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TABLE OF CONTENTS May 23 - 29, 2011 Volume 97 Number 14 - 0 comments

Uranium One's Q1 revenues, profits on the rise

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Uranium One's (UUU-T) first-quarter profits rose substantially to US$14 million over the same period last year, which saw a net loss of US$1.4 million, but was still below market expectations.

On news of the results, Uranium One's stock dipped 3% to close at $3.95 per share.

Adjusted net income for the quarter was US$14.7 million, or US2¢ a share, up from an adjusted net loss of US$10.5 million for the same period in 2010. 

Canaccord Genuity analyst Orest Wowkodaw writes in a May 12 report that the first-quarter results were "relatively disappointing" and that adjusted earnings were below his estimate of US$47.9 million, or US5¢ per share, and the First Call consensus of US5¢ per share. He says this was mainly due to the "timing of uranium deliveries, as operating results were in line."

Similarly, Raymond James analyst Bart Jaworski states in a May 11 report that the miss in earnings was caused by "lower sales volumes, reflecting timing differences in deliveries," but added, despite that, the results were "positive." (Jaworski had estimated an adjusted profit for the quarter of US$51.3 million.)

Total attributable production for the quarter came in at 2.4 million lbs. uranium oxide (U3O8), which was 33% more than the 1.8 million lbs. churned out a year earlier.  

The miner says the spike in production was due to its recently acquired Akbastau (50%-owned) and Zarechnoye (49.67%) uranium mines in Kazakhstan. Akbastau and Zarechnoye produced 366,900 lbs. and 231,000 lbs. of U3O8 , respectively.

Despite in-line production, Wowkodaw notes that the first quarter's total U3O8 sales of 1.7 million lbs. were about 25% below his forecast of 2.2 million lbs. 

Jaworski adds that total U3O8 sales were also below Raymond James' prediction of 2.3 million lbs.

Wowkodaw writes that though U3O8 sales were 120% higher than in the first quarter of 2010, which saw 800,000 lbs. sold, it was about 42% below the previous quarter's sales of 2.9 million lbs. U3O8

During a May 11 conference call, CEO Chris Sattler said that he expects a "gradual ramping up of sales over the next three quarters," compared to the "light" first quarter sales, with the "heaviest" delivery being in the last two quarters.

Despite lower sales, the company cut its operating costs for the quarter. The average total cost to produce a pound of U3O8 was US$14, compared to US$18 per lb. in the year-ago period. 

However, the average realized price was US$61 per lb. U3O8, below the spot price of US$68 per lb. for the quarter. 

Sattler explained the discrepancy between the two prices as being due to the company's "trailing price mechanisms" which references the uranium prices from the month prior to delivery or the trailing six-week average. "In a rapidly rising uranium price environment," Sattler said, "the company will always lag the average spot price for the quarter," adding that the opposite is true in a falling price environment.    

Revenue for the quarter came in at US$101.9 million.

Wowkodaw comments that due to the "lower price realizations and deferred U3O8 sales volume," revenue for the quarter was about a third less than Canaccord's forecast. Similarly, Jaworski of Raymond James had estimated revenue of US$150 million for the quarter.

For 2011, the company expects to produce a total of 10.5 million lbs. U3O, at an average cash cost of US$18 per lb. It predicts it will sell about 9.5 million lbs. U3O8 this year and 12 million lbs. during the next.

Wowkodaw says he's maintaining a buy on the stock, but lowered the target price to $4.65 per share from $4.85. He explains that while the ongoing Fukushima disaster in Japan will affect uranium prices, the "buy rating is supported by the company's impressive growth profile and low-cost operating position." 

In a May 6 note, Jaworski had an outperform rating on the stock, with a price target of $5.30 a share.

To beef up its resources, Uranium One plans to buy Mantra Resources (MRL-T, MRU-A) and its Mkuju River uranium project in Tanzania from Russia's Atomredmetzoloto (ARMZ) within two years under a revised deal, instead of one year.

In March, ARMZ lowered its A$8-per-share bid to acquire Mantra to A$7.02 a share after the Japanese nuclear disaster.

Under the new deal, Uranium One must also buy 15% of Mantra's shares (worth about US$150 million) from ARMZ within six months of the deal closing, which is expected to be sealed in June.

Mantra recently released a feasibility study for the Nyota prospect, which is part of the Mkuju project. Based on the study, Nyota would produce about 4.2 million lbs. U3O8 per year over its 12-year mine life. Operating costs are expected to average US$22 per lb. 

Uranium One notes that in the wake of Fukushima, uranium demand dropped, causing uranium spot prices to sink to US$49 per lb., which have rebounded since, and are currently at US$56 per lb. 

It warns that global uranium demand over the next decade may drop by 5%, but expects that China, India, and Russia will be the major drivers of future uranium demand with their plans to build more reactors.

It says that 70% of new global production this decade would come from Kazakhstan and Africa, adding that Kazakhstan is targeting production of 19,600 tonnes of U3O8 this year.

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