Paladin Energy (PDN-T) has unveiled a cost-cutting and optimization plan that it says will trim costs by about US$60-80 million over the next two years.
The pure-play uranium producer, which operates two mines in Africa, says operational efficiencies will lead to substantial gains that are particularly critical at a time of weakening uranium prices.
Uranium is currently trading at about US$40.70 per lb. and Paladin’s management team says expansion strategies or new development is not warranted until uranium prices reach at least US$85.00 per lb.
In the meantime the company says it is focusing on optimizing efficiencies and cutting costs.
In fiscal 2013, it plans to reduce unit costs by 7.5% or US$10 million at both its Langer Heinrich mine in Namibia and its Kayelekera mine in Malawi by a combination of measures, including improving mining costs and discretionary spending and rationalizing contractors.
The Australian company headquartered in Sydney also says exploration spending will be scaled back by 20%, or $4 million, by non-essential drilling and that corporate overheads will be cut by about 10%, or $3 million. Paladin also believes that better management of its inventory will lead to cash generation of about $15 million.
In fiscal 2014, the company is targeting an additional 7.5%, or US$10 million, reduction in unit costs at Langer Heinrich and an additional 15%, or US$20 million, reduction at Kayelekera.
This will be achieved through continued process refinements and reductions in mining costs at Langer Heinrich and by getting access to grid power supply and completing optimization programs at Kayelekera.
In other news, Paladin signed a long-term off-take agreement in August to supply yellowcake from 2019 to 2024 to Electricite de France. EdF manages 58 nuclear power stations in the country and is the largest single nuclear utility in the world.
Edward Sterck of BMO Capital Markets said the impact of Paladin’s cost-cutting measures is “potentially positive” and points out that the company has been “demonstrating operational improvement over the past 24 months.” But he also argues in a research note to clients that if uranium prices remain depressed at current prices, Paladin may still need additional funding by fiscal 2015.
Sterck has a market perform rating on the stock and a target price of $1.50.
At presstime in Toronto, Paladin was trading at $1.07 within a 52-week trading range of $1.08-$2.11. The company has about 837 million shares outstanding.
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