BACK IN APRIL, I posed the question: “Recovery or dead cat bounce?” after Uranium One had plunged from around C$13 to a low of C$3,04 on the Totonto stock exchange and then recovered abruptly to C$4,38.
Uranium One is now doing it again, recovering to current levels of around C$1,13. So is this finally the long-awaited recovery or just a secondary “dead cat bounce?” The three drivers pushing the share down are the uranium price, the global financial meltdown, which has hammered stocks across the board, and the closure of Uranium One’s troubled Dominion mine.
After picking up from around US$55/ lb to $65/lb in July, the spot price of uranium oxide has fallen again and currently sits at around $50/ lb. There’s nothing Uranium One’s management can do about that or the fallout from the sub-prime credit mess that, according to CEO Jean Nortier, is the main reason for the drop in its share price as hedge funds liquidated their positions.
I have long believed the main issue was the Dominion mine, where management hasn’t succeeded in making it deliver at anywhere near its forecast production volumes and recovered grade. That was confirmed on October 22 when Uranium One shut down Dominion after a year of refusing to provide detailed working cost information for the mine or to disclose what it’s costing the group in terms of “cash burn” through working losses and the amount of capital expenditure still being pumped into it.
Dominion had been closed since 13 October, when operations were “temporarily suspended” due to labour trouble. More than 1 000 workers were fired because of an illegal strike.
Nortier reckoned at the time Dominion had nothing to do with Uranium One’s share price collapse. The truth is now out at last and it has cost shareholders billions of rands.