First Uraniums South African expansion in doubt after environmental approval revoked

TORONTO - Uncertainty for Canadian mining companies operating in South Africa continued Tuesday, with First Uranium Corp. (TSX:FIU) saying it will suspend expansion plans due to the withdrawal of a key government approval.
As debate swirled in South African political circles over a proposal for nationalization of foreign mining assets in South Africa, First Uranium said government officials have revoked an environmental authorization for its Mine Waste Solutions operation and, in the process, disrupted the company's financing plans.
The news sent shares in First Uranium tumbling by 42 cents or 22 per cent to $1.46, a low not seen since October 2008. More than 14 million shares traded hands, representing the highest trading volume Tuesday on the Toronto Stock Exchange.
The Toronto-based gold and uranium miner said it's still "cautiously optimistic" that officials will reinstate the environmental authorization for a new tailings storage facility at MWS, and it is engaged in discussions regarding alternative financing opportunities.
Tailings are a combination of waste rock and chemicals produced after ore is milled and the valuable metals or minerals extracted.
"As a result of the circumstances that have been precipitated by the unexpected withdrawal of the environmental authorization for our future tailings deposition site at MWS, management's key priorities are to resolve this authorization issue as quickly as possible, seek strategic alternatives for financing and the immediate restructuring of our operations," stated Gordon Miller, president and CEO of First Uranium.
First Uranium's troubles follow a call by the youth wing of South Africa's ruling party to nationalize the resource-rich country's mining industry.
The youth league of the African National Congress called for "expropriation with or without compensation" to improve working conditions, create more sustainable jobs and bolster the government's coffers.
Other Canadian mining companies with operations in South Africa include Uranium One Inc. (TSX:UUU) and Great Basin Gold Ltd. (TSX:GBG).
However, First Uranium spokesman Bob Tait said he doesn't think the youth league's proposal is related to his company's difficulties.
"In talking to the government officials that we deal with on a regular basis, we don't find that that argument is taken seriously, and they fully understand what that could do to limit foreign investment in the mining industry," Tait said in a telephone interview from Johannesburg.
The government has yet to give First Uranium any reasons for why it withdrew the environmental authorization. The company hopes to solve the issue soon, but is preparing for the "worst-case scenario" that it could have to go through the entire process again, which could take as long as a year, Tait said.
First Uranium is taking a number of steps to deal with the financial impact of the unanticipated withdrawal, which the company says has disrupted some well-advanced plans for additional funding. If alternative financing is not obtained, First Uranium said the financial impact, combined with a slower-than-expected production buildup at its Ezulwini mine, could "severely compromise the company's financial position."
Tait said the company is in discussions with investment bankers on alternative financing proposals, but has yet to reach any agreements.
"We're weighing them, evaluating them, to see which fits our current situation in the best way.... We're keeping our options open," he said.
In the meantime, the miner said it will suspend construction and commissioning of a third gold plant at MWS, which had been due for completion in May.
In addition, production at MWS will be scaled back from two gold plants to one at the end of March. The company cautioned that this will result in lower revenues and increase the amount of financing required. Tait also said the company wouldn't rule out the possibility of moving the tailings storage facility to another site if it can't get its environmental authorization reinstated.
Vancouver-based gold royalty company Gold Wheaton Gold Corp. (TSXV:GLW), which is under contract to receive 25 per cent of the gold produced by First Uranium, said the developments may trigger a $42-million penalty payment.
"What they've done is now impacting on our company and we're not seeing gold delivered as per the delivery schedules that they'd undertaken when we entered into these agreements," Gold Wheaton chairman and CEO David Cohen said in an interview.
"Obviously we would like to see this resolved as soon as possible."
Cohen added that the planned production cutbacks at MWS will reduce Gold Wheaton's production forecast by approximately 20,000 ounces of gold, or 17 per cent, in each of 2010 and 2011.
Shares in Gold Wheaton lost 2.5 cents or more than eight per cent to 27.5 cents on 28.8 million trades, the highest volume Tuesday on the TSX Venture Exchange.
First Uranium has also revised its production ramp-up for the Ezulwini mine, which produces both gold and uranium, "due to the challenges of training and building up the efficiency of the mining crews."
For the third quarter of fiscal 2010, First Uranium produced 10,054 ounces of gold from Ezulwini, a 26 per cent increase compared to the previous quarter, and 21,891 ounces of gold from the MWS tailings recovery project, a 63 per cent increase compared to the previous quarter.
The mine also shipped its first container of 23,760 pounds of uranium in the form of "yellowcake" for processing in the United States.
For the 2011 fiscal year, which begins April 1, 2010, First Uranium is projecting it will produce 133,000 ounces of gold and 207,000 pounds of uranium.
In fiscal 2012, the company is predicting it will produce 194,000 ounces of gold and 312,000 pounds of uranium while the following year's production is forecast at 265,000 ounces of gold and 390,000 pound of uranium.