Uranium Week: Speculation Pushes Prices Higher

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

By Greg Peel

Having leapt a remarkable 16% the week before, the uranium spot price could have been excused for a bit of a pullback last week as buyers threw their arms up and/or sellers jumped in to reap the spoils. But this was not the case. Industry consultant TradeTech’s spot price indicator ended the week up another US$2.00, at US$44.00/lb.

The long-awaited formal green light for the restart of two of Japan’s idled reactors has clearly galvanised the market and put the commodity “in play”. While the sharp rally in recent weeks has largely been exacerbated by thin trading and low volumes, as some urgency in demand from utilities has begun to emerge but sellers have backed off to maximise their opportunity, last week saw eleven transactions conducted in the spot market totalling 1.3mlbs, TradeTech reports.

Utilities were among the buyers but uranium traders dominated the week’s activity, along with speculators. Prices did indeed begin to dip mid-week but this only spurred on the buy-side, sending the spot price to another weekly gain. Near-term supplies are beginning to thin as the year draws to a close, hence more buying interest is expected in coming weeks. Sellers are in no rush to lower prices.

There were also two transactions reported in the uranium term contract market last week. Trade Tech’s term price indicators nevertheless remain unchanged at US$38.75/lb (mid) and US$45.00/lb (long).

A rapidly rising spot uranium price should be a great source of relief for Australian-listed producer Paladin Energy ((PDN)), and indeed Paladin’s share price rallied around 40% last week, but operationally the company is not without its issues.

Late last week Paladin posted a September quarter report which highlighted a poor operational performance at its flagship Langer Heinrich mine in Namibia due to maintenance shutdowns both planned and unplanned. Despite higher uranium prices, the company continued to burn more cash in the quarter.

With cash flow still negative, the urgent issue for Paladin is the company’s level of gearing, and specifically a convertible note issue due to mature in less than twelve months. Paladin will be unable to repay the debt and thus will need to come up with another solution fairly swiftly. An announcement is expected before year-end. Brokers are not ruling out any potential option from debt restructuring to another equity raising or the sale of another stake in its Langer Heinrich mine, or some combination of any or all of the above.

FNArena’s database of major brokers shows only one Buy or equivalent rating on Paladin at present, from Morgans, against four Holds and one Sell.
 

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