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Product Review Img Vertical

Date : 25/10/2021

Paladin Energy



Market Cap : $2.49 Billion


52 Week Range : $0.115 - $1.120

Share Price : $0.925

Paladin on course to become the 3rd largest listed uranium producer. We recommend a "Buy"

Company Analysis

Paladin Energy (ASX: PDN) differentiates itself from most of the miners through three distinct aspects:

  1. A diversified global uranium miner: Hence, Paladin is a significant and independent global miner. The firm has a proven, large-scale uranium production capability at the Langer Heinrich mine in Namibia, and furthermore holds a diversified exploration portfolio in Australia and Canada. So far, we have seen Paladin be well-positioned and dedicated to delivering a reliable supply for the world’s clean energy future. The company’s driving focus is to maximise the value of its 75% stake in the globally significant Langer Heinrich uranium mine in Namibia. This strategic tier-one uranium asset is a long-life operation. It has already produced over 40 million pounds of U3O8 over a successful 10-year track record and can produce over 76 million pounds in the future.
  2. Paladin owns a low-cost, long-life uranium mine: Paladin owns the Langer Heinrich Mine in the Namib Desert, 80 kilometres east of the major Namibian seaport at Walvis Bay. The deposit was discovered in 1973, and the company acquired Langer Heinrich Uranium (Pty) Ltd and its assets from Aztec Resources Ltd in August 2002. Since then Paladin has completed a comprehensive study for the Langer Heinrich Mine. The Restart Plan was completed in mid-2020. This milestone is a clear pathway to reliably bring the mine back into sustainable production and to take advantage of an improving uranium market.
  3. Proven infrastructure and solid technical capabilities: Paladin has a proven infrastructure and is managed by a talented and experienced team. These are respected alongside its international standing as a quality producer for utilities worldwide. Moreover, the firm is fully licenced to resume operations and shipping of its product to conversion facilities around the world. In addition to Langer Heinrich, Paladin also owns a large global portfolio of uranium exploration and development assets. Located in Australia and Canada, which in our view, offer outstanding opportunities for near-future success.

In a nutshell, we think that Paladin could have the early mover advantage with its existing infrastructure at Langer Heinrich. This site has a fully licensed status and 10 years of operations track record. According to the “Langer Heinrich Mine Restart Plan”, it has been confirmed that the mine is a globally significant uranium operation with competitive restart capital, costs and operational performance creating a clear pathway to production.

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Significant Ore Reserves and Mineral Resources to propel Paladin to become the world’s 3rd largest listed and non-state-owned uranium producer

Paladin is geographically well-diversified. The group has a presence in three key countries, Australia, Canada, and Namibia.

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Source: PDN

Namibia, Langer Heinrich [expected to restart shortly]: The Langer Heinrich is located in central-western Namibia approximately 80 kilometres east of Swakopmund. Langer Heinrich is a surficial calcrete type uranium deposit containing a JORC Code (2012) compliant Mineral Resource of 119.7Mlb U3O8 at a grade of 445ppm U3O8 and 38.8Mlb V2O5 at a grade of 145ppm V2O5 at a cut-off of a grade of 250ppm U3O8. The deposit consists of seven mineralised zones designated Detail 1 to 7 along the length of the Langer Heinrich valley within the 15 kilometres length of a contiguous paleo drainage system. This mine is Paladin’s cornerstone. And today, the Langer Heinrich Mine is Paladin’s primary focus. During the year, the company accelerated its activities to return this site back to production. Paladin owns 75% of the Langer Heinrich Mine, which commenced operations in 2007 and has produced and sold over 43Mlb of U3O8 to date. The mine was transitioned into care and maintenance in August 2018 due to the sustained low uranium price.

The release of the Langer Heinrich Mine Restart Plan in FY20 provided a low risk, reliable restart plan balancing the ability to rapidly respond to strengthening uranium prices and maximising asset value. Since its release, the Paladin has continued to progress the restart plan and engage with its key consultants AMC for the mine planning, Lycopodium Minerals for engineering, and Elemental Engineering to work on the processing. Paladin has well progressed on the programme and had optimised its pit shells and improved its pit design with revised wall angles and detailed geo-metallurgical data input into resource models for the mining phase.

The company also worked on developing a separate detailed geo-metallurgical model for the first-year mining of the medium grade stockpile. Moreover, Paladin also has updated its Mineral Resource model including the validation of dilution assumptions from historical mining data. Paladin has also hired industry experts to ensure that, when the right uranium pricing market prevails, the Langer Heinrich Mine can be successfully restarted. During the year the Company also continued its care and maintenance activities at the Langer Heinrich Mine, which are focused on maintaining the operational integrity of the plant and ensuring all plant and equipment is in a state of readiness for a production restart.

Canada, Michelin Project [advanced exploration]: Paladin, through its wholly-owned subsidiary Aurora Energy Ltd, holds rights to 52,250 hectares of mineral claims within the Central Mineral Belt of Labrador in Canada, approximately 140 kilometres north of Happy Valley-Goose Bay and 40 kilometres southwest of the community of Postville. Paladin currently holds a 65% interest which is by the way an increase from 60% in May 2020.

The site is in a special purpose joint venture with Michelin which owns the Michelin Project. The Michelin Joint Venture includes a farm-out agreement over a five-year period whereby Paladin will receive an additional 5% participating interest in the Michelin Project on an annual basis until May 2023 in return for Paladin funding all obligations for the Michelin Project over this period. The mineral claims cover a significant area of the prospective ground over the region of the Central Mineral Belt of Labrador.

The claims contain 105.6Mlb U3O8 Measured and Indicated Mineral Resources as well as an additional 22Mlb U3O8 Inferred Mineral Resource in six deposits.The largest of these deposits is Michelin which contains a total JORC Code (2012) compliant Mineral Resource of 92.0Mlb U3O8, 82.2Mlb of which is classified Measured and Indicated. Michelin is still open along strike and at depth. Cut-off grades for all deposits except Jacques Lake reflect the use of open cut of 200ppm and 500ppm underground mining methodologies in the determination of prospects for eventual economic extraction.

Australia, Queensland, Mount Isa Project [advanced exploration]: Paladin also wholly owns the Mount Isa Project. This site is located 40 kilometres north of Mount Isa and consists of six Mineral Development Licences. The Mount Isa Project includes 10 deposits containing 106.2Mlb U3O8 Measured and Indicated Mineral Resources, as well as 42.2Mlb U3O8, Inferred Mineral Resources at a cut-off grade of 250ppm U3O8 for all deposits except Valhalla which utilised a cut-off grade of 230ppm U3O8.

Western Australia Projects [advanced exploration]: Paladin has two other projects in Western Australia. The first one is Manyingee. This project is in the northwest of Western Australia, 1,100 kilometres north of Perth and 85 kilometres inland from the coastal township of Onslow. The property comprises three mining leases covering 1,307 hectares. Field trials by AFMEX demonstrated that the Manyingee sandstone-hosted uranium deposit is amenable to extraction by in-situ recovery (ISR) in 1985.Manyingee contains an Indicated Mineral Resource of 15.7Mlb U3O8 grading 850ppm and an Inferred Mineral Resource of 10.2Mlb U3O8 grading 850ppm JORC Code (2012) compliant at a cut-off grade of 250ppm U3O8.

The other project is the Carley Bore. Carley Bore is not far from the Manyingee project. Carley Bore is located ~100 kilometres south of Manyingee in Western Australia. Carley Bore consists of two contiguous exploration licences with granted retention status. The deposit contains a JORC Code (2012) compliant Mineral Resources, 5.0Mlb U3O8 grading 420ppm in the Indicated category and 10.6Mlb U3O8 grading 280ppm in the Inferred category at a cut-off grade of 150ppm U3O8. Potential exists for extensions to mineralisation north and south of the estimated Carley Bore Mineral Resource.

Paladin has remarkable ore reserves of uranium and vanadium at its various projects’ locations. But, most importantly, the Namibian Langer Heinrich project, which is expected to restart shortly, exhibits substantial proven reserves of uranium.

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Source: PDN

Company Updates

2021, a transformational year for Paladin

Over the years, we have witnessed Paladin achieving substantial progress. The company completed its transformation plan and returned Paladin to its position as an industry-leading uranium producer. In short, Paladin has advanced its Langer Heinrich Mine restart planning and further de-risked its operational restart activities. The company also hired key stakeholders and extended its leadership team to ensure that they have the right skills to bring the Langer Heinrich Mine back into production. This is great news. We are confident that Paladin is fully capable to pursue its growth opportunities. Furthermore, during the period, Paladin completed a transformational reset of its capital structure through the redemption of its corporate debt. The firm has also intensified its marketing activities to secure long-term uranium offtake agreements.

As we all know, people and skills are the keys to the ongoing success of a company. During FY21, Paladin has carefully recruited talented and experienced professionals with the skills needed to bring the Langer Heinrich Mine back into production rapidly to drive the company’s future growth:

Projects and development: Jonathon Clements was appointed General Manager Projects and Development. Jonathon is a mining and mineral processing industry professional with over 30 years of experience in the resources industry. He has extensive experience and qualifications including the management of large sustaining capital portfolios, feasibility studies, maintenance, and global projects from concept to construction.

Exploration: Jess Oram was appointed as General Manager Exploration. Jess is an experienced exploration geologist and manager with over 25 years of experience in mineral exploration and management across a variety of commodities and companies

Business development and marketing: Alex Rybak was appointed General Manager of Business Development & Marketing. Alex is an M&A, Business Development and Strategy professional with over 20 years of experience, spanning both in-house and in advisory capacities across a broad range of sectors including mining, oil & gas, healthcare, and financial services.

During FY21, Paladin also extended its Board of Directors with the addition of Melissa Holzberger and Joanne Palmer as independent Non-Executive Directors. Melissa’s extensive experience in legal, governance and compliance roles and Joanne’s experience within the audit and financial services will help strengthen the Board’s experience and expertise. The appointment of Melissa and Joanne reflects Paladin’s commitment to maintaining the highest standards of governance.

Industry Analysis

The uranium market fundamentals remain positive in the short to medium-term

In the face of the COVID-19 pandemic, global nuclear power generation remained stable in FY21. China remains at the cornerstone of global nuclear growth with four units added to the grid over the past 12 months and construction commencing on a further eight new nuclear plants. Worldwide, FY21 saw a total of ten new reactors entering commercial operation, including in the United Arab Emirates and Belarus. With 54 reactors under construction across 20 countries, the outlook for nuclear power remains positive. The advancement of Small Modular Reactor technology in multiple countries is expected to provide additional momentum to uranium demand in future years. With many operating nuclear plants which are “economically disadvantaged” by the market deregulation in the United States, the successful implementation of a US$1.2 trillion infrastructure bill introduced by the Biden administration will provide key industry support.

The first half of CY21 has seen the re-emergence of strong secondary uranium demand via financial entities and junior uranium developers. More than 15 million pounds of uranium has been purchased by these market players so far this year. Of particular note is the recently established Sprott Physical Uranium Trust which already holds approximately 19 million pounds of uranium, and which is expected to simplify and expand investor ownership of physical material going forward.

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Source: PDN

In contrast with the demand side of the industry, the COVID-19 pandemic has had a notable impact on global uranium supply. Extended shutdowns at Cigar Lake in Canada alongside production cutbacks in Kazakhstan combined to remove almost 28 million pounds from planned uranium production during FY21. This year, the market has also seen the permanent closure of long-standing operations in Australia and in Niger, removing upwards of six million pounds per annum of primary uranium supply. Kazakhstan intends to maintain a 20% reduction to production through 2023, reducing market supply by an additional 20 million pounds in aggregate. Production cutbacks have increased the rate of inventory drawdown by global nuclear utilities. Inventory levels held by US and European utilities are at their lowest for several years and will continue to reduce in the coming years.

Meanwhile forward uranium contracting has remained well below replacement levels, exacerbating future supply imbalances. The normalisation of uranium contracting remains a key influence on a return to incentive prices required for the resumption of production at the Langer Heinrich Mine.

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Year-to-date, uranium prices have appreciated by almost 60% and it is expected to continue onward FY22.

Investment Thesis

The strong balance sheet provides Paladin flexibility

We have been pleased to see Paladin completing the transformational reset of its capital structure during FY21. The Company undertook an equity raise by way of a fully underwritten pro-rata accelerated non-renounceable entitlement offer and institutional placement to raise A$218.7 million. The entitlement offer and institutional placement were both heavily oversubscribed, demonstrating investors’ confidence that Paladin is well-positioned to take advantage of expected improvements in the uranium market. The successfully raised equity and the Senior Note redemption resulted positively in a reset of the company’s capital structure, along with significant improvements in the business financial strength and resilience.

Paladin has also removed its legacy corporate debt via the redemption of the US$115 million Senior Notes, and increased optionality on future funding structures for the capital required to restart the Langer Heinrich Mine. This in our view, supports the strengthening of the company’s uranium marketing position as a preferred counterparty. With unrestricted cash reserves of US$30 million-plus as of the end of FY21, we are convinced that Paladin is maintaining a disciplined and patient approach to restarting the Langer Heinrich Mine and has the financial flexibility to respond to market conditions. So far, Paladin has not decided on a date for the restart of the mine. However, we believe the return to production is imminent. Paladin is taking the safe approach and stated that the company will only restart operations after securing an appropriate term-price contract with sufficient tenure and value to deliver an appropriate return to all stakeholders.

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During FY21, Paladin has tremendously improved the foundation of its balance sheet. Hence, according to the company’s capital structure, liabilities have been slashed by half, from 29% in FY20 to now 10.8%. In terms of working capital, Paladin is also doing quite well. We expect PDN’s working capital to remain above US$31.2 million from FY22 to FY24. Furthermore, we forecast the working capital to increase steadily and eventually reach $45 million by the next three years. This will be supported by the return to earnings growth which we believe will happen shortly upon the resume of uranium production at the Langer Heinrich Project. In terms of capital, Paladin is well-funded following its recent recapitalisation. Just as a reminder, the company has raised US$115 million through the issue of new notes and has extinguished all its existing debt obligations according to the restructuring. It is also worth noting that the company can meet its financial obligations for the next twelve months without having to raise any additional capital.

Paladin commenced trading on U.S. based OTCQX Market

On the 2nd of June 2021, Paladin commenced trading on the OTCQX market. The OTCQX is the top market tier operated by OTC Market Group, Inc. in New York, on which over 11 thousand U.S. and global securities trade. The debut of Paladin on the U.S. market is a great piece of news. This will allow for greater access to retail and small institutional investors, with investors being able to trade and settle in U.S. hours and U.S. dollars, allowing for greater visibility and accessibility of the company.

FY22 onward Outlook: Uranium production to restart shortly

We are looking forward with confidence as we continue to see Paladin’s progress and the expected imminent restart of its world-class Langer Heinrich Mine. The Restart Plan highlighted that Langer Heinrich is competitively positioned versus other suspended uranium mines and greenfield projects due to its low levels of restart capital and its low operating costs. With strong project economics, we anticipate Langer Heinrich to be positioned at the forefront of the next wave of uranium mines commissioned to meet the structural shortage in uranium supply.

Earnings growth is expected to be back on track onward FY22

During FY21, Paladin reported a net loss after tax from continuing operations which increased by 27%, mainly because of foreign exchange losses of US$3.9 million. For comparison, 2020’s foreign exchange gains were US$8,2 million. The net loss was predominantly due to the foreign exchange translation of the environmental rehabilitation provision in Namibia. The Namibian dollar appreciated 17% during the year, from US$1: N$17.2708 on 30 June 2020 to US$1: N$14.3121 on 30 June 2021.

Regarding the cash flows, Paladin exhibits unrestricted cash and cash equivalents which were reported to be in the range of US$30.6 million to US$40 million. During FY21, the company utilised US$3.57 million for the following transactions:

  • Receipts from customers: proceeds from a spot sale of 100,000lb of uranium of US$2.9 million.
  • Cost of sales: cost of sales relating to the spot sale of US$2.9 million.
  • Placement and Entitlement Offer: net proceeds from the issue of shares US$158.9 million.
  • Redemption of Senior Secured Notes: repayment of US$115 million senior secured notes plus redemption premium and accrued interest of US$42.7 million.
  • Interest received and paid: the Group received cash inflows of US$1.4 million, including US$1.3 million proceeds from the final settlement for litigation related to previous activities at the Kayelekera Mine.
  • Proceeds from the sale of Paladin (Africa) Ltd: The Group received US$1 million from Lotus Resources Ltd which is the second tranche of repayment of funds advanced to provide security for the US$10 million environmental performance bond.
  • Langer Heinrich Project expenditure: ongoing C&M, Langer Heinrich Mine utilised US$3 million in cash flows from operations.
  • Langer Heinrich restarts study costs: The Group incurred US$2.1 million in restart study expenditure.
  • Exploration expenditure: The Group utilised US$1 million for minimum tenement commitments at its exploration projects.
  • Corporate expenditure: during the year US$3.7 million was paid for corporate costs.
  • Payments for property, plant, and equipment: during the year US$38,000 was paid for property, plant, and equipment.
  • Effect of movement in exchange rates on cash held: US$3 million was predominantly due to an increase in Australian dollars following the completion of the equity raising and held to cover corporate expenditure.

What we have seen is that Paladin did the necessary during FY21 to lay the groundwork to restart its uranium production swiftly at the Langer Heinrich Mine. This has involved unrestricted group cash and cash equivalents decreased by 10% to a cash balance of US$30.6 million to $40 million. Debt decreased by 100%, from US$145,7 million as of FY20 to Nil by the end of FY21 as Paladin fully redeemed the US$115 million Senior Notes in April, recently. This resulted positively in the company’s gearing ratio decreasing from 55% year on year.

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Paladin has an industry-leading position in being able to introduce optimisation projects that enhance its operating margins. Its bicarbonate recovery plant (BRP) has reduced its cash costs by US$5 to US$6 per pound since its implementation in FY15 and FY16. Furthermore, additional savings are potentially available through the introduction of the backend upgrade process. This capability is reflected in the operating cash flow, which we expect to return to positive territory onward FY22.

Technical Analysis

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Paladin Energy and the uranium sector have been booming since the beginning of this month. PDN has gained almost 30% since the 1st of October and is poised to continue to climb. At the time of writing, the Paladin share price is up 14.2% since last week to 92.5 cents. What is exactly driving PDN share price? Well, Paladin has benefited from the strong momentum and inflows from the Global X Uranium Exchange Traded Fund. This fund provides investors exposure to a broad range of companies involved in uranium mining and the production of mining and nuclear-related components.

Headlining the recent gains was news that the world’s largest uranium producer, Kazakhstan’s Kazatomprom was planning to launch its own physical uranium fund. Kazatomprom will raise an initial US$50 million from its founders and an additional US$500 million when the fund is up and running. Furthermore, Sprott’s Physical Uranium Trust, have helped drive spot prices from multi-year lows of around US$30/lb in August to 9-year highs of more than US$50/lb by mid-September. This broadly coincides with the Paladin Energy share price skyrocketing to a 9 year high of $1.12 on the 17th of September.

Paladin Energy is targeting the restart of its “globally significant” Langer Heinrich Project, located in Namibia. The project’s first production was in 2007, reaching peak production of 5.6 million pounds of uranium in 2014. The first production back in 2007 sent Paladin share price to it’s all-time high at $9.45.

As the market is expecting an imminent restart of Paladin’s mine operation in Namibia, we could expect significant inflows of buyers which could send the price back to our first target of $1.5 per share in the near to medium term.

Key price levels

The key price level to watch is the near-term resistance zone of 96 cents – $1. This price range is a strong psychological level. Therefore, once the breakout of the $1 level occurs, we can expect PDN to rise toward our primary target of $1.5 per share. The recent one-dollar level retest has shown a tremendous volume of inflows with more than 170 million shares exchanged in just one day on the 17th of September.

Volume and momentum

Volume increases since the last 200-day with the 20-day volume average up by more than 26%. The price action remains strongly bullish in the near term, evolving in a range between 83 cents and $1 per share.

Trade consideration

  • Market participants might be interested to enter at a key support level of $1 per share.
  • Primary target price above $1.5 per share
  • Secondary target price at $2.0 per share
  • Consider reducing exposure below 80 cents per share
  • It is recommended exiting the trade below 70 cents per share

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Paladin is on course to become the world’s 3rd largest listed and non-state-owned uranium producer. Paladin has a proven, large-scale uranium production capability at the Langer Heinrich mine in Namibia, and furthermore holds a diversified exploration portfolio in Australia and Canada. The company’s driving focus is to maximise the value of its 75% stake in the globally significant Langer Heinrich uranium mine. This strategic tier-one uranium asset is a long-life operation. It has already produced over 40M pounds of U3O8 over a successful 10-year track record and can produce over 76M pounds in the future. Paladin has remarkable ore reserves of uranium at its various projects’ locations. But, most importantly, the Langer Heinrich mine, which is expected to restart shortly, exhibits substantial proven reserves of uranium. FY21 was transformational for Paladin. The company did all that was necessary to lay the groundwork for a swift return to production. Paladin’s mine operation is expected to resume shortly. The company is taking the safe approach and stated that they will only restart operations after securing an appropriate term-price contract with sufficient tenure and value to deliver an appropriate return to all stakeholders. This expected production restart plan has been well-received by the market. Year-to-date, PDN share prices gained more than 278% and appreciated by an impressive 687% over the last twelve-month period. We believe that the strong growth momentum will likely continue onward FY22. The recent pullback from the September high is a great opportunity to consider in our opinion and we recommend a “Buy” for PDN.


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