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DAILY NEWS Aug 10, 2011 2:41 PM - 0 comments

Soaring Q2 profits for Uranium One

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Uranium One's (UUU-T) second-quarter profits surged 450% to US$29.7 million, compared to the year-ago period, as revenue nearly doubled.

Adjusted net income for the quarter was US$27.1 million, or 3¢ per share, which was inline with analysts' predictions.  

Uranium One is the only uranium producer covered by BMO Research that hit consensus forecast, says analyst Edward Sterck of BMO Capital Markets.

The miner raked in US$112.9 million in revenue, or 71% more than the US$66 million generated in the same period last year. The jump was due to relatively higher sales volumes and price.  

The company sold 2 million lbs. uranium oxide (U3O8), a 33% increase from the same quarter a year ago, at US$58 per lb. The average spot price for the quarter was US$56 per lb.

"The sales were a little bit low than I was expecting, however they maintained their guidance for the year," says Sterck. The company reconfirmed its 2011 production guidance of 10.5 million lbs., and sales of 9.5 million lbs.

Sterck notes despite the lower-than-expected sales, one of the "big positives" for the quarter was the cash costs, which were 27% below what he had estimated.  

Uranium One produced 2.4 million lbs. U3O8 at an average cash cost of US$15 per lb. Production is 33% higher than the same period last year, which had similar costs.  

"This quarter saw a continued low cash cost with a higher than market average sales price," said Uranium One's CEO Chris Sattler, in a press release.

The company adds Japan's Fukushima crisis will have near-term impacts on U3O8 demand, but expects broader growth for nuclear power from emerging markets in China, India, Russia and the Middle East.

The company predicts the disaster eroded global uranium demand by 8-10% over the next decade, says Canaccord Genuity's analyst Orest Wowkodaw.

Sterck agrees Fukushima has created some problems, but says "things aren't as bad as people think."

He explains a mid-tier producer like Uranium One, with its strong balance sheet, would benefit from the disaster in the long run, because juniors may experience more trouble bringing new uranium supply online than they did pre-Fukushima.

Uranium One has six operating mines in Kazakhstan, an interest in the Honeymoon mine in Australia, and two assets in the United States.

It recently became the operator at the Mkuju River project in Tanzania. It has a call option to buy the project from Atomredmetzoloto, its 51% shareholder, within the next 12 months.

Wowkodaw says he anticipates the company will exercise its option by year-end, and assumes the company would fund the US$150-million purchase through existing cash, and a mix of debt and equity.

At the end of June, the company had a cash balance of US$318 million and total debt of US$455 million.

Capital expenditures for the year were reduced to US$215 million from US$234 million, mainly because it planned to defer the Moore Ranch project in Wyoming, which is near its new Willow Creek mine.

Both Sterck and Wowkodaw are maintaining a "buy" on the stock and have a 12-month target price of $4 per share.

 On August 10, Uranium One shares were trading at $3.12.

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