Paladin Drives Uranium Price Higher

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By Greg Peel

Australian-listed uranium producer Paladin Energy ((PDN)) last week announced it would place its Kayelekera project in Malawi into care and maintenance until “a sustained price recovery occurs”. The shutdown at least temporarily removes around three million pounds of U3O8 from annual supply.

Paladin has always pursued a policy of selling uranium at spot pricing from both its Kayelekera mine and its Langer Heinrich mine in Namibia, eschewing longer term contracts. The policy proved successful when production was ramping up as Paladin was able to achieve higher net pricing on sales than longstanding producers who were tied to legacy long term delivery contracts at lower fixed pricing. Then along came the Japanese tsunami.

The boot is now on the other foot, with rival producers enjoying delivery on term contracts at higher fixed pricing than the current wallowing spot price. Kayekelera was the second of Paladin’s two mines to reach full production capacity and costs have been reduced by some 24%, yet still the company is burning cash as it sells uranium at spot prices below the net cost of production. Recently Paladin sold off a 25% stake in Langer Heinrich in order to head off debt issues, but is not yet out of the woods.

The irony, of course is that the spot price rose on the news. A US35c rise to US$35.75/lb last week in industry consultant TradeTech’s spot price indicator is nevertheless well short of “sustainable”. The week began quietly before the Paladin announcement prompted 600,000lbs of U3O8 equivalent to change hands in five transactions, with both utilities and traders on the buy-side. The speculative buyer seeking one million pounds is still in the market and expected to deal.

There was no action in the term market last week. TradeTech’s term price indicators remain unchanged at US$38.50/lb and US$50.00/lb.

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