Uranium One's South Inkai Announcement May Actually Be a Negative

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Beleaguered mining company Uranium One Inc. (SXRZF.PK) had a positive-looking announcement on Tuesday, saying it received approval from the government of Kazakhstan to begin industrial production at its 70%-owned South Inkai project.

But according to Raymond James analyst Bart Jaworski, the news is not as great as it sounds. The company also announced average cash costs per pound sold at South Inkai are expected to be $28 a pound in 2009. That is way worse than the $17 a pound he expected, and he thinks there is uncertainty about costs further down the road due to the time required for a production ramp-up.

He considers the South Inkai announcement to be slightly negative overall, although he said the timeliness of the deal reflects well on Uranium One's management and its relationship with the Kazakh government.

He wrote in a note to clients:

Most of the bad news appears out of the stock, however, we remain cautious on UUU due to lack of visibility on new [Kazakh] tax and subsoil regulations which come in on [Jan. 1, 2009].

Mr. Jaworski maintained an "outperform" rating on Uranium One shares and a price target of C$1.80 a share. He noted a number of possible catalysts for the stock: the Kazakh government's new tax and subsoil legislation, start-up of commercial production at the Kharasan project in 2009, the potential sale of the Dominion mine and other non-core assets, and the receipt of industrial production licenses at Kharasan in 2010.