Paladin narrows its loss, continues to cut costs

28 August 2015

Paladin Energy has reported a net loss of $368.8 million for the 2015 fiscal year, ending 30 June, up from a loss of $336.5 million in fiscal 2014.

The Australian uranium producer attributed the loss in part to a one-time, non-cash impairment charge of $180.8 million (after tax) for the decline in value of exploration rights in Queensland, Australia, where the government recently reinstated a ban on uranium mining. The average realised uranium sales price for the year was $37.00/lb U3O8 compared to the average TradeTech weekly spot price for the year of $35.80/lb U3O8.

Its Langer Heinrich Mine (LHM) in Namibia, southern Africa, produced 5.04 million pounds of U3O8 in the period, a year-on-year fall of 13%. The C1 unit cash cost of production at the mine increased by 5% to $29.07/lb. Its Kayelekera Mine (KM), in Karonga district, northern Malawi, remains on care and maintenance, but a restart feasibility study for internal use is near completion.

Revenue from uranium sales fell 39% to $198.6 million, while total sales volume declined to 5.367 million lb U3O8 from 8.665 million lb U3O8. The falls were as a result of a 2% decrease in the realised sales price and a 94% (3.272 million lb) decrease in sales volume from Kayelekera, which ceased production on 6 May 2014. The last of Kayelekera finished goods were sold in December 2014.

Gross profit for the year of $1.8 million is a "turnaround", Paladin said, from a $65.1 million gross loss - including a gross loss of $60.3million from Kayelekera - in 2014. Net loss after tax attributable to members of the group for the year was $267.8 million, compared with a net loss in the 2014 fiscal year of $338.4million.

Cash flow neutral

The company listed five points on its progress with recapitalisation during the year - refinancing $110 million of a project finance facility in July 2015; completion of the sale of a 25% interest in LHM to CNNC Overseas Uranium Holding Limited for $190 million in July 2015; completion of equity capital raising initiatives that introduced a "cornerstone strategic investor", HOPU Clean Energy (Singapore) Pte Ltd, via a 15% placement as well as the completion of a "well-supported entitlement offer" together raising AUD205 million ($146 million) in December 2014; a $150 million 2020 convertible bond issue in March 2015; and the repurchase of outstanding $300 million convertible bonds due in November 2015.

Cash inflow from financing activities for the year totalled $137.6 million. Cash outflow from operating activities for the year was $24.7 million, after net interest payments of $28.8 million and exploration expenditure of $1.6 million. Cash outflow from investing activities for the year totalled $15.6 million.

The company expects to be cash flow neutral for the 2016 fiscal year on an 'all in' basis at current spot uranium price and foreign exchange rates. Key elements of next year's guidance include Langer Heinrich production of 5.0 million lb to 5.4 million lb U3O8; a weighted average sales price premium to spot of about $4/lb; and Langer Heinrich C1 cash costs in the range of $25/lb to $27/lb - 7-14% lower than they were in the 2015 fiscal year.

Meaningful turnaround

The TradeTech U3O8 spot price at the end of June 2015 was $36.25/lb, about 29% higher than at the end of June 2014 when prices were close to a nine-year and post-Fukushima low, Paladin noted.

"It seems apparent that the uranium market could be in the early stages of a recovery from the earthquake and tsunami in Japan in March 2011 and its damaging effect on Japan's nuclear power industry," the company said. "Prior to March 2011, Japan was the world's second largest consumer of uranium and since that time Japan has been almost absent from the market. Certain other major nuclear power producing nations, such as Germany, have implemented plans to reduce or eliminate nuclear power. Paladin holds a belief that a meaningful turnaround for uranium is underway."

Paladin bases that forecast on three key elements. First, it noted that many countries that eliminated or reduced their nuclear reliance "are now encountering significant consequences and switching back to nuclear" - Japan, in particular, is a key uranium customer now switching back to nuclear.

Second, demand is rapidly accelerating in new markets - all of the BRICS countries (Brazil, Russia, India, China and South Africa) are rapidly growing their nuclear power capacity and increasing their reliance on nuclear power as a proportion of overall power generation, Paladin said.

Third, current prices will constrain supply - according to supply cost curves published by industry analysts, about one-third of current mine supply is uneconomic at the current spot price, Paladin said.

"Low prices are forcing producers to curtail mining, development and exploration. According to industry analysts, in the 2014 calendar year, at least 12 million pounds of annual U3O8 supply has been eliminated," it said.

Maximise cash flow

Despite the company's belief that a uranium industry turnaround is "tentatively underway", its current strategies are focused on "optimising actions to maximise cash flow, whilst also prudently enacting capital management actions", it said.

Key elements of the company's strategy include maximising Langer Heinrich  operating cash flows through "optimisation initiatives that preserve the integrity of the long-term life of mine plan"; maintaining Kayelekera and the company's exploration assets on a minimal expenditure, care and maintenance basis; minimising corporate and administrative costs; considering strategic initiatives with respect to partnerships, strategic investment, funding and corporate transactions, that result in "de-risking Paladin's funding structure or clear value accretion for shareholders".

Subsequent to the $33 million in cost reductions it announced on 30 July, Paladin has identified three further ways to cut costs. First by increasing wash efficiency at Langer Heinrich from 93.1% to 95-98%, and increasing the average feed grade by 11ppm on previous guidance to 694ppm.

Second, through corporate costs, exploration and initiatives at Kayelekrea, Paladin will further reduce annualised cash expenditure by about $8 million more than previously announced. These measures include halving the number of corporate staff that was undertaken on 21 August, concurrent with the reduction in the number of directors and reduction in board fees announced the same day.

Third, exploration has been put on care and maintenance whereby Paladin will undertake the work required to meet minimum license expenditures only.

The 22-year-old company's financial accounts were presented by interim CEO Alexander Molyneux after its founder, John Borshoff, recently agreed to step down as managing director and CEO.

Researched and written
by World Nuclear News