Paladin looks to wait out uranium slump with refinancing

Resource drilling at Paladin Energy's Langer Heinrich project. Credit: Paladin EnergyResource drilling at Paladin Energy's Langer Heinrich project. Credit: Paladin Energy

Uranium prices are continuing to languish three years after the Fukushima meltdown, but Paladin Energy (TSX: PDN) is attempting to put itself in a better position to weather the prolonged slump.

The company announced that it has renegotiated its debt for its two key operations: Langer Heinrich in Namibia and Kayelekera in Malawi. More specifically the new terms call for it to retire its debt connected to Kayelekera’s project financing, while it extends the repayment period at Langer Heinrich.

The agreement means that the US$148 million it owed as of the end of September is gone and its place is a new US$110 million six-year Langer Heinrich term loan and a US$20 million credit facility. And while Paladin didn’t release the terms of the new loan it said they largely remain the same as the previous loan.

In all the company says the refinancing will save it US$59 million in repayments over this year and next, which should mean more cash for its projects.

The early response from the market was positive as Paladin shares climbed 12%, or 6¢, to 55¢ on 1.02 million shares traded in Toronto on Jan. 17.

The specifics of the re-financing is that this year’s principal repayments has been cut to US$18.3 million from the US$53.8 million it originally owed with the new payment due in June. As for next year the principal repayments were cut by another US$23.7 million.

The move fits with the company’s strategy to get leaner as uranium prices remain at anemic levels. It is also looking to sell a minority stake in its flagship Langer Heinrich and said in a press release that it is confident it will be able to do so.

There is little doubt that the fall in the uranium price made Paladin desperate for just such an arrangement. The company lost $40 million for the third quarter and prices only continued to fall from there as the fourth quarter saw it receive an average price of just US$36.07 per lb of U3O8. That sales price was off 11% from the US$41.38 per lb of U3O8 it received in the third quarter.

Revenues for the fourth quarter came in at US$101.75 million from the sale of 2.8 million lbs. Those high sales numbers were built on the production of 2.2 million pounds, which was up from the 2 million lbs. it produced in the previous quarter.

Paladin did say it expects first quarter sales to be lower, at roughly 1.8 million lbs. due to the timing of contracts.

“Based on BMO’s uranium price forecast, BMO Research estimates that Paladin’s balance sheet and operating cash flow are sufficient to see it through until its next major repayment,” BMO Capital Markets analyst Edward Sterck wrote in a research note. “In BMO Research’s view, the preservation of cash in the short term eases cash outflow and provides the company with additional headroom for the forthcoming convertible refinancing.”

Sterck has Paladin’s stock rated as ‘market perform’ with a price target of 60¢ per share.

Haywood Securities analyst Colin Healey, however, said there was more to the refinancing than meets the eyes.

While he concedes that that new deal gives Paladin a measure of financial flexibility over that period he questions the total amount of savings for this year.

As mentioned previously Paladin says principal repayments for this year will move down US$35.5 million to US$18.3 million from the previous US$53.8 million.

“While this is a true representation of the principal that will be repaid on the new facility in 2014 … it does not reflect the fact that the Kayelekera project facility (of US$48.1 million) will also be repaid in full immediately as part of this deal.

That payment means that total outflows for the year will come to US$66.4 million, a number, which Healey points out, is actually more than the US$53.8 million it owed this year under the previous arrangement.

Healey said that when 2014 and 2015 are considered together the company will reduce its total outflows by US$11.1 million.

Healey has Paladin’s stock rated as ‘hold’ with a 60¢ per share price target.


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