Paladin Energy: Financial Report for Six Months Ended 31 December 2013

13.02.2014  |  Marketwired

PERTH, WESTERN AUSTRALIA--(Marketwired - Feb 13, 2014) - Paladin Energy Ltd. ("Paladin" or "the Company") (TSX:PDN)(ASX:PDN) announces the release of its consolidated Financial Report for the six months ended 31 December 2013. The Financial Report is appended to this News Release.

HIGHLIGHTS

OPERATIONS

• Combined production for the six months ended 31 December 2013 of 4.253Mlb (1,929t) U₃O₈ is an increase of 3% over the six months ended 31 December 2012.
• Combined production for the quarter ended 31 December 2013 of 2.208Mlb (1,001t) U₃O₈ is an increase of 1% over the quarter ended 31 December 2012.
• C1 cost of production⁽¹⁾ continued to fall:
  • Langer Heinrich C1 cost of production has fallen 8% from US$29.6/lb in the December 2012 quarter to US$27.5/lb in the December 2013 quarter.
  • Kayelekera C1 cost of production has decreased 24% from US$43.5/lb U₃O₈ in the December 2012 quarter to US$33.1/lb in the December 2013 quarter.
• Langer Heinrich produced a record 2,861Mlb (649t) U₃O₈ for the six months ended 31 December 2013, achieving a 5% improvement on the six months ended 31 December 2012.
• Following the decision to place Kayelekera on care and maintenance, Paladin revised its FY14 production guidance from 8.3 - 8.7Mlb U₃O₈ to 7.8 - 8.0Mlb U₃O₈.

SALES AND REVENUE

• Sales revenue totalled US$171.0M for the six months from sales of 4.448Mlb U₃O₈.
• Average realised uranium sales price for the six months was US$38.4/lb U₃O₈, compared to the average UxC spot price for the quarter of US$35.5/lb U₃O₈.

CORPORATE INITIATIVES

• Refinancing of the Langer Heinrich Mine and the Kayelekera Mine project finance facilities announced in January 2014.
• Sale of a 25% equity stake in Langer Heinrich Mine in Namibia for US$190M announced in January 2014 with proceeds to be used to repay debt.
• Placed Kayelekera Mine on care and maintenance post quarter end.

OTHER

• Debt repayments totaling US$43.8M.
• A number of cost reduction initiatives have been completed with additional measures yet to be implemented.
• Impairment of Queensland exploration assets of US$226.5M after tax.

⁽¹⁾ C1 cost of production = cost of production excluding product distribution costs, sales royalties and depreciation and amortisation before adjustment for impairment. C1 cost, which is non-IFRS information, is a widely used 'industry standard' term.

Results

(References below to 2013 and 2012 are to the equivalent six months ended 31 December 2013 and 2012 respectively).

• Safety and Sustainability:
  
  
  • As reported in the September 2013 quarterly report, an employee and two contractors were involved in a serious electrical incident at Langer Heinrich Mine (LHM) on 2 October 2013. Two of the workers received serious burns while the third worker received smoke inhalation. The more seriously injured worker passed away on 29 October 2013 while the second injured worker has since returned to work. The findings and outcomes of a full investigation into the incident are pending.
    
    
  • The Company's 12-month moving average Lost Time Injury Frequency Rate (LTIFR) continues to be low at 1.0. For the December quarter, two LTIs were recorded, both from the October electrical incident at LHM.
    
    
  • Revised Corporate Health and Safety Standards to complement the Paladin Occupational Health and Safety Policy have been established following a full review and implementation will begin in early 2014 at all Paladin operating sites.
    
    
• Production:
  
  
  • Combined production of 4.253Mlb (1,929t) U₃O₈ for the six months ended December 2013, up 3% on the six months ended 31 December 2012.
    
    
  • Combined production for the quarter ended 31 December 2013 of 2.208Mlb (1,001t) U₃O₈ is an increase of 1% over the quarter ended 31 December 2012.
    
    
• Langer Heinrich Mine (LHM):
  
  
  • Record production for the six months to 31 December 2013 was 2.861Mlb, an increase of 5% over the six months to 31 December 2012:
    
    
    • overall recovery of 88.1%.
      
      
    • feed grades at 803ppm U₃O₈.
      
      
  • LHM C1 cost of production for the six months has fallen to US$27.70/lb, down 10% from US$30.6/lb in the six months to December 2012.
    
    
  • LHM C1 cost of production has fallen 8% from US$29.6/lb in the December 2012 quarter to US$27.5/lb in the December 2013 quarter. These results provide further evidence that the cost benefits from the cost optimisation programme continue to be realised.
    
    
• Kayelekera Mine (KM):
  
  
  • On 7 February 2014, the Company announced that it is suspending production at KM in Malawi and will place KM on care and maintenance to preserve the remaining ore body until it determines that a sustained recovery in the price of uranium oxide will enable production to resume on a profitable basis.
    
    
  • While mining operations at KM are being suspended, processing of ore will continue during a transitional rundown phase until reagents and consumables on site have been depleted and the production circuit has been emptied and cleaned. At this time, the plant will be sterilised, shut down and placed on care and maintenance. This rundown/sterilisation phase is expected to be completed by May/June of 2014.
    
    
  • Paladin is committed to maintaining the mine and infrastructure at KM in good working order to facilitate a rapid resumption of production when market conditions dictate that it is possible to do so profitably. For this reason, KM will retain some 194 Malawi national employees and 27 expatriate staff to maintain the site, including staff to strengthen physical security measures at KM.
    
    
  • Supporting KM has been a substantial drain on Paladin's cash resources during the past three years. Based on a uranium price of US$35/lb, Paladin would have had to inject a further US$20M-US$25M in cash for each of the next two calendar years to maintain KM.
    
    
  • Placing KM on care and maintenance will improve Paladin's forecast cash flow position by US$7M-US$10M (net of care and maintenance establishment costs) in calendar year 2014 and US$20M-US$25M in calendar year 2015. Paladin anticipates that the ongoing cost of maintaining KM on care and maintenance of approximately US$12M per annum will be funded from proceeds to be received from the sale of uranium oxide on hand and produced during the rundown phase.
    
    
  • Production for the six months to 31 December 2013 was 1.392Mlb, a decrease of 1% over the six months to 31 December 2012 due to extension of the planned maintenance shutdown:
    
    
    • record production for the month of December of 280,082lb U₃O₈.
      
      
    • recovery of 85.8%.
      
      
    • acid recovery plant successfully commissioned and operating in excess of design.
      
      
  • KM C1 cost of production has fallen 22% from US$46.0/lb in the six months to December 2012 to US$35.8/lb.
    
    
  • KM C1 cost of production has decreased 24% from US$43.5/lb U₃O₈ in the December 2012 quarter to US$33.1/lb in the December 2013 quarter. These results demonstrate that the expected benefits from the cost optimisation programme are being realised.
    
    
• Cost Reduction Initiative:
  
  
  • Cost savings and optimisation initiatives were announced during the quarter for FY2014 and FY2015, further improving unit costs for Langer Heinrich and Kayelekera over these periods and reducing corporate costs.
    
    
  • Further savings are expected as the balance of the initiatives are implemented.
    
    
• Profit and Loss:
  
  
  • Total sales volume for the six months of 4.448Mlb U₃O₈ reflected an 11% increase over sales of 4.008Mlb U₃O₈ for the six months ended 31 December 2012.
    
    
  • Sales revenue decreased 12% from US$194.9M in 2012 to US$171.0M for the six months ended 31 December 2013, as a result of the lower prices in the latter period which were partially offset by higher sales volumes. The average realised uranium sales price in 2013 was US$38.4/lb U₃O₈ (2012: US$48.6/lb U₃O₈) compared to the average UxC spot price for the six months of US$35.5/lb U₃O₈.
    
    
  • Gross loss for the six months of US$29.3M compared to a gross profit in 2012 of US$11.3M was due to a 21% lower uranium price achieved in the six months and a higher impairment of KM inventory of US$24.9M (2012: US$10.4M). This has been partially offset by a 12% increase in sales volume.
    
    
  • Impairment of Queensland exploration assets of US$226.5M after tax.
    
    
  • Net loss after tax attributable to members of the Group of US$255.0M was recorded for the six months.
    
    
• Cash Flow:
  
  
  • Positive cashflow from operating activities of US$4.3M for the six months ended 31 December 2013 after interest payments of US$16.6M. The remaining expenditure was US$0.9M for exploration.
    
    
  • Cash outflow from investing activities of US$17.2M for the six months:
    
    
    • plant and equipment acquisitions of US$15.0M, predominantly the new tailings facility at LHM and nano filtration equipment and tailings pipeline at KM; and
      
      
    • capitalised exploration expenditure of US$2.6M. Exploration expenditure in foreseeable periods will be lower.
      
  • Cash inflow from financing activities of US$34.3M in the six months ended 31 December 2013 is mainly attributable to:
    
    
    • the net proceeds received from the share placement of US$78.1M; and
      
      
    • repayment of project financing for KM of US$20.0M and LHM of US$23.8M.
      
      
• Cash Position:
  
  
  • Cash of US$99.4M at 31 December 2013.
    
    
  • Sale of a 25% joint-venture equity stake in Langer Heinrich Mine in Namibia for US$190M announced in January 2014.
    
    
  • In a period when the uranium price is at an 8-year low all options are being reviewed to ensure the Company's sustainability and extend and preserve cash levels.

• Exploration and Development:
  
  
  • Aurora - Michelin Uranium Project, Canada - The winter field work programme has commenced at Michelin. The camp was opened in preparation for drilling start up in the last week of January. Drilling will involve two rigs concentrating on infill work at the Michelin and Rainbow deposits. The winter conditions will also be utilised for geophysical ground surveys over areas not accessible in summer.
    
    
  • Manyingee Project, Western Australia - As announced on 13 January 2014, a revised Mineral Resources estimate for the Manyingee Deposit conforming to both the JORC (2012) code and Canadian National Instrument 43-101 has been completed. The results include an Indicated Mineral Resource of 15.7Mlb U₃O₈ and an Inferred Mineral Resource of 10.2Mlb U₃O₈, both at an average grade of 850ppm U₃O₈, using a 250ppm and 0.2m minimum thickness cut off. Compared to the previous Mineral Resource estimate announced in 1999 (reported at a 300ppm U₃O₈ cut off), the updated 2014 Mineral Resource estimate shows a minor reduction in contained U₃O₈ for the Indicated portion of the Mineral Resource and an increase in the Inferred portion of the Mineral Resource. Despite the change in disequilibrium factor used to determine uranium grades, which resulted in a reduction in the Indicated Mineral Resource material grade, the overall grade of the deposit has increased due to revised geological modelling and estimation techniques
    
    
• Guidance FY2014
  
  
  • Following the decision to place KM on care and maintenance, Paladin revised its FY14 production guidance from 8.3-8.7Mlb U₃O₈ to 7.8-8.0Mlb U₃O₈.
    
    
• Sales Volumes
  
  
  • Uranium sales volumes are expected to fluctuate quarter-on-quarter due to the uneven timing of contractual commitments and resultant scheduling by customers. Now that production has reached design levels, sales and production volumes are expected to be comparable on an annualised basis.
    
    
• Langer Heinrich Minority Interest Sale
  
  
  • On 20 January 2014, the Company announced that it had signed an agreement on 18 January 2014 to sell a 25% joint-venture equity stake in its flagship Langer Heinrich uranium mining operation in Namibia to China Uranium Corporation Limited, a wholly owned subsidiary of China National Nuclear Corporation (CNNC), the leading Chinese nuclear utility, for consideration of US$190M.
    
    
  • An offtake component of the agreement will allow CNNC to purchase its pro-rata share of product based on the prevailing market spot price at the time of sale. There is also an opportunity for Paladin to benefit by securing additional long term offtake arrangements with CNNC, at arm's length market rates, from Paladin's share of Langer Heinrich production.
    
    
  • The respective Boards of Paladin and CNNC have approved the transaction. Completion is subject only to certain Chinese regulatory approvals (including the National Development and Reform Commission), which are expected to be obtained by mid-2014, and routine consents for the transaction from Paladin's project financiers and the Bank of Namibia. CNNC has paid a US$20M non-refundable deposit to an escrow agent. The deposit will become non-refundable on receipt by the escrow agent of the routine consents for the transaction from Paladin's project financiers and the Bank of Namibia.
    
    
  • Proceeds from the sale will be utilised to repay debt across the Company.
    
    
• Successful Refinancing of Langer Heinrich and Kayelekera Facilities - Post Quarter
  
  
  • On 17 January 2014, the Company announced that it had entered into agreements with its lenders to refinance the LHM and the KM project finance facilities. All conditions precedent to drawdown were satisfied on 29 January 2014 and completion occurred on that date.
    
    
  • This new facility will provide significant cash flow benefits to both projects and leaves Paladin in a much stronger financial position. The annual principal repayments across both projects will be reduced from US$53.8M per annum to US$18.3M per annum in calendar year 2014, a substantial reduction of US$35.5M, with the first repayment not due until June 2014.
    
    
  • In calendar year 2015, annual principal repayments under the existing facilities compared to the new facility will be reduced by a further US$23.7M.

The documents comprising the Appendix 4D - Financial Report for the six months ended 31 December 2013, including the Management Discussion and Analysis, Financial Statements and Certifications are attached and will be filed with the Company's other documents on Sedar (sedar.com) and on the Company's website (paladinenergy.com.au).

Generally Accepted Accounting Practice

The news release includes non-GAAP performance measures: C1 cost of production, non-cash costs as well as other income and expenses. The Company believes that, in addition to the conventional measures prepared in accordance with GAAP, the Company and certain investors use this information to evaluate the Company's performance and ability to generate cash flow. The additional information provided herein should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Declaration

The information in this announcement that relates to minerals exploration and mineral resources is based on information compiled by David Princep BSc, FAusIMM (CP) who has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to qualify as Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). Mr Princep is a full-time employee of Paladin Energy Ltd. Mr. Princep consents to the inclusion of the information in this announcement in the form and context in which it appears. The mineral resources for the Manyingee deposit were announced to the ASX on the 13 January 2014 and the information contained within has not materially changed since it was last reported.

Conference Call

Conference Call and Investor Update is scheduled for 06:30 Perth & Hong Kong, Friday 14 February 2014, 17:30 Toronto and 22:30 London, Thursday 13 February 2014. Details are included in a separate news release dated 11 February 2014.

To view the entire document, including financials and MD&A, please visit the following link: http://media3.marketwire.com/docs/Report_12-2013.pdf.

ACN 061 681 098