Paladin Energy adds more offtake orders ahead of Langer Heinrich restart

Paladin Energy (ASX: PDN) has added another four provisional offtake agreements to its order book as it prepares to restart the Langer Heinrich uranium mine in Namibia by the first quarter of 2023, the Western Australia-based company announced on Friday.

According to Paladin, the four tender awards entail supplying uranium to industry-leading counterparties in the U.S. and Europe.

The company says it is working towards finalizing contract terms which will complement existing offtake agreements with Duke Energy and the Chinese National Nuclear Corporation (CNNC). The awards are subject to the execution of final contracts and approval by the Namibian government.

Paladin expects to provide guidance on volumes and pricing mechanisms once final contracts are executed.

Canaccord Genuity Capital Markets analyst James Bullen expects the new contracts to be similar in volume to the existing 2.1 million lb. Duke agreement.

During the quarter, the company made progress in restarting the mothballed operation.

Site contractors and mine personnel have continued removing redundant equipment in preparation for process upgrades and improved plant maintainability. The company also reports it has completed site establishment activities in preparation for receiving site construction contractors and project equipment and materials.

Meanwhile, the Namibian government water authority, NamWater, has confirmed the availability and supply of water capacity for the life of the mine.

Similarly, the Namibian power authority, NamPower, has confirmed the initial supply and upgrade pathway for the mine’s complete power requirements.

Buying activities for new equipment, refurbishment parts and materials remain ongoing, as is debottlenecking planning and the preservation of the portion of the Langer Heinrich processing plant and related infrastructure that will be reused.

Activity for the current quarter will focus on completing the redundant equipment removal; contracting site work packages, including mobilization and the start of the multi-discipline repair and refurbishment packages and growth project civil works; and progressing the NamPower and NamWater agreements and infrastructure upgrade works.

Additionally, the company is continuing to progress negotiations with the national government to confirm that the fiscal regime will remain unchanged.

In September, Paladin had US$163 million in cash and no corporate debt.

Bullen believes the company remains well funded to cover the revised budget on a 100% basis, along with reasonable working capital requirements. That said, he expects that the company will seek to establish a working capital facility before the first production, in the range of US$20 to US$50 million.

“With regard to CNNC (who owns 25% of Langer Heinrich), it is yet to finalize its funding decision, but we understand that it remains supportive (albeit without reaching into its pocket yet),” said Bullen in a note to clients.

Langer Heinrich is located in the Namib Desert 80 km east of the principal seaport of Walvis Bay and 40 km south-east of Namibia’s – and the world’s – longest-running open pit uranium mine, China National Uranium Corporation’s Rössing.

Langer Heinrich production started in 2007 with a capacity of 2.7 million lb. of uranium oxide per year. This was subsequently expanded to 3.7 million lb. in 2009 and 5.2 million lb. in 2012.

Still, following the continued decline in uranium prices, a mining curtailment strategy was introduced in November 2016, and in May 2018, the mine was transitioned to full care and maintenance. The mine produced more than 43.3 million lb. of uranium oxide over its 10 years of previous operations.

According to a November 2021 resource statement, Langer Heinrich holds total measured and indicated resources of 140.1 million tonnes grading 415 parts per million uranium oxide, for 128.1 million lb. of metal.

The company noted the capital cost to restart production at Langer Heinrich has increased from the previous estimate of US$87 million to US$118 million, “primarily driven by recent inflationary pressures across the project supply chain, brought forward power and water infrastructure works and increased owners team costs”, the company said in July.

The company’s shares last traded in Sydney at A82¢ apiece, giving Paladin a A$2.4 billion market cap. The stock is still down 13% over the past 12 months, ranging between A53¢ and A$1.03.