First Uranium in absolute crisis

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Barry Sergeant – investigations editor, Moneyweb updates us on First Uranium.

HILTON TARRANT: Barry Sergeant, Moneyweb's investigations editor, is with us in the studio. Barry, some concern around First Uranium out of Canada, concerns around the company needing to raise capital to continue operations. Also a late breaking announcement out from Simmers. Bring us up to date.

BARRY SERGEANT: Ja, well, it's been quite a week for First Uranium, to say the least. And the context there. Simmer & Jack, the original parent company was recapitalised in 2005 in the Brett Kebble era, and under the encouragement of a number of investors First Uranium was spun out of Simmer & Jack late in 2006, listed in Toronto. And the chief executive and chairman at Simmers, Gordon Miller and Nigel Brunette, went on to the same positions at First Uranium. They resigned from Simmer & Jack a couple of months ago. This week was characterised by what can broadly be classified as mayhem, starting off on the second with the news out of First Uranium that it had made further cuts in its projection for uranium, and also gold production. That's the third cut since April ''08, where they had said they expected uranium production next year, 2011, to be 1.9m pounds; the latest number is not 477 000. So it's a cut of round about three-quarters. Gold production down from 507 000 ounces to 190 000. That's more than a 50% cut. And down in Cape Town at the Indaba, which is a major international mining conference, Gordon Miller failed to pitch up to make a presentation on First Uranium. In the meantime we've seen the stock price wipe the sweep by about 30%, bearing in mind in Toronto it made C$13/share in early 2007. It's now down today at C$1.35, and it is comprehensively out of 120 uranium stocks in the world the worst performing uranium stock. RBC Capital Markets, which was one of the promoters of First Uranium when it listed in Toronto issued a report this week - these are specialist analysts - saying that to stand still First Uranium basically needs between $125m and $115m. It is capital-starved. The other issue is an environmental permit at one of its operations in Africa which has been taken away. It's facing, in a nutshell, insolvency unless it raises that money.

The latest news coming in today from Simmers under its reconstituted board is that an investment committee is going to look at what is now a 37% stake that Simmers holds in First Uranium, and quite a well-known line-up there. The head of the investigation committee, which is going to look at the story, Bernard Swanepoel, ex-chief executive of Harmony Gold; also Ralph Havenstein, ex-CEO Anglo Platinum, and David Brown, incumbent CEO Impala Platinum, Stuart Murray, CEO at the moment of Aquarius and Peter Surgey who came out of the Barloworld stable. So it's anyone's guess at this stage but what is clear is that First Uranium has an absolute crisis. There is no confidence in the management, and the one possible option, which it's probably worthwhile venturing at this stage, is that there could be certainly a two-way merger, Simmer & Jack re-merging with First Uranium, but possibly a three-way merger into a company which is far better capitalised than either of these two. But in the meantime it's anyone's guess. And, my goodness, the kind of damage that this has done to the profile and reputation of a second-tier South African mining stock within South Africa and overseas is going to take quite some time to mend.

HILTON TARRANT: Barry Sergeant is Moneyweb's investigations editor.