Paladin’s production, cost-cutting impresses

With the uranium price dropping, Paladin Energy (TSX: PDN) is finding ways to cut costs and prepare for a quick expansion, in case prices rebound.

The company reported production results from its latest quarter that produced a record 1.35 million lb. uranium oxide (U₃O₈). The latest quarter, which ended on June 30, is recorded as Paladin’s final quarter of its fiscal year, and it reported total year-end results that came in at 5.29 million lb. U₃O₈.

This year-end total marginally beat the 5.2 million lb. estimate by Haywood Securities analyst Colin Healey.

And while the production cost was not released, Paladin reported that costs at its flagship mine, Langer Heinrich in Namibia, were down 9% year-over-year. Healey calculated that the re­duction implies costs of US$28.71 per lb.

The cost reductions at the company’s second and higher-cost mine, Kayelekera in Malawi, were even more impressive. It was there that Paladin managed a 24% year-over-year reduction to an implied price of US$38 per lb.

In its quarterly results, the company sold 2.33 million lb. U₃O₈ and made US$107.4 million in revenue. Full-year sales tallied 8.25 million lb. at an average price of US$49.48 for revenue of US$408 million.

That final number narrowly missed Haywood’s forecast of US$438 million.

“We assert that Paladin offers
a production-expansion profile unrivalled outside of the existing producers, with the potential to add over 5.3 million lb. U₃O₈ to nameplate annual production capacity over the next three years at lower risk than other potential sources of new uranium production, such as unpermitted developers,” Healey writes in his report.

A strengthening uranium price would have to come before any production expansion is brought on-board, but if prices rebound Kayelekera would likely be the first to see an uptick in output, as the mine could add another 500,000 lb. capacity by 2015, which would take it up to 3.8 million lb. annual production.

As for Langer Heinrich, expansion would come in stages. The company is doing a feasibility study on a stage-four expansion that could bring nameplate annual capacity up to 10 million lb. U₃O₈.

But Healey’s report cautions that Kayelekera produces uranium above current market prices, and that there are small groups within Malawi that are protesting against unprofitable mines, which reduce royalty income that is owed to the country.

“To date,” the report reads, “the company has done an admirable job of addressing and quelling any such instances, but the risk of interruption does exist.”

In Toronto on July 17, the day the news was released, Paladin’s shares were up 5% to $1.02, on 3 million shares traded.