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TABLE OF CONTENTS Aug 22 - 28, 2011 Volume 97 Number 27 - 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 in line with analysts' predictions.  

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

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

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 uranium spot price was US$56 per lb. 

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

Sterck notes that despite lower-than-expected sales, one of the "big positives" for the quarter were the cash costs, which were 27% below previous estimates.  

Uranium One produced 2.4 million lbs. U3O8 at an average cash cost of US$15 per lb. Production was 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," Uranium One's CEO, Chris Sattler, said in a press release. 

The company added that Japan's Fukushima crisis will have a near-term impact on U3O8 demand, but it still expects broader growth to remain robust, particularly in emerging markets like China, India, Russia and the Middle East. 

The company predicts the disaster will erode global uranium demand by 8-10% over the next decade, Canaccord Genuity analyst, Orest Wowkodaw, noted in a research report. 

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, should benefit from the situation in the long run because juniors may experience more trouble bringing new uranium supply online than they did pre-Fukushima. 

The company has six operating uranium mines in Kazakhstan, an interest in the Honeymoon mine in Australia and two assets in the United States. 

It also 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 anticipates the company will exercise its option by year-end, and expects to 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 US$318-million cash balance and debt of US$455 million. 

Uranium One reduced its capital expenditures this year to US$215 million from US$234 million, mainly because it deferred 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 Aug. 17, Uranium One shares were trading at $3.01.

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