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"
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.
"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
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
Also on
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
At
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
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
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Production Q2 Q2 % 2010 2009 %
Summary 2010 2009 Change YTD YTD Change
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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
produced 7,952 - 100% 11,746 - 100%
Ounces of gold
sold 7,047 - 100% 10,425 - 100%
Average selling
price per
ounce ($) 1,022 - 100% 1,001 - 100%
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MWS
Tonnes reclaimed
(000s) 2,476 1,839 34.6% 4,311 3,504 23.0%
Average gold
recovery grade
(grams/tonne) 0.17 0.20 (15.0)% 0.18 0.18 -
Ounces of gold
reclaimed 13,422 11,821 13.5% 24,429 20,351 20.0%
Ounces of gold
sold 11,739 12,118 (3.1%) 22,415 19,859 12.9%
Average gold
selling price
per ounce ($) 1,007 870 17.8% 959 874 10.8%
Average gold cost
per ounce
reclaimed ($) (427) (380) 12.9% (395) (423) (6.6%)
Average Cash Cost
per ounce of gold
reclaimed ($)(a) (409) (363) 12.7% (372) (404) (7.9%)
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Summary of Consolidated Financial Results
(in thousands of dollars, except per share amounts)
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Revenue 19,025 10,546 80.4% 31,920 17,351 84.0%
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Ezulwini Mine 7,202 - 100% 10,435 - 100%
MWS 11,823 10,546 12.1% 21,485 17,351 23.8%
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Cost of sales
(excluding
amortization) (24,434) (4,532) 439% (40,017) (7,872) 408%
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Ezulwini Mine (18,949) - 100% (30,918) - 100%
MWS (5,485) (4,532) 21% (9,099) (7,872) 15.6%
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Amortization (1,324) (199) 565% (2,561) (388) 560%
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Ezulwini Mine (1,075) - 100% (1,999) - 100%
MWS (249) (199) 25.1% (562) (388) 44.8%
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Gross (loss) profit (6,733) 5,815 (216%) (10,658) 9,091 (217%)
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Ezulwini Mine (12,822) - (100%) (22,482) - (100%)
MWS 6,089 5,815 4.7% 11,824 9,091 30.1%
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Other income 743 625 18.9% 1,023 997 2.6%
Other
expenditures(b) (8,823) (7,512) 17.5% (15,622) (15,008) 4.1%
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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
accretion
expenditures (3,822) (3,788) 1.0% (7,380) (5,937) 30.4%
Fair value loss
on derivative
liability (703) - 100% (1,180) - 100%
Accretion expense
on asset retirement
obligations (521) (381) 36.7% (1,013) (762) 32.7%
Foreign exchange
(loss) gain 2,364 3,285 (28.0%) (14,044) 2,761 6,275%
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Loss before income
taxes (17,257) (783) 2,104% (47,930) (5,853) 719%
Income tax charge (1,184) (323) 267% (3,775) (1,048) 2,261%
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Loss for the
period (18,441) (1,106) 1,567% (51,705) (6,901) 6,492%
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Basic and diluted
loss per common
share (0.11) (0.01) 1,000% (0.32) (0.05) 540%
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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
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(thousands of dollars) Q2 2010 FY 2009 % Change
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Cash and cash equivalents 59,675 112,005 (46.7%)
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' equity (311,687) (270,097) 15.4%
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Key financial ratios:
Current ratio(c) 0.93:1 2.13:1
Debt-to-equity(d) 0.44:1 0.45:1
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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
On
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
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
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
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
Callers may dial 1 800 319-4610 (
A telephone replay of the conference call will be available for 30 days. To access the replay, callers may dial 1 800 319-6413 (
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
For further information: Bob Tait, Vice President, Investor Relations at [email protected], (416) 342-5639 (office) or (416) 558-3858 (mobile), 1240-155 University Avenue, Toronto, ON, M5H 3B7
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