Restructuring allows Paladin to grow, says CEO

21 February 2017

A restructuring of Paladin Energy's balance sheet, announced in January, will position the Australia-based uranium company to increase production rather than service its debt in response to a 'normalising' uranium market, its CEO said yesterday.

Langer Heinrich (Image: Paladin)

In an interview broadcast by Australian stockbroking firm CommSec, Alexander Molyneux said the restructuring, which would see the conversion of $362 million in existing bonds into other forms of bonds and shares, was "the most important" thing for the company.

"We have had a problem with our balance sheet over the last couple of years," Molyneux said. "We've been very successful in cutting costs; we've been very successful in having a very consistent production. But our share price and our whole business have been dragged down by our debt burden."

Paladin announced in August last year plans to sell 24% of its flagship Langer Heinrich uranium mine in Namibia and up to 75% of its Manyingee project in Western Australia. The transactions had been expected to raise over $200 million, but in December the company notified the Australian Securities Exchange the sale of the Langer Heinrich stake to CNNC Overseas Uranium Holdings was not expected to close by the end of the year as planned. In January, in the absence of further progress on the sale, Paladin announced the balance sheet restructuring to enable it to meet a $212 million debt obligation due in April.

Molyneux said yesterday the restructuring would, on completion, immediately reduce the company's debt from $380 million to $150 million, and extend its earliest debt maturity from 2017 to 2022. This, he said, would give it a sustainable balance sheet and a position in which to grow as the uranium market continues to "normalise". It would then be able to invest in restarting the Kayelekera mine and expanding Langer Heinrich, rather than dealing with its debt. Kayelekera, in Malawi, has been under care and maintenance since 2014. In September last year, he said it would take take 18-24 months to bring the mine back into production.

Supplier action

Uranium suppliers are taking action in response to declining uranium demand over recent years, Molyneux said. So-called 'demand disappointment', meaning the withdrawal of Japanese utilities from the uranium market after the 2011 Fukushima Daiichi accident, while many European and North American utilities ran down uranium stockpiles, was the "big reason" for uranium price decline. There have, however, been no major adjustments on the supply side to the decline in demand, with higher-cost producers able to continue operating thanks to long-term contracts.

With the average term uranium contract being about six to seven years long, those contracts are starting to "roll off", Molyneux said. This had provided a "catalyst" to supplier action. "It's crunch time now, and … we're seeing suppliers react," he said.

Kazakhstan's announcement in January of plans to cut supply by 10% is a key development, Molyneux said, since that country accounts for 40% of global uranium supply.

Paladin used to be more exposed to spot uranium pricing and did not have the "protection" of term uranium contracts, but it is now "uniquely positioned" for the changing market, Molyneux said.

"On the downside we were hurt more than others … Now though, we have had to address our cost structure in a more urgent way than our peers. Our costs have come down ... so when the uranium prices turn around, as they will continue to do so, we have the maximum leverage to the upside. We can expand our production by 60% to 70% in volume terms as uranium prices increase."

The restructuring is expected to conclude in late March or early April.

Researched and written
by World Nuclear News