"It has never been a worse time for uranium miners." ‒ Alexander Molyneux, CEO of Paladin Energy, October 2016.1
Paladin Energy Ltd appointed administrators on July 3 after Electricité de France (EDF) called in a US$277 million debt that Paladin was unable to pay.2 Paladin is a uranium mining company based in Perth, Western Australia. The company is 75% owner of the Langer Heinrich uranium mine in Namibia, 85% owner of the Kayelekera uranium mine in Malawi (in care and maintenance since 2014), and it owns sundry 'nonproducing assets' in Australia, Canada and Niger.
The administrators, from KPMG, will continue to operate Paladin on a business-as-usual basis until further notice. Paladin said its management and directors "remain committed" to working with the administrators to restructure and recapitalise the company.2
Paladin "was formerly a multi-billion-dollar company and was once the best-performed stock in the world" according to The Australian newspaper.3 The company's share price went from one Australian cent in 2003 to A$10.80 in 2007, but has fallen more than 200-fold and traded at 4.7 cents before trading was suspended in early June 2017.4 Paladin had just US$21.8 million in cash at the end of March 2017.4 The company's losses totalled US$1.9 billion between 1994 and 2014.5
Later this year, China National Nuclear Corporation (CNNC), which already owns 25% of the Langer Heinrich mine, may purchase Paladin's 75% stake. The move comes as a result of CNNC seeking to exercise a debt-default option to acquire the 75% stake. Paladin wanted to challenge CNNC in court, but after consulting with debt holders agreed not to do so due to prohibitive cost.6 Paladin could gain US$500 million from the sale but will still be in debt. In addition to the US$277 million it owes EDF, Paladin owes bondholders US$372 million.3
Assuming the Langer Heinrich sale goes ahead, Paladin will have nothing other than 'nonproducing assets' and the Kayelekera mine – which also a nonproducing asset since it is in care and maintenance. So the administrators have very little to work with. Just keeping Kayelekera in care and maintenance costs about US$10 million per year.7
Paladin said in 2014 that its decision to place Kayelekera on care and maintenance "is the latest in a sequence of closures, production suspensions and deferrals of major planned greenfield and brownfield expansions in the uranium sector, including Paladin's decision in 2012 to suspend evaluation of a major Stage 4 expansion of the Langer Heinrich Mine in Namibia."8
Paladin said in 2015 that a price of about US$75 per pound would be required for Kayelekera to become economically viable9 ‒ but that price hasn't been seen since 2011 and it is more than three times the current spot price and more than double the long-term contract price.10 Paladin also said that the availability of grid power supply would be necessary to restart Kayelekera, to replace the existing diesel generators.9
Selling nonproducing assets
Late last year, Paladin was reduced to selling nonproducing assets for a song. Paladin sold a number of Australian uranium exploration projects to Uranium Africa for A$2.5 million, including Oobagooma in Western Australia and the Angela/Pamela and Bigrlyi projects in the Northern Territory.11 Paladin told shareholders that the assets were 'noncore' and it was unlikely the company would be in a position to conduct any meaningful work developing the projects over the next decade.11 The A$2.5 million did little to improve Paladin's financial situation, but the company is also spared from further spending on rates, rents and statutory commitments payable to keep the tenements in good standing.11
Last year, Paladin also sold its 257.5 million shares in uranium exploration company Deep Yellow for A$2.6 million, with shares priced at one Australian cent a share.11 Deep Yellow, like Paladin, is an Australian-based company whose main interests are in Africa. Deep Yellow is now headed by John Borshoff, who founded Paladin in 1993 and agreed to step down as managing director and chief executive in August 2015.
Some 'nonproducing assets' can't be sold, not even for a song. Paladin hoped to sell a 30% stake in the Manyingee uranium project in Western Australia to Avira Energy for A$10 million, but Avira did not raise the required capital by the 31 March 2017 deadline.12 Avira said in April 2017 that investors who had previously committed to support its capital increase had withdrawn as a consequence of a "challenging" environment for new uranium projects in Western Australia.12 Development of Manyingee (and all other non-approved deposits) is prohibited under the policy of the current Western Australian government.
The Australian Financial Review reflected on happier days for Paladin: "John Borshoff was once one of Western Australia's wealthiest businessmen. The founder of Perth-based Paladin Energy developed an enviable portfolio of African uranium mines supposed to satiate booming global demand for yellowcake. When the company's Langer Heinrich mine began shipments in March 2007, as the spot price for uranium eclipsed $US100 per pound, Paladin was worth more than $4 billion."13
Borshoff, described as the grandfather of Australian uranium, made his debut on the Business Review Weekly's 'Rich 200' list in 2007 with estimated wealth of A$205 million.13 Reuters describes Paladin as the world's second largest independent pure-play uranium miner after Cameco and the seventh or eighth largest globally.1 When the company's two mines in Africa were operating, annual production capacity was about eight million pounds of uranium oxide ‒ about 5% of world demand.
Paladin gambled and lost
Paladin gambled and lost, relying heavily on debt financing to quickly develop the Langer Heinrich and Kayelekera mines in Africa.13 Another failed gamble was to sell primarily on the spot market, thus missing the opportunity to lock in long-term contracts when the price was relatively high13 ‒ the long-term contract price has halved since the Fukushima disaster.
Another failed gamble was Paladin's A$1.2 billion hostile takeover bid for Summit Resources in 2007.13 Paladin owns 82% of Summit, which is sitting on uneconomic uranium deposits in Queensland ‒ an Australian state which bans uranium mining. In 2015, Paladin booked a A$323.6 million write-down on its exploration assets in Queensland.14
A July 2013 mining.com article said that "to put things lightly, management is overpaid", and suggested that management's focus may be "on its own best interests rather than the interests of all shareholders".15
Dave Sweeney, nuclear free campaigner with the Australian Conservation Foundation, told Nuclear Monitor:
"Paladin's ambition and appetite has always exceeded its capacity and competence and now the gap between its inflated promises and its profound under-performance is absolute. This company has always been a uranium bull. It's former CEO John Borshoff promised unrealistic wealth for Africa while dismissing Fukushima as a 'sideshow'. When the market was buoyant they paraded their portfolio and were market darlings, now they are desperate, dateless and on administrative life-support.
"A real concern here is the impact on the environment and communities in which Paladin operate. The risk is that more corners will be cut in African operations in relation to rehabilitation, worker entitlements and environmental protection. Paladin's boom to bust case study is a further clear example of the lack of independent scrutiny of the uranium sector and also reflects poorly on the activities of Australian miners operating in nations with limited governance and regulatory capacity."
1. Geert De Clercq, 3 Oct 2016, 'Desperate uranium miners switch to survival mode despite nuclear rebound', www.reuters.com/article/us-uranium-nuclearpower-idUSKCN1230EF
2. World Nuclear News, 3 July 2017, 'Paladin Energy enters administration', http://world-nuclear-news.org/UF-Paladin-Energy-enters-administration-03...
3. Paul Garvey, 4 July 2017, 'French debt forces uranium miner Paladin into administration', www.theaustralian.com.au/business/companies/french-debt-forces-uranium-m...
4. Nick Evans, 11 Aug 2015, 'Borshoff cedes control of debt-laden Paladin', West Australian.
5. Mike King, 19 Jan 2015, 'Paladin Energy Ltd revenues soar 79% but shares sink', www.fool.com.au/2015/01/19/paladin-energy-ltd-revenues-soar-79-but-share...
6. Greg Peel, 11 July 2017, 'Uranium Week: Taking Its Toll', www.fnarena.com/index.php/2017/07/11/uranium-week-taking-its-toll/
7. Rachel Etter-Phoya and Grain Malunga / OpenOil, Oct 2016, 'Kayelekera Model & Narrative Report', http://openoil.net/kayelekera-model-narrative-report/
8. Paladin Energy, 7 Feb 2014, 'Suspension of Production at Kayelekera Mine, Malawi', www.marketwired.com/press-release/paladin-energy-ltd-suspension-of-produ...
9. Sarah-Jane Tasker, 8 Jan 2015, 'Paladin Energy alerts ASX to spill at Malawi uranium mine', www.theaustralian.com.au/business/mining-energy/paladin-energy-alerts-as...
11. Esmarie Swanepoel, 15 Dec 2016, 'Paladin holds a fire sale', www.miningweekly.com/article/paladin-holds-a-fire-sale-2016-12-15
12. World Nuclear News, 3 April 2017, http://us1.campaign-archive1.com/?u=140c559a3b34d23ff7c6b48b9&id=4499e9a...
13. Tess Ingram, 7 July 2017, 'Paladin Energy: from market hero to administration', www.afr.com/business/mining/uranium/paladin-energy-from-market-hero-to-a...
14. Henry Lazenby, 14 May 2015, 'Paladin Energy narrows nine-month net loss', www.miningweekly.com/article/paladin-energy-narrows-nine-month-net-loss-...
15. Tommy Humphreys, 10 July 2013, 'Uranium outlook and Paladin Energy risk profile', www.mining.com/web/uranium-outlook-and-paladin-energy-risk-profile/