Do­min­ion mine fi­nally closed

Re­al­ity has caught up with man­age­ment that re­mained hope­lessly op­ti­mistic

Finweek English Edition - - Companies & Markets - BREN­DAN RYAN

IF THERE’S ONE LES­SON in­vestors should take away from the melt­down at Ura­nium One it’s this: treat com­ments by CEO Jean Nortier and his pre­de­ces­sor Neal Frone­man with scep­ti­cism. Both re­mained staunchly op­ti­mistic over the past 18 months as Ura­nium One’s share price plunged south and mar­ket spec­u­la­tion grew about prob­lems with both the min­ing op­er­a­tion at Do­min­ion and its met­al­lur­gi­cal plant.

The bot­tom line is that Do­min­ion was fi­nally shut last week and Ura­nium One’s price had lost 95% of its value over the past 12 months, fall­ing to C$0,64 from C$12,95/ share on the Toronto Stock Ex­change.

The ru­mours about Do­min­ion had been around from the out­set of the project but they started to gain cre­dence around July last year. The al­le­ga­tions were that Frone­man had over­stated the grade of the de­posit and un­der­stated the min­ing costs and had also over­es­ti­mated the re­cov­ery ef­fi­ciency of the pres­sure leach plant be­ing built.

The al­le­ga­tions were con­sis­tently de­nied by Frone­man and other key ex­ec­u­tives, in­clud­ing vice-pres­i­dent Robert van Niek­erk, who had line re­spon­si­bil­ity for Do­min­ion.

How­ever, the un­ease grew as Ura­nium One started to cut back on its pro­duc­tion fore­casts for Do­min­ion for 2007 and 2008. In July last year Frone­man main­tained Do­min­ion would meet its pro­duc­tion tar­get of 500 000lb of U308 dur­ing 2007 and 2m lbs for this year. The fol­low­ing is what he told a con­fer­ence called in Novem­ber 2007 af­ter the first re­vi­sion to those num­bers. “There’s ab­so­lutely no change in the qual­ity of as­sets – there are no fun­da­men­tal flaws.”

Frone­man gave an up­beat pre­sen­ta­tion to the Min­ing Ind­aba in early Fe­bru­ary and then baled out on 21 Fe­bru­ary, claim­ing it was time for a ca­reer change. The day Frone­man left, Nortier was ap­pointed CEO and re­vealed that Do­min­ion pro­duced only 171 000lbs dur­ing 2007 and its 2008 tar­get was be­ing cut to 590 000lbs.

I wrote at the time (6 March) that “for a CEO to bale out with im­me­di­ate ef­fect from a com­pany clearly un­der such stress, in­di­cates only one thing – and that’s huge trou­ble.” So it has proved, al­though Nortier re­mained doggedly op­ti­mistic. He told the BMO Nes­bitt Burns con­fer­ence held in Mi­ami on 25 Fe­bru­ary that the de­sign of the Do­min­ion mine and plant was “still ap­pro­pri­ate” to reach de­signed pro­duc­tion, al­though he ex­tended the ramp-up pe­riod.

When he an­nounced the clo­sure of Do­min­ion last week, Nortier said the de­ci­sion had been taken fol­low­ing a detailed life of mine plan­ning process “which has shown the project would re­quire a sus­tained re­cov­ery in ura­nium prices as well as sig­nif­i­cant ad­di­tional cap­i­tal in­vest­ment in or­der to be­come eco­nom­i­cally vi­able”.

Nortier told a ques­tioner in a con­fer­ence call the lat­est es­ti­mate on cash work­ing costs at Do­min­ion was in the “mid-$50/lb”. That’s the project Frone­man boasted would run at cash costs of $18/lb over 2007.

There’s an ob­vi­ous ques­tion: When, pre­cisely, did Ura­nium One man­age­ment re­alise Do­min­ion wasn’t go­ing to be vi­able? Was it, per­haps, when Frone­man quit? Or maybe even ear­lier? The cost to share­hold­ers in im­pair­ment charges will run to bil­lions of rand.

Frone­man reck­ons he did noth­ing wrong at Ura­nium One. He prob­a­bly couldn’t care less af­ter get­ting out with more than R32m af­ter cash­ing in share op­tions in Novem­ber 2006. He’s now run­ning Aflease Gold. In­vestors buy­ing that share should heed the fa­mous proverb “caveat emp­tor”.

Baled out. Neal Frone­man Left hold­ing the baby. Jean Nortier

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.