Paladin announces off-take contract

16 August 2012

Australia's Paladin Energy has announced a long-term uranium off-take contract. The deal includes a $200 million prepayment that will help the company's cash flow situation.

Paladin said that under the long-term contract, it will deliver a total of 13.73 million pounds of U3O8 (6230 tonnes U3O8) to "a major utility" between 2019 and 2024. The uranium, it said, would be sourced from its current African mining operations "or a project yet to be developed from the company's significant existing project pipeline or a combination of these options." Uranium supplied under the contract will be sold at market prices prevailing at the time of delivery bounded by escalating floor and ceiling prices.

The off-take contract includes a prepayment of $200 million "in respect of part of the future product deliveries." In exchange, the undisclosed utility will hold security over 60.1% of Paladin's Michelin project in Canada. Paladin noted that the percentage of Michelin secured "will be reduced by joint agreement as the value of the project is enhanced by Paladin's ongoing work." It said that the Michelin security could be replaced "by other appropriate security if required."

The $200 million prepayment is due to be paid by the end of January 2013, once formalities have been completed, including the required registration of the security documentation. Paladin said that this prepayment will be applied to repayment of the balance of the March 2013 convertible notes (some $134 million) with the remainder retained for balance sheet strength as working capital.

Paladin noted, "The specific nature of the long-term contract, leveraging off forward production, is in itself a strong indication of the uranium industry's future supply challenges and fully endorses Paladin's development vision to date."

In July, financial services firm JP Morgan suggested that Paladin's internally-generated cash flow may not have been sufficient by itself to repay the convertible bond due next March and that the company's cash flow and balance sheet were reliant on the ongoing corporate strategic review. At that time, Paladin indicated that it was assessing "three mutually exclusive outcomes as part of the review."

However, JP Morgan has now said that the contract - believed to be one of those outcomes - "is very positive" for Paladin as it "alleviates most concerns over the balance sheet and cash flow, particularly ahead of the convertible bond due in March 2013." While the $200 million prepayment will provide the necessary funds to pay the convertible bond due in March 2013, the following debt repayment is not due until the November 2015 convertible bond, which will require $300 million. JP Morgan commented, "With another two outcomes still being evaluated as part of the strategic review, there could be more asset sales to come before the end of the year."

The market responded positively to the announcement of the new contract, with Paladin's shares closing 10% higher on the Australian Stock Exchange. The company said that, in light of the contract, it "will now re-evaluate its strategic options."

Paladin operates the Langer Heinrich mine in Namibia and the Kayelekera project in Malawi. Exploration work at the Michelin project in Labrador, Canada, is due to start this month. Paladin also has interests in various Australian uranium exploration and development projects.

Researched and written
by World Nuclear News

Filed under: Contracts, Nuclear fuel