Uranium price crash begins to take its toll
Uranium Resources Inc. begins shutting down Texas ISL wellfields; profit margins are squeezed; company expects production and exploration to cease entirely by April 2009 unless uranium prices recover
Posted November 14, 2008
Powertech CEO Richard Clement has been in the uranium business since 1967, but during those 40-plus years he has never run or helped run an actual uranium mining operation, according to Powertech's securities filings. From 1983 through 1999, he worked for Uranium Resources, Inc. in the areas of exploration and permitting. URI owns several uranium properties in Texas and New Mexico.
On Monday, URI filed its quarterly report with the U.S. Securities and Exchange Commission. The Form 10-Q report does not bode well for Powertech Uranium Corp. and other uranium start-ups. URI announced it expects to cease all uranium mining and exploration by the end of the first quarter of 2009 unless prices for the radioactive metal increase.
URI is apparently the first ISL uranium producer or developer to publicly announce plans to shut down operations due to the recent crash in uranium prices. The spot price for uranium has fallen from $138 a pound in June 2007 to $48 this week. During the most recent quarter, URI sold uranium for an average price of $60.71 a pound while its cost of sales averaged $60.25 a pound (including royalties).
URI's actual production cost during the quarter averaged $68.52 a pound, partly due to "lower levels of recovery" from certain wellfields. URI posted a net loss of $14 million for the quarter and a loss of $19 million year-to-date.
If uranium prices do not recover soon, Powertech will face an uphill battle advancing its proposed projects, including the Centennial Project in northern Colorado and Dewey-Burdock in South Dakota. The Canadian company had only $7.8 million of cash at June 30 and has experienced a cash burn rate of about $1 million a month over the last few quarters (Powertech has not yet filed its July-September financial statements.) Without a cash infusion, Powertech could run out of cash by early 2009.
Excerpts from URI's Form 10-Q:
URI explores for and produces uranium in South Texas where it has three operations: Kingsville Dome, Vasquez and Rosita. URI also has 101.2 million pounds of in place mineralized uranium material on 180,000 acres in New Mexico and a Nuclear Regulatory Commission license to mine uranium at our Churchrock project in New Mexico...
Over the last year we have taken actions to execute our strategy and have had to adjust appropriately as the market for uranium changed. Our South Texas operations are heavily influenced by the price of uranium both on the spot and long-term markets. The spot price of uranium, which has fluctuated in the last year from a high of $136.00 to a low of $44.00 in October 2008, has been the primary driver of the strategic decisions of the Company. Similarly, published long-term contract prices dropped from $82.50 at June 30, 2008 to $75.00 at September 30, 2008 and $70.00 per pound at the end of October 2008...
Falling prices and rising costs have led to a decline in margins to a level that we believe does not justify further wellfield development at any of our projects and, therefore, have deferred all activities for delineating or developing wellfields until a stronger pricing environment is realized...
By the end of the first quarter of 2009 we expect all production will cease until there is a recovery in uranium prices...
The decision was made to defer the commencement of production at new wellfields at Kingsville Dome because of the increased cost of production seen from this project's most recent wellfields considered with the current and near to mid-term market prices projections for uranium prices. With our unit production costs increasing and sales prices declining, the decision was made to delay additional capital development necessary to bring on new wellfields until uranium market prices rebound to more profitable levels.