SOURCE: Paladin Energy Ltd

Paladin Energy Ltd

August 27, 2015 08:40 ET

Paladin Energy Limited: Financial Report for the Year Ended 30 June 2015 and Outlook

PERTH, WESTERN AUSTRALIA--(Marketwired - August 27, 2015) - Paladin Energy Ltd ("Paladin" or "the Company") (TSX: PDN) (ASX: PDN) announces the release of its consolidated Financial Report for the year ended 30 June 2015.

The documents comprising the Financial Report for the year ended 30 June 2015, including the Report to Shareholders, Management Discussion and Analysis, Financial Statements and Certifications will be filed with the Company's other documents on Sedar (sedar.com) and on the Company's website (paladinenergy.com.au).

HIGHLIGHTS

Operations

  • Langer Heinrich Mine (LHM) produced1 5.037Mlb U3O8 for the year ended 30 June 2015, down 13% from 2014.
  • C1 cost of production2:
    • LHM C1 unit cash cost of production for the year ended 30 June 2015 increased by 5% from US$27.71/lb in 2014 to US$29.07/lb in 2015.

Sales and revenue

  • Sales revenue of US$198.6M for the year ended 30 June 2015, selling 5.367Mlb U3O8.
  • Average realised uranium sales price for the year was US$37.00/lb U3O8 compared to the average TradeTech weekly spot price for the year of US$35.80/lb U3O8.

Corporate

  • Progress on recapitalisation during the year:
    • Refinancing of US$110M project finance facility in July 2015.
    • Completion of sale of a 25% interest in LHM to CNNC Overseas Uranium Holding Limited for US$190M in July 2015.
    • Completion of equity capital raising initiatives, introducing a cornerstone strategic investor -- HOPU Clean Energy (Singapore) Pte. Ltd. (HOPU), via a 15% placement as well as the completion of a well-supported entitlement offer together raising A$205M in December 2014.
    • US$150M 2020 convertible bond issue in March 2015.
    • Repurchase of outstanding US$300M convertible bonds due November 2015.
    • Impairment of US$180.8M (after tax) recognised for the Queensland exploration assets.

Outlook

  • Cash flow optimisation initiatives being implemented including in addition to those announced on 30 July 2015.
  • Forecast to be cash flow neutral3 for FY2016 on an 'all in' basis at current spot uranium price and foreign exchange rates.
  • Key elements of FY2016 guidance include:
    • LHM production 5.0Mlb to 5.4Mlb U3O8.
    • Weighted average sales price premium to spot of approximately US$4/lb.
    • LHM C1 cash costs in the range of US$25/lb to US$27/lb (i.e., 7-14% lower than FY2015).

Results

(References below to 2015 and 2014 are to the equivalent year ended 30 June 2015 and 2014 respectively).

Safety and sustainability

The Company's 12 month moving average Lost Time Injury Frequency Rate4 (LTIFR) was 2.07 as compared to 3.11 in the previous year to 30 June 2014.

The Kayelekera Mine (KM) conducted a bi-annual internal audit to prepare for the July 2015 NOSA Health, Safety and Environment (HSE) External Audit. The NOSA auditor has recommended the highest 5 Star Platinum rating for KM subject to confirmation by the NOSA Review Board.

Paladin's safety record has continued to improve in the past year as a result of a long-term commitment to identify new initiatives and improvements, increases in in-house and external training, more formal risk assessments, more rigorous permits to work and more thorough site inductions. The Company remains fully focussed on improving on this positive trend.

Langer Heinrich Mine (LHM)

LHM produced 5.037Mlb U3O8 for the year ended 30 June 2015, down 13% from the previous year. Key production drivers included:

  • Feed grade: 768ppm U3O8 (FY2014: 783ppm U3O8).
  • Recovery: 87.6% (FY2014: 90.6%).
  • Bicarbonate Recovery Plant (BRP) successfully commissioned in March 2015 and operating above design.

LHM unit C1 cash cost of production for the year increased by 5% to US$29.07/lb U3O8 from US$27.71/lb in 2014 as a result of the lower production volume, although total US$ C1 cash costs of production decreased by 9% to US$146.4M.

Kayelekera Mine (KM) remains on care and maintenance

KM remains on care and maintenance. A restart feasibility study for internal use is near completion. Discharge of treated water continued successfully during the year.

Profit and Loss

Total sales volume for the year was 5.367Mlb U3O8. (2014: 8.665Mlb).

Sales revenue for the year decreased by 39% from US$328.8M in 2014 to US$198.6M in 2015, as a result of a 2% decrease in realised sales price and a 94% (3.272Mlb) decrease in sales volume from KM which ceased production on 6 May 2014 and is now on care and maintenance. The last of KM finished goods were sold in December 2014.

The average realised uranium sales price for the year ended 30 June 2015 was US$37.00/lb U3O8 (2014: US$37.90/lb U3O8), compared to the TradeTech weekly spot price average for the year of US$35.80/lb U3O8.

Gross Profit for the year of US$1.8M is a turnaround from a US$65.1M gross loss (including a gross loss of US$60.3M from KM) in 2014.

An impairment of US$180.8M (after tax) was recognised for the Queensland exploration assets.

Net loss after tax attributable to members of the Group for the year was US$267.8M. (2014: Net loss US$338.4M)

Cash flow

Cash outflow from operating activities for the year was US$24.7M, after net interest payments of US$28.8M and exploration expenditure of US$1.6M.

Cash outflow from investing activities for the year totalled US$15.6M:

  • plant and equipment acquisitions of US$11.5M, including, the BRP;
  • equipment and spiral heat exchangers at LHM; and
  • capitalised exploration expenditure of US$4.2M.

Cash inflow from financing activities for the year of US$137.6M is attributable to the balance of proceeds received from the sale of a 25% interest in LHM of US$170M, the proceeds from the entitlement offer of US$119.7M, from the share placement to HOPU of US$52.7M, and from the convertible bond issue of US$150M, all of which has been partially offset by the repurchase of the US$300M November 2010 convertible bond, a US$39.9M repayment of the LHM project finance and syndicated loan facility, US$1.5M in syndicated loan facility establishment costs, US$3.0M in costs attributable to the sale of a 25% interest in LHM, US$6.2M in equity capital raising costs and US$4.2M in convertible bond issue costs.

Cash position

Cash of US$183.7M at 30 June 2015.

Balance of proceeds from the sale of a 25% interest in LHM of US$170M, US$119.7M proceeds from the entitlement offer, US$52.7M proceeds from the share placement to HOPU and US$150M proceeds from the convertible bond issue.

Repurchase of the US$300M convertible bond due November 2015, US$30.8M repayment of the LHM project finance facility and US$9.1M repayment of the syndicated loan.

Capital management

In July 2014, the Company refinanced the existing US$110M project finance facility and US$20M working capital facility into a new US$70M syndicated loan facility. Proceeds were utilised to repay US$30.8M of the existing facility.

In July 2014, the Company completed the settlement of the sale of a 25% interest in LHM to CNNC Overseas Uranium Holding Limited, a wholly owned subsidiary of CNNC, the leading Chinese nuclear utility, for consideration of US$190M.

During November and December 2014, Paladin successfully completed two capital raising initiatives. This involved introducing a cornerstone strategic investor -- HOPU, via a 15% placement as well as the completion of a well-supported entitlement offer, together raising A$205M. After receiving Foreign Investment Review Board (FIRB) approval on 21 November 2014, HOPU acquired a 15% interest in Paladin via a placement at A$0.42 per share and it participated pro rata in the general entitlement offer at A$0.26 per share, leading to a final shareholding post fundraising of 14.99%.

On 31 March 2015, Paladin issued a US$150M convertible bond. The issue structure included a US$100M convertible bond issued on 13 February 2015 and, as a result of Paladin exercising an upsize option, an additional US$50M issued on 25 March 2015. The US$100M was issued to high quality institutional investors, whilst the US$50M was issued to Leader Investment Corporation, a controlled subsidiary of China Investment Corporation (CIC). The US$150M convertible bond carries a coupon of 7% per annum, maturing on 31 March 2020 and is convertible into Paladin shares at an initial conversion price of US$0.356 per share.

Proceeds from the convertible bond were used to fund the concurrent tender offer to acquire the outstanding US$300M convertible bond due November 2015. On 2 April 2015, Paladin repurchased US$289.25M of the US$300M convertible bonds. On 17 April 2015, Paladin exercised its optional redemption right for the remaining US$10.75M convertible bonds, settling on 18 May 2015.

The documents comprising the Financial Report for the year ended 30 June 2015, including the Report to Shareholders, Management Discussion and Analysis, Financial Statements and Certifications are attached here and will be filed with the Company's other documents on Sedar (sedar.com) and on the Company's website (paladinenergy.com.au).

Outlook

Uranium market

The TradeTech U3O8Spot Price at the end of June 2015 was US$36.25/lb, approximately 29% higher than at the end of June 2014 when prices were close to a nine-year and post-Fukushima low.

It seems apparent that the uranium market could be in the early stages of a recovery from the earthquake and tsunami in Japan in March 2011 and its damaging effect on Japan's nuclear power industry. Prior to March 2011, Japan was the world's second largest consumer of uranium and since that time Japan has been almost absent from the market. Certain other major nuclear power producing nations, such as Germany, have implemented plans to reduce or eliminate nuclear power.

Paladin holds a belief that a meaningful turnaround for uranium is underway. Our views are predicated on a number of key elements:

  • Many countries that eliminated or reduced their nuclear reliance are now encountering significant consequences and switching back to nuclear -- Japan, in particular, is a key uranium customer now switching back to nuclear. In August 2015, Kyushu Electric Power's Sendai 1 nuclear reactor became the first in Japan to restart operation.
  • Demand is rapidly accelerating in new markets -- All of the 'BRICS' countries (i.e., Brazil, Russia, India, China and South Africa) are rapidly growing their nuclear power capacity and increasing their reliance on nuclear power as a proportion of overall power generation.
  • Current prices will constrain supply -- According to supply cost curves published by industry analysts, approximately one third of current mine supply is uneconomic at the current spot price. Low prices are forcing producers to curtail mining, development and exploration. According to industry analysts, in the 2014 calendar year, at least 12 million pounds of annual U3O8 supply has been eliminated.

Company strategy

Despite the Company's belief that a uranium industry turnaround is tentatively underway, its current strategies are focused on optimising actions to maximise cash flow whilst also prudently enacting capital management actions. Paladin's strategies are aimed at maximising shareholder value through the uranium price downturn whilst remaining positioned for a future normalisation of the uranium market and price. Key elements of the Company's strategy include:

  • Maximising LHM operating cash flows through optimisation initiatives that preserve the integrity of the long-term life of mine plan.
  • Maintaining KM and the Company's exploration assets on a minimal expenditure, care and maintenance basis.
  • Minimise corporate and administrative costs.
  • Consider strategic initiatives with respect to partnerships, strategic investment, funding and corporate transactions, that result in de-risking Paladin's funding structure or clear value accretion for shareholders.

Cash flow optimisation initiatives

Subsequent to the US$33M in cost reductions announced on 30 July 2015, Paladin has identified further significant cash flow optimisation initiatives. Such initiatives include:

  • LHM operating initiatives -- As a consequence of the BRP, barren solution used for wash in the counter current decantation section of the LHM plant is expected to reduce from approximately 50ppm U3O8 to less than 10ppm. This will result in a significant improvement in wash efficiency. The Company's original FY2016 outlook assumed wash efficiency of 93.1%. Paladin now anticipates a wash efficiency in the range of 95% to 98% for FY2016. The Company has also revised its FY2016 life of mine plan for LHM resulting in an average feed grade of 694ppm U3O8, i.e., an increase of 11ppm over the guidance provided in the last Quarterly Activities Report announced on 16 July 2015.
  • Corporate costs, exploration and KM initiatives -- Paladin has implemented reductions in these areas to further reduce annualised cash expenditure by approximately US$8M over the initiatives set out in the cost reduction announcement of 30 July 2015 (i.e., a cumulative US$14M less than FY2015). The additional initiatives include a reduction in approximately 50% of corporate staff that was undertaken on 21 August 2015 concurrent with the reduction in the number of directors and reduction in board fees announced the same day. Exploration has been put on care and maintenance whereby the Company will undertake the work required to meet minimum license expenditures only.

Company outlook

Paladin has acted quickly to identify additional cash flow optimisation initiatives and now anticipates that based on current spot uranium price and foreign exchange rates, the Company will be cash flow neutral for FY2016 taking into account LHM operating cash flow, capital expenditure, corporate costs, exploration costs, KM care and maintenance costs and debt servicing and repayments (i.e., on an 'all in' basis). However, this excludes one-off restructuring and implementation costs of approximately US$6M and does not take into account any positive or negative adjustments for potential capital management or strategic initiatives.

Key relevant guidance items for FY2016 include:

  • LHM Production -- Production guidance remains in the previously stated range of 5.0Mlb to 5.4Mlb U3O8.
  • Sales price premium -- The Company has a number of contracts for FY2016 with a fixed price element. Based on current spot uranium price, the Company would anticipate a weighted average premium of US$4/lb for its FY2016 received selling price.
  • LHM C1 cash costs -- Paladin is targeting LHM C1 cash costs in the range of US$25/lb to US$27/lb on average for FY2016 (i.e., 7-14% lower than FY2015).
  • Corporate costs, exploration and KM -- Combined expenditure on corporate costs, exploration and KM care and maintenance is forecast to be approximately US$19M excluding one off costs associated with retrenchments and contract cancellations. This is a reduction of US$8M compared to the cost reductions announced on 30 July 2015 and a reduction of US$14M compared to FY2015.

In line with its forecast to be cash flow neutral through to the end of FY2016, the Company currently anticipates its group cash balance to fall to US$120-130M at 30 September 2015. The reasons for this cash burn in the quarter to 30 September 2015 include:

  • Timing of sales under key contracts -- The impact of the bi-annual delivery into the CNNC contract and contractual deliveries to a North American utility mean approximately 500,000lbs of uranium sales occur in the quarter to 31 December 2015 for production incurred in the quarter to 30 September 2015. Additionally, due to timing and payment terms, the proceeds for the sales that will be recognised in the September 2015 quarter will be received in the December 2015 quarter.
  • Higher than trend LHM C1 cash costs -- The timing of delivery on cash flow processing related optimisation initiatives and the revised mine plan will likely result in C1 cash costs for the quarter to 30 September 2015 around US$2-3/lb higher than the average forecast for FY2016.
  • Convertible bond interest payment -- The first interest payment, amounting to US$5.3M, on the new US$150M convertible bond will be paid in September 2015.
  • One-off restructuring costs -- The Company has incurred approximately US$6M in one off redundancy, restructuring and implementation costs associated with cash flow optimisation initiatives, which will be predominantly spent in the quarter to 30 September 2015.

At current spot uranium price and foreign exchange rates, Paladin expects each of the three quarters subsequent to the quarter ending 30 September 2015 to be substantially cash flow positive on an 'all in' basis, resulting in a cash flow neutral position by 30 June 2016.

GENERALLY ACCEPTED ACCOUNTING PRACTICE

The news release includes non-GAAP performance measures: C1 cost of production, non-cash costs as well as other income and expenses. The Company believes that, in addition to the conventional measures prepared in accordance with GAAP, the Company and certain investors use this information to evaluate the Company's performance and ability to generate cash flow. The additional information provided herein should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

DECLARATION

The information in this announcement that relates to minerals exploration and mineral resources is based on information compiled by David Princep BSc, FAusIMM (CP) who has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to qualify as Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Mr Princep is a full-time employee of Paladin Energy Ltd. Mr. Princep consents to the inclusion of the information in this announcement in the form and context in which it appears.

CONFERENCE CALL

Conference Call and Investor Update is scheduled for 06:30 Perth & Hong Kong, Friday 28 August 2015;
18:30 Toronto and 23:30 London, Thursday 27 August 2015. Details are included in a separate news release dated 24 August 2015.

1 LHM production volumes and unit C1 cost of production include an adjustment to in-circuit inventory relating to leached uranium within process circuit.

2 C1 cost of production = cost of production excluding product distribution costs, sales royalties and depreciation and amortisation before adjustment for impairment. C1 cost, which is non-IFRS information, is a widely used 'industry standard' term.

3 Excluding one-off restructuring and implementation costs of approximately US$6M and not taking into account any potential capital management or strategic initiatives.

4 All frequency rates are per million personnel hours.

ACN 061 681 098

Contact Information

  • For additional information, please contact:

    Andrew Mirco
    Investor Relations Contact (Perth)
    Tel: +61-8-9423-8162 or Mobile: +61-409-087-171
    Email: andrew.mirco@paladinenergy.com.au