Writing on the wall for Paladin Energy Ltd

Uranium miner Paladin Energy Ltd (ASX:PDN) might be unable to make its scheduled debt repayment in April 2017

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Uranium miner Paladin Energy Ltd (ASX: PDN) faces the prospect of being unable to repay US$212 million due in April 2017 and being forced into liquidation.

The troubled company has seen its share price slump more than 65% this year alone. The planned sale of 24% of its Langer Heinrich Mine (LHM) to CNNC Overseas Uranium Holdings (COUH) for US$175 million appears unlikely to complete before the end of 2016. Now Paladin has been forced to consider other 'contingencies' to repay the 2017 convertible bonds.

Not only that but Paladin also needs to raise working capital as it struggles to generate positive cash flow with uranium prices trading under US$20 per pound – the lowest prices in more than 12 years. As Paladin admits, that's a level that no producer in the world can sustainably break even, and most producers are experiencing negative cash flows.

Uranium price chart
Source: UxC.com

 

That's a long way away from Paladin's all-in cash expenditure of extracting uranium of US$38.75 per pound (lb). Even the company's C1 cash costs of US$25.88/lb are well above the spot price of uranium. Paladin is forecasting all-in costs of around US$30/lb for the 2017 financial year, but it's clear that even at that level, the company is going backwards.

Energy Resources of Australia Limited (ASX: ERA), majority owned by Rio Tinto Limited (ASX: RIO) faces a similar prospect to Paladin and is likely to shut up shop in 2021, once it has finished processing stockpiles at its Ranger uranium mine.

The problem for uranium miners around the world is that since the Fukushima nuclear incident in 2011, uranium prices have steadily fallen from above US$60/lb to its current price under US$20/lb.

That's despite reports that China intends to add an expected 30mkW of new nuclear capacity. Japan has also seen another two reactors reaching post-Fukushima safety rules and should be back up and running – although this is not a quick process.

The problem existing nuclear plants face is that they can't compete with cheap natural gas-powered electricity generators – and gas prices are very low. Alternative green energy sources also receive more funding than nuclear, making them even more attractive.

Paladin faces the prospect of sinking into administration unless it can find a white knight willing to take a minority stake in its mine – or make an outright bid for the whole company.

That appears highly unlikely.

Look out below.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »