Uranium One Closes Dominion Mine, Stops Cash Flow Losses

Analysts are expressing virtually no surprise that beleaguered miner Uranium One Inc. (SXRZF.PK) decided to close the Dominion mine in South Africa, once considered the company's flagship project. Falling uranium prices and capital overruns were cited as reasons for the closure.

"While it will cost up to C$30-million for closure, it will stop the cash flow bleeding at this operation," noted Paradigm Capital analysts Dave Davidson and Jacob Willoughby.

Both Scott Finlay of Canaccord Adams and Adam Schatzker of RBC Capital Markets are assuming that the mine stays on care and maintenance for two years until a plan can be formalized for it. This is a costly process that will cost $30-million up front and $1-million a month in standby costs, but the company is not expected to face a serious cash crunch.

Mr. Schatzker also calculated that cash costs at Dominion were running between $70.00 and $80.00 a pound, which is far too high in a sinking uranium market.

On the positive side, both he and Mr. Finlay expect the company to be able to meet forward sales contracts from Dominion of about 4.2 million pounds of uranium. That could be done through inventories, production from other mines, and spot purchases.

Analysts maintained "buy" ratings on the stock despite the Dominion announcement. The shares are down more than 90% in the past 12 months, and they simply believe that they are undervalued despite the myriad problems the company has encountered at Dominion and in its Kazakhstan operations.

Mr. Finlay wrote:

We believe that even with the current economic outlook, the residual assets in Kazakhstan and the USA justify a higher share price.