INVESTMENT INSIGHTS

Top analysts describe how First Uranium needs USD 150m cash, just to stand still.

Posted: Thursday , 04 Feb 2010

JOHANNESBURG -

Specialist analysts at RBC Capital Markets are warning that Toronto- and Johannesburg-listed

First Uranium, which operates the behind-schedule uranium and gold producing MWS retreatment entity, and also the refurbished Ezulwini mine, both in South Africa, had previously sold forward portions of its gold production, for upfront cash, to Gold Wheaton.

On Tuesday, First Uranium CEO Gordon Miller failed to show for a presentation he was due to give at the Indaba, a major international annual mining conference, in Cape Town. On the sidelines, Johannesburg-listed

- which until late 2006 held 100% of First Uranium, before it was spun out and listed in Toronto, is busy reorganizing itself after years of boardroom battles, culminating in the recent resignation from Simmers of, among others, Gordon Miller as CEO and also Nigel Brunette, a farmer, as chairman. Brunette was and is also chairman of First Uranium.

RBC analysts say the "best case" scenario, barring First Uranium being acquired, would see the company receive the recently withdrawn MWS tailings permit within the next two weeks, coupled with a USD 125m to USD150m equity issue. RBC believes that "this would allow First Uranium to complete its capital programs and bring MWS back to its planned production levels before June 2010 (in order to avoid a penalty to Gold Wheaton)".RBC analysts have assumed a USD 150m equity issue at CAD 1.00 a share. First Uranium traded above CAD 13.00 a share early in 2007, and is currently trading at CAD 1.14 a share. In the past year alone, the stock has lost USD 1bn in market value.

In a "mid case" scenario, the RBC analysts describe a delayed permit for the MWS tailings (until 2012), and a capital injection of USD 150m "to ensure the company remains solvent . . . This case would also include a USD 42m penalty payable to Gold Wheaton". The analysts argue that "debt is highly unlikely and equity will be challenging and dilutive". At this point, First Uranium has a market value of USD 220m.

Under a worst case scenario, the analysts foresee that "First Uranium is unable to secure a permit for its tailings, is unable to raise new funding and is forced to declare insolvency".

First Uranium is capital starved, all right. When it listed in Toronto early in 2007 it raised a net USD 179m in cash. From its formation in 2006 up to 30 September 2009, First Uranium has spent USD 465m on capital expenditure at Ezulwini and MWS.

Cash deficits have been funded by further rights issues, the sale of convertible debentures, and the sale of portions of forward gold production from First Uranium to