Uranium Week: Taking Its Toll

Weekly Reports | Jul 11 2017

Persistently low spot uranium prices have all but claimed another victim, as Australia’s Paladin Energy enters administration.
 

By Greg Peel

Australian uranium miner Paladin Energy ((PDN)) was forced into administration last week and trading in the company’s shares were halted. The move comes as a result of China’s CNNC seeking to exercise an option to acquire the 75% of Paladin’s flagship Langer Heinrich mine in Namibia it doesn’t own – an option triggered by debt default.

Paladin initially wanted to fight CNNC in court, claiming it was not in default, but after consulting with debt holders agreed not to do so due to prohibitive cost. Paladin conceded to losing Langer Heinrich and wanted to proceed with restructuring the remaining business and debt obligations, until Electricite de France introduced a new problem.

Paladin was due to pay EdF $277m this week under a long term supply agreement signed in 2012, in which EdF provided the miner with prepayment. Paladin requested a standstill on the repayment until a restructure can be achieved, and EdF said no. Prior to this refusal, Paladin had secured sufficient support from bond holders for its restructuring plans that would see equity holders highly diluted. As CNNC awaits an independent valuation of Langer Heinrich, the administrators will undertake assessment of the remaining debt position and the company’s assets, which include an 85% share in the Kayelekera mine in Malawi, under care & maintenance since 2014.

It’s a far cry from the glory days of early 2007 when Paladin shares traded at over A$10 and the uranium spot price neared US$140/lb. That year saw a peak for both, and a sharp retracement. Then along came the Japanese tsunami in 2011 and the rest is history. Saddled with excessive debt and electing not to lock in long term contract pricing at higher levels ahead of the Fukushima disaster, Paladin has been fighting against a falling spot uranium price ever since. Prior to the trading halt, Paladin shares were trading at A4.7c.

Back in May, UBS valued Paladin at A28c on the assumption the Kayelekera mine would restart in 2020 as planned, but applied a -50% discount due to restructure risk to arrive at a A12c price target for the stock. UBS retained its target and Neutral rating last week but warned Paladin was a high risk investment.

July is typically a quiet month in the uranium market and the first week has brought no surprises, with the US Independence Day holiday a contributing factor. Industry consultant TradeTech’s weekly spot price indicator did manage to rise for the sixth consecutive week, but only by another US5c to US$20.25/lb.

That glory run of six weeks has only managed to produce a US75c net gain.

Two transactions were reported in term markets last week totalling 6mlbs U3O8 equivalent. TradeTech’s term price indicators remain at US$24.45/lb (mid) and US$34.00/lb (long).

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