Paladin wields the axe

Pure-play uranium miner Paladin Energy (PDN-T) has unveiled a plan it says will trim costs by US$60 million to US$80 million over the next two years.

Paladin says these new operational efficiencies at its two mines in Africa will lead to critical gains during a time of weakening uranium prices. 

With uranium oxide trading at about US$40.70 per lb., Paladin’s management team says expansions and new developments are not warranted until prices reach at least US$85 per lb.

In the meantime, the company says it is better to focus on improving efficiency and cutting costs. 

In fiscal 2013, it plans to reduce unit costs by 7.5%, or US$10 million, at both its Langer Heinrich mine in Namibia and its Kayelekera mine in Malawi through a combination of measures, including improving mining costs, discretionary spending and rationalizing contractors. 

The Sydney-headquartered company says that exploration spending would also be scaled back by 20% — or US$4 million — by calling off non-essential drilling, and that corporate overheads would be cut by 10%, or US$3 million. Paladin also believes that better managing its inventory would lead to cash generation of about US$15 million.

In fiscal 2014, the company is targeting an additional 7.5%, or US$10-million reduction in unit costs at Langer Heinrich, and an additional 15%, or US$20 million reduction at Kayelekera. 

This will be achieved through continued process refinements and reductions in mining costs at Langer Heinrich, and by gaining access to a grid power supply and completing optimization programs at Kayelekera.

Paladin signed a long-term offtake agreement in August to supply yellowcake from 2019 to 2024 to Électricité de France (EDF). EDF is the largest single nuclear utility in the world and manages 58 nuclear power stations in France. 

Edward Sterck of BMO Capital Markets says the impact of Paladin’s cost-cutting measures is “potentially positive,” and points out that the company has been “demonstrating operational improvement over the past twenty-four months.” But he also argues in a research note that if uranium prices remain depressed at current prices, Paladin may need additional funding by fiscal 2015. 

Sterck has a “market perform” rating on the stock, and a target price of $1.50. 

At press time, Paladin was trading at $1.07 within a 52-week trading range of $1.08 to $2.11. The company has 837 million shares outstanding.