Thursday, August 31, 2006

Aug 31 Uranium Stocks Update: sxr Uranium One (TSE:SXR)

For the past month, SXR's stock has essentially been flat, although volume in the last week has picked up, along with most of its uranium counterparts. Let's examine any updates pertaining to SXR.TO:

Dominion

SXR Uranium One's flagship project in South Africa remains on schedule to produce uranium oxide in the first quarter of 2007. Neil Froneman, CEO of SXR Uranium One, comments that the project payback is expected to be five years from the start of construction. In addition,
Dominion is now proven to have at least 31-million pounds of uranium oxide (U3O8) after the completion of the first-phase feasibility study, and work is now underway to prove more of the estimated 300 million lbs of uranium oxide in Dominion. The average operating cost for the first phase is expected to be $14.50/lb of U3O8, net of gold by-product credits; originally the cost was supposed to be higher but due to the high uranium oxide price, SXR Uranium One plans to mine lower-grade ore as well.

Honeymoon

The long-awaited fourth Australian uranium mine has been approved by SXR.TO's board after favorable recommendations from the feasibility study. Honeymoon will be an ISL project with an annual production capacity of 400 tonnes (880,000 lbs) of U(3)O(8) and a total project life of between 6 - 7 years. Project costs are estimated to be $35.9 million with production to start in 2008 (need to build infrastructure such as roads) with a payback period of 2.9 years from commencement of construction. Lifetime operating cost for Honeymoon will be about the same as Dominion at $14.13/lb of U3O8.

Aflease + Modder East

SXR.TO through its 75%-owned subsidiary Aflease Gold announced the results of a feasibility study in the Modder East project located also in South Africa. In short, the feasibility study suggested that Modder East indeed was a workable project with a million ounces of gold, production to start roughly in 2009-2010 with approximately 110,000 ounces of gold a year, an average cash operating cost of $217/oz and project payback from commencement of mine construction is estimated to be 4.5 years

Financing

SXR recently engaged in a $50 million lending transaction using its Aflease shares as collateral. The loan has a term of 12 months with a 9% interest rate. With its recent excursions into the States with the two purchases of Sweetwater from Rio Tinto (NYSE:RTP) and Shootaring Canyon from U.S. Energy Corp. (NASDAQ:USEG) totalling $165 million, with continuing developments costs for Dominion and now Honeymoon and only $84 million in cash, there was some doubt as how SXR was going to finance its assortment of projects. The fact that they chose to finance through loans shows that the company is not going to use share issuance exclusively.

African Company Status

The South African Reserve Bank (SARB) has confirmed SXR Uranium One as an "African Company", meaning that qualifying South African institutions can hold an additional 5% of their portfolios in Uranium One shares to their normal entitlement under South African exchange controls.

Conclusion

As SXR continues to close in on the status of being a uranium producer, it has managed to navigate a tricky course with panache, filling its pipeline with uranium and gold projects alike. I look for continued development in this fast-growing company, whose total number of shares outstanding are surprisingly only a quarter of Paladin Resources' (TSE:PDN) and Urasia Energy's (CVE:UUU). With a current market capitalization of $943 million, SXR is not a cheap stock, but one that I classify as a uranium blue chip, if there were such designations. Long-term investors fear not putting your money into this company.
 

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