The end of the line for Australian uranium company Paladin Energy?

the fact remains that it has not had a profitable annual result since commencing operations. Our modelling forecasts continued negative cash flow and the company running out of cash in early 2014 and consequently [being] unable to service its substantial debt position.

Uranium price slumps, Paladin Energy in trouble Jim Green WISE/NIRS Nuclear Monitor #768, 27 Sept 2013 ” Paladin Energy ……….Australian-based Paladin Energy operates two uranium mines in Africa − Langer Heinrich in Namibia and Kayelekera in Malawi. CEO John Borshoff told a mining conference in Western Australia in July that the uranium industry faces a number of “major problems” such as the lack of greenfields development, dwindling investment capital and the sickly uranium price.[12]

Borshoff said: “[T]he uranium industry is definitely in crisis, I believe, and is showing all the symptoms of a mid-term paralysis if this situation does not demonstrably change. How can there not be a problem when you have an effective moratorium with nearly all major companies making no commitment to greenfields development until the price gets about US$70 and it is believed it can stay above that level. And how can there not be a problem when you have a strong chance that some of the more expensive, smaller operations will be mothballed − putting more pressure on current production. … Only at this price level [US$70/ lb] − and above − can sufficient capital for new products be raised and returns on investment be justified to finally give some risk reward to the shareholder. And this appears to be a long way away.”

Borshoff said much of the blame lies with the uranium industry’s customers, who he said had focused on the expediency of current cheap prices rather than the supply−demand gap forecast to open in coming years.

Shares in Paladin plummeted on August 5 after the company announced a heavily discounted A$88 million raising through the issuing of 125.6 million shares.[13] The company’s cash position dropped to A$78.1 million at June 30, down from A$112.9 million at the end of the previous quarter.[14]

The news followed a decision by the company to scrap negotiations for the sale of its interest in Langer Heinrich. Langer Heinrich produced 5.3 million pounds out of the company’s total output of 8.26 million pounds of U3O8 in the year to June 30.[13] Borshoff said: “The current depressed uranium price has meant that it is unlikely that a price that appropriately reflects the strategic value of the asset will be achieved and accordingly proceeding at this time would be detrimental to long-term shareholder value.”[15]

Andrew Shearer, an analyst at PhillipCapital Ltd., said: “The decision to terminate the asset sale is contrary to the company’s guidance that the process was continuing well and heading toward a conclusion.”[14]

Stockbroker RFC Ambrian said: “From a technical perspective, Paladin can be satisfied that it has achieved record sales but the fact remains that it has not had a profitable annual result since commencing operations. Our modelling forecasts continued negative cash flow and the company running out of cash in early 2014 and consequently [being] unable to service its substantial debt position. This was expected to be covered through the strategic sale of a minority interest in Langer Heinrich for cash.”[16]

The share offering bought the company some breathing space if nothing else. Paladin had about US$670 million of debt at the end of March 2013 according to data compiled by Bloomberg.[14]

On August 30, Paladin Energy had more bad news, reporting a net loss of US$420.9 million for the 2013 financial year, more than double the previous year’s loss of US$172.8 million and not far short of the company’s record net loss of US$480.2 million in financial year 2009.[17,18] Borshoff launched into another spray about the low uranium price, labelling it ”diabolical”, ”extremely depressed” and ”of great concern”.

Borshoff would not rule out closing one of Paladin’s two mines (most likely the Kayelekera mine in Malawi) as part of the company’s efforts to cut costs. Analyst Andrew Shearer said the Kayelekera mine was unlikely to be profitable at present prices, but the decision was complex: ”They would have to weigh up the cost associated with putting it on care and maintenance and whether they have any contractual agreements in terms of uranium sales.”

As Paladin does not make enough profit at current uranium prices to meet its debt repayments, the company will once again try to sell down its stake in its Namibian mine. Extra funding is needed to repay US$300 million in convertible notes that mature in 2015.[18]

As of late August, Paladin’s share price was A$0.56, barely one-tenth the figure of A$5 the day before the Fukushima disaster.

According to Fairfax journalist Peter Ker, Paladin’s “parlous state has some whispering about executive renewal.”[17]

References:

[1] www.infomine.com/ChartsAndData/

[2] www.edmontonjournal.com/business/Lamphier+Uranium+producers+singing+blues/8770941/story.html

[3] https://informaaustralia.wordpress.com/2013/08/05/the-future-of-uranium-nuclear-energy-in-australia/

[4] www.nasdaq.com/article/uranium-prices-finding-a-bottom-cm267210

[5] www.world-nuclear-news.org/NP_Chinas_emerging_nuclear_power_policy_2410121.html

[6] www.world-nuclear.org/info/Nuclear-Fuel-Cycle/Mining-of-Uranium/World-Uranium-Mining-Production

[7] www.mineweb.com/mineweb/content/en/mineweb-uranium?oid=175742&sn=Detail

[8] www.uxc.com/products/rpt_usa.aspx

[9] www.wna-symposium.org/pdf/2011_Fuel_Market_Report_Summary.pdf