Uranium Week: Some Hope

This story features PALADIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: PDN

By Greg Peel

Uranium market participants gathered in Washington last week for the Nuclear Energy Institute’s Nuclear Supply Forum. Industry consultant TradeTech reports that while previous meetings have been gloomy affairs given concern over low uranium prices and planned plant closures, there was at least some glimmer of hope this time around.

Several utilities inside and outside the US have indicated they intend to issue requests by year-end for spot, medium and long term delivery contracts.

For quite a while now the market has been hanging on for an assumed increase in utility demand that has never come. While there remains no urgency in the uranium spot market, last week at least saw TradeTech’s weekly spot price tick up US25c to US$25.25/lb. Four transactions were concluded totalling 600,000lbs U3O8 equivalent.

TradeTech’s term price indicators remain unchanged at US$28.15/lb (mid) and US$40.00/lb (long).

Australia-listed Paladin Energy ((PDN)) has taken further steps to alleviate pending debt issues in the low price environment. The company will need to pay out a remaining US$212m of its convertible bond issue in April 2017 and will not be able to do so on current cash-burn at below-cost prices. Paladin took steps to alleviate the pressure when it sold a 25% stake of its flagship Langer Heinrich mine in Namibia a year ago to China’s CNNC.

Now the company has sold a further 24% stake in the mine to an as yet undisclosed party, leaving Paladin with 51%. The price implied was lower than the price of the 2014 stake, but not as low as the interim fall in the spot uranium price might imply. The sale is expected to raise US$175m in cash – representing a big chunk, but not all, of the bond obligation.

Paladin has also signed an agreement to sell a 30% stake in an undeveloped resource in Western Australia to MGT Resources ((MGT)) with a one-year option for a further 45% following field leach trial preparations. All up this will represent US$30m in cash.

Brokers are heartened by the sales and subsequent balance sheet boost, but remain cautious nonetheless. Paladin is still short of its obligation and still burning cash, suggesting a uranium price recovery is still required. Citi has again downgraded its uranium price forecasts, leading to a downgrade to its Paladin recommendation to Neutral. All four of the four FNArena database brokers covering Paladin now have Hold or equivalent ratings on the stock.

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