First Uranium Corp. FIU-T is slowing or suspending its expansion plans in South Africa while it negotiates with government officials who have withdrawn a key environmental authorization and, in the process, disrupted financing plans.
The news sent shares in the company tumbling by 39 cents or 21 per cent to $1.49 on a high volume of two million trades Tuesday morning on the Toronto Stock Exchange.
The Toronto-headquartered uranium and gold miner said it's still “cautiously optimistic” that officials will reinstate environmental authorization for a new tailings storage facility at its Mine Waste Solutions operation, and it is engaged in discussions regarding alternative financing opportunities.
Tailings are a combination of waste rock and chemicals produced after ore is milled and the valuable metals or minerals extracted.
“As a result of the circumstances that have been precipitated by the unexpected withdrawal of the environmental authorization for our future tailings deposition site at MWS, management's key priorities are to resolve this authorization issue as quickly as possible, seek strategic alternatives for financing and the immediate restructuring of our operations,” said Gordon Miller, president and CEO of First Uranium.
Alternatives and Penalties
In the meantime, First Uranium is taking a number of steps to deal with the financial impact of the unanticipated withdrawal, which the company says has disrupted some well-advanced plans for additional funding. If alternative financing is not obtained, First Uranium said the financial impact, combined with a slower-than-expected production buildup at its Ezulwini mine, could “severely compromise the company's financial position.”
To cope, the miner said it will suspend construction and commissioning of a third gold plant at MWS, which had been due for completion in May.
In addition, production at MWS will be scaled back from two gold plants to one at the end of March. The company cautioned that this will result in lower revenues and increase the amount of financing required.
Vancouver-based gold royalty company Gold Wheaton Gold Corp. GLW-X , which is under contract to receive 25 per cent of the gold produced by First Uranium, said the developments may trigger a $42-million penalty payment if the project doesn't 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,” said Gold Wheaton chairman and CEO David Cohen.
Mr. Cohen added that the planned production cutbacks at MWS will reduce Gold Wheaton's production forecast by approximately 20,000 ounces of gold, or 17 per cent, in each of 2010 and 2011.
Shares in Gold Wheaton lost 5.5 cents or 18 per cent to 24.5 cents on a high volume of 5.2 million trades on the TSX Venture Exchange.
Revised Production
First Uranium has also revised its production ramp-up for the Ezulwini mine, which produces both gold and uranium, “due to the challenges of training and building up the efficiency of the mining crews.”
For the third quarter of fiscal 2010, First Uranium produced 10,054 ounces of gold from Ezulwini, a 26 per cent increase compared to the previous quarter, and 21,891 ounces of gold from the MWS tailings recovery project, a 63 per cent increase compared to the previous quarter The mine also shipped its first container of 23,760 pounds of uranium in the form of “yellowcake” for processing in the United States.
For the 2011 fiscal year, which begins April 1, 2010, First Uranium is projecting it will produce 133,000 ounces of gold and 207,000 pounds of uranium.
In fiscal 2012, the company is predicting it will produce 194,000 ounces of gold and 312,000 pounds of uranium while the following year's production is forecast at 265,000 ounces of gold and 390,000 pound of uranium.
