investors are cautioned not to place undue reliance on it and are
advised to read all GAAP accounting disclosures presented in the
Company`s audited consolidated financial statements for FY 2009 and
accompanying footnotes thereto.
(b) Other expenditures include general, consulting and administrative
expenditures, pumping feasibility and rehabilitation costs, stock-based
compensation and non-production related amortization. See page 3 to the
Financial Statements for detail.
(c) This is a non-GAAP measurement. Operating loss is loss before interest
income, interest and accretion expenses, fair value loss on derivative
liability, foreign exchange gain or loss and income tax charges. See
page 3 to the Financial Statements for more detail.
Consolidated Financial Position
Summary Balance Sheet and Key financial ratios
(thousands of dollars)
Q2 2010 FY 2009 %
Change
Cash and cash 59,675 112,005 (46.7%)
equivalents
Other current assets (a) 28,583 12,670 125.6%
Current liabilities (94,711) (58,629) 61.5%
Total assets 658,989 566,472 16.3%
Total liabilities (347,302) (296,375) 17.2%
Debt (b) (138,165) (121,710) 13.5%
Total shareholders` (311,687) (270,097) 15.4%
equity
Key financial ratios:
Current ratio (c) 0.93:1 2.13:1
Debt-to-equity (d) 0.44:1 0.45:1
Notes:
(a) Other current assets include accounts receivable, income tax receivable
and inventories.
(b) Convertible debentures liability of Cdn$150 million translated to US$ at
the exchange rate at the end of the period.
(c) Current assets divided by current liabilities at the end of the
reporting period.
(d) Debt divided by total shareholder`s equity at the end of the reporting
period.
Balance sheet review
Total assets primarily comprise property, plant and equipment, reflecting the
capital intensive projects at the Ezulwini Mine and MWS, cash and cash
equivalents, accounts receivable, income taxes recoverable and inventories.
The 16% increase in total assets since FY 2009 is attributable to an increase
in accounts receivable and inventories related to the increase in production
at the Ezulwini Mine, income taxes recoverable in respect of the MWS gold
stream transaction and an increase in property, plant and equipment as a
result of the capital projects at both operations, partially offset by the
reduced cash and cash equivalents resulting from capital expenditures and
cash operating losses.
The 17% increase in total liabilities since FY 2009 represents the increased
accounts payable and accrued liabilities arising from the increased capital
expenditures at MWS, drawdown of the new Facility with Simmer & Jack in
August 2009, an increase in the Cdn$ denominated debt portion of the senior
unsecured convertible debentures (the US dollar equivalent is higher because
of the weaker US dollar relative to the Cdn$) and an increase in future tax
liability arising from the increased asset base at MWS during 2010 YTD.
On August 14, 2009 the Company finalized a one-year term credit facility of
ZAR160 million ($20.5 million) (the "Facility") with Simmer & Jack. The
Company drew down the entire Facility during Q2 2010. The Facility bears
interest at the three-month Johannesburg Interbank Agreed Rate (JIBAR) for
ZAR denominated loans (currently 7.40%) plus 7% per annum. An arrangement fee
of 3% was paid on the Facility amount and the Company paid for the legal and
other costs relating to the Facility. The Company may repay the principal and
accrued interest and terminate the Facility at any time before the one year
anniversary without notice or penalty.
Outlook
Ezulwini Mine
The key elements that will drive production and operating results at the
Ezulwini Mine are:
- the creation of available face length, with uranium and gold grades
within planned ranges;
- increasing production ramp-up;
- improving gold and uranium recoveries; and
- the sale of uranium to nuclear power utilities.
Once the Company`s yellowcake has been calcined, the uranium will be shipped
overseas to uranium convertors for conversion and sale. Including the time
required for shipping and converting uranium, the recognition of revenue from
sales of uranium is expected on average to lag production by three months.
No uranium supply contracts have been entered into. The Company has entered
into a letter of intent to supply the South African utility, Eskom, with
uranium for their Koeberg nuclear power station beginning in 2011 and
continuing through to 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. The Company expects to finalize an agreement with
Eskom by the end of December 2009. The agreement will be subject to
completion of due diligence by Eskom and the Company satisfying certain
conditions including obtaining approval of the South African Reserve Bank.
MWS
The second gold plant module at MWS is now producing gold. This plant module
has increased MWS`s ore processing capacity from 633,000 tonnes per month to
1.3 million tonnes per month, an increase of 650,000 tonnes per month. MWS
commenced construction of the third gold plant module, which is scheduled for
commissioning by June 2010. The third module is expected to increase MWS`s
ore processing capacity by another 650,000 tonnes to over 1.9 million tonnes
per month.
Regarding the first two uranium plant modules, a design error has been
detected on the ion exchange ("IX") columns, which requires re-engineering
before commissioning can commence. The rectification of the IX columns is
expected to result in a two-month delay in commissioning the two uranium
plant modules. Commissioning is now expected to take place in February 2010.
As previously disclosed, management has decided to delay portions of the
third uranium plant module until such time that higher uranium prices are
offered in the uranium market. Management has reconfigured the plant design
and changed the mine plan to achieve approximately 91% of the previously
planned life of mine uranium production, resulting in a more efficient
capital investment program and an optimized cash flow profile. The mine plan
includes combining the optimized flotation mass pull with direct feed from
four high-grade tailings dams to improve the operating margin.
Management concluded the test work to finalize heat and oxygen control
elements within the pressure leach process. The outcome of the test work is
being integrated into the CBE of the pressure leach process. The CBE is
expected to be completed by the end of Q3 2010. Construction is dependent
upon having the required permitting in place and sufficient financial
resources to proceed. Construction is expected to take from nine to twelve
months. The pressure leach process is expected to enhance gold and uranium
recoveries and reduce operating costs per unit significantly.
Financial Results: Release and Conference Call
First Uranium will conduct a conference call with investors to discuss the
information in this news release at 10 a.m. local Toronto time and 5:00 p.m.
local Johannesburg time on Tuesday, November 17. The conference call will be
available simultaneously to all interested analysts, investors and media.
Callers may dial 1 800 319-4610 (Canada and the US) or 0800 981 705 (South
Africa). Callers from other international locations may call +1 604 638-
5340. The call will be webcast at
http://services.choruscall.com/links/firsturanium091117.html
and available for replay shortly after the call for 90 days.
A telephone replay of the conference call will be available for 30 days. To
access the replay, callers may dial 1 800 319-6413 (Canada and the US).
Callers from other international locations may access the replay by dialing
+1 604 638-9010 (Canada). Access to the replay will require the code 2128,
followed by #.
Cautionary Language Regarding Forward-Looking Information
This news release contains certain forward-looking statements. Forward-
looking statements include but are not limited to those with respect to
permitting, costs of production, capital expenditures, price of uranium and
gold, supply and price of sulphuric acid, the availability and price of
electrical power, the estimation of mineral resources and reserves, the
realization of mineral reserve estimates, the timing and amount of estimated
future production, costs and timing of development of new deposits, success
of exploration activities, permitting time lines, currency fluctuations,
requirements for additional capital, availability of financing on acceptable
terms, government regulation of mining operations, environmental risks,
unanticipated reclamation expenses and title disputes or claims and
limitations on insurance coverage. In certain cases, forward-looking
statements can be identified by the use of words such as "goal", "objective",
"plans", "expects" or "does not expect", "is expected", "budget",
"scheduled", "estimates", "forecasts", "intends", "anticipates", or "does not
anticipate", or "believes" or variations of such words and phrases, or state
that certain actions, events or results "may", "could", "would", "might" or
"will" be taken, occur or be achieved. Forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of First Uranium to be materially
different from any future results, performance or achievement expressed or
implied by the forward-looking statements. Such risks and uncertainties
include, among others, conclusions of economic evaluations, changes in
project parameters as plans continue to be refined, possible variations in
grade and ore densities or recovery rates, failure of plant, equipment or
processes to operate as anticipated, accidents, labour disputes or other
risks of the mining industry, delays in obtaining government approvals or
financing or in completion of development or construction activities, to
international operations, to prices of uranium and gold. Although First
Uranium has attempted to identify important factors that could cause actual
actions, events or results to differ materially from those described in
forward-looking statements, there may be other factors that cause actions,
events or results not to be as anticipated, estimated or intended. It is
important to note, that: (i) unless otherwise indicated, forward-looking
statements indicate the Company`s expectations as at the date of this news
release; (ii) actual results may differ materially from the Company`s
expectations if known and unknown risks or uncertainties affect its business,
or if estimates or assumptions prove inaccurate; (iii) the Company cannot
guarantee that any forward-looking statement will materialize and,
accordingly, readers are cautioned not to place undue reliance on these
forward-looking statements; and (iv) the Company disclaims any intention and
assumes no obligation to update or revise any forward-looking statement even
if new information becomes available, as a result of future events or for any
other reason. In making the forward-looking statements in this news release,
First Uranium has made several material assumptions, including but not
limited to, the assumption that: (i) operating and capital cost estimates,
metal prices, exchange rates and discount rates applied in the preliminary
economic assessment for the Ezulwini Mine and the prefeasibility study for
MWS and as updated by the Company in its continuous disclosure from time to
time are achieved;(ii) approvals to continue with the construction of the new
tailings deposition storage facility and to operate the expanded MWS
operations will be obtained and approvals to transfer or grant, as the case
may be, mining rights or prospecting rights will be obtained; (iii)
consistent supply of sufficient power will be available to develop and
operate the projects as planned; (iv) mineral reserve and resource estimates
are accurate; (v) the technology used to develop and operate its two projects
has, for the most part, been proven and will work effectively; (vi) that
labour and materials will be sufficiently plentiful as to not impede the
projects or add significantly to the estimated cash costs of operations;
(vii) that Black Economic Empowerment ("BEE") investors will maintain their
interest in the Company and the Company will be able to secure additional BEE
investment in the Company`s common shares to a sufficient level to maintain
compliance with BEE requirements as required by applicable law; and (viii)
that the innovative work on stabilizing the main shaft at the Ezulwini Mine
will be successful in maintaining a safe and uninterrupted working
environment until 2024.
About First Uranium Corporation
First Uranium Corporation (TSX:FIU, JSE:FUM) is focused on its goal of
becoming a significant low-cost producer of uranium and gold through the
expansion of the underground development to feed the new uranium and gold
plants at the Ezulwini Mine and through the expansion of the plant capacity
of the Mine Waste Solutions tailings recovery facility, both operations
situated in South Africa.
For further information, please contact:
Bob Tait, Vice President, Investor Relations at bob@firsturanium.ca
+1 416 342-5639 (office) or +1 416 558-3858 (mobile)
1240-155 University Avenue, Toronto, ON M5H 3B7
Date: 16/11/2009 07:28:01 Produced by the JSE SENS Department.
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