Bay Street News

Financial Report for the Nine Months Ended 31 March 2017 and Outlook

Bay Street

PERTH, WESTERN AUSTRALIA –(Marketwired – May 16, 2017) – Paladin Energy Ltd (“Paladin” or “the Company”) (ASX: PDN) (TSX: PDN) announces the release of its condensed consolidated interim financial report for the nine months ended 31 March 2017. The condensed consolidated financial report is appended to this News Release.

HIGHLIGHTS

References below to 2017 and 2016 are to the equivalent nine months ended 31 March 2017 and 2016 respectively.

Operations

  • Langer Heinrich Mine (LHM) produced(1) 3.396Mlb U3O8 for the nine months ended
    31 March 2017, down 7% from 2016.
    • Ore milled of 2,691,209t, down 1% vs. 2016.
    • Average plant feed grade of 651ppm U3O8, down 8% vs. 2016.
    • Overall recovery of 87.9%, up 3% vs. 2016.
    • C1 cash cost of production for 2017 of US$17.51/lb.
  • C1 unit cost of production(2) for 2017 was US$17.51/lb, a decrease of 32% from US$25.65/lb in 2016.
  • LHM mine plan adjustment involving reduced mining material movement, combined with processing plant feed coming from stockpiled low and medium grade ores was implemented in November 2016.

Sales and revenue

  • Sales revenue of US$69.4M for 2017, selling 2.856Mlb U3O8.
  • Average realised uranium sales price for 2017 was US$24.32/lb U3O8 compared to the average TradeTech weekly spot price for the period of US$23.10/lb U3O8.

Profitability

  • Gross loss for 2017 of US$22.2M compared to a gross profit for 2016 of US$25.7M.
  • Underlying EBITDA(3) for 2017 of US$5.1M, an US$11.1M deterioration from an underlying EBITDA of US$16.2M for 2016.
  • Underlying all-in cash expenditure(4) per pound of uranium production for 2017 was US$27.97/lb, a decrease of 28% compared to 2016 of US$38.71/lb.

Corporate and strategic initiatives

  • Cash and cash equivalents at 31 March 2017 of US$21.8M, which was above the guidance range previously provided of US$10M to US$20M.
  • In December 2016, Paladin sold a number of non-core Australian exploration assets to Uranium Africa Ltd for approximately US$1.9M. The assets sold included the Oobagooma and Angela/Pamela projects located in Western Australia and the Northern Territory respectively and Paladin’s interest in the Bigrlyi project located in the Northern Territory. It is expected that these asset sales will result in annual cost savings due to reductions in rates, rentals and statutory commitments payable to keep the tenements in good standing.
  • Paladin also sold its entire shareholding in Deep Yellow Ltd for approximately US$2.6M in the December 2016 quarter.
  • On 28 December 2016, the Company announced the appointment of an expert by Électricité de France (EdF) and Paladin to determine the value of additional security proposed by Paladin for the prepayment made by EdF. If the value determined is less than the value required by the Long Term Supply Contract (LTSC), the outstanding amount (being approximately US$273M as at 31 March 2017)) must be repaid within 30 days of that determination. Based on initial feedback from the expert, and subject to finalisation of the expert’s report, the value of the additional security is likely to be insufficient. The expert’s final decision is expected to be made by the end of May. Paladin and EdF are in discussions about a possible standstill from EdF if that repayment becomes due and payable.
  • On 10 January 2017, the Company announced that it had resolved to enter into a proposal to restructure its balance sheet (Restructure Proposal) which contemplates the exchange of its existing 2017 Convertible Bonds (US$212M) and 2020 Convertible Bonds (US$150M) into US$115M of New Secured Bonds due 2022, US$102M of New 2024 Convertible Bonds and US$145M of Paladin shares. The Restructure Proposal is subject to the condition that Paladin continues to own 75% of LHM, which is in doubt given CNNC’s decision to require the valuation of LHM in order to decide if it will exercise its potential option.
  • The minority sale of a 30% interest in the Manyingee Project did not complete prior to the mutually agreed drop dead date of 31 March 2017 to satisfy all the conditions to closing. Whilst Avira Energy Limited satisfied a number of conditions, including a positive vote of its shareholders and approval of the Australian Foreign Investment Review Board, it did not close a requisite capital raising within the pre-agreed timeframe to complete the transaction.
  • Nedbank Limited (Nedbank) granted the Company a waiver in relation to Paladin failing to satisfy the minimum asset value threshold as required by Langer Heinrich Uranium (Pty) Ltd’s Revolving Credit Facility with Nedbank. The waiver provided by Nedbank was due to lapse on 31 March 2017 however, consistent with ongoing support that Paladin is receiving from its other stakeholders, Nedbank has agreed to extend the waiver until 30 June 2017, subject to formal documentation which is now being agreed.
  • On 26 April 2017, the Company launched a consent solicitation procedure seeking approval from holders of the Company’s 2017 Convertible Bonds to: amend the final maturity date of the 2017 Convertible Bonds to 30 September 2017; and defer the interest payment due on 30 April 2017 to 30 September 2017, with interest to accrue on both the principal outstanding and the accrued and unpaid interest until 30 September 2017. A meeting of the holders of the 2017 Convertible Bonds has been convened, to consider the extraordinary resolutions, to be held on 18 May 2017.
  • On 5 May 2017, the Company announced it will allow an independent valuation process to move forward to value its 75% interest in LHM. The valuation is the first step in a process that may lead to CNNC acquiring LHM. The valuation is to be performed by an independent international investment bank with uranium experience and is expected to take 5-6 weeks. Under the LHM Shareholders’ Agreement, once the valuation is complete CNNC has 30 days to exercise the option.
  • On 16 May 2017, Paladin announced an Alternative Restructuring Proposal that can be implemented if the Company’s 75% interest in LHM is sold. Under the Alternative Restructuring Proposal: net proceeds from any sale of Paladin’s 75% interest in LHM will be distributed between EdF (repaid in priority) and the holders of the Existing Convertible Bonds; the balance of any Existing Convertible Bonds (if any and including accrued interest to the closing date), will be exchanged into New 2022 Secured Convertible Bonds; and the EdF LTSC will remain on foot on terms acceptable to EdF. Bondholders representing 57.6% of the 2017 Convertible Bonds and 55.0% of the 2020 Convertible Bonds have signed binding undertakings in support of the Alternative Restructure Proposal. The Alternative Restructuring Proposal remains highly conditional with such conditions outlined in the Company’s ASX release of 16 May 2017.

Outlook

  • Key relevant guidance items for the quarter to 30 June 2017 include:
    • Uranium production — In line with the reduced mining plan, the feed grade will be lower and uranium production is expected to be in the range of 0.75Mlb to 0.85Mlb.
    • Uranium sales — Anticipated to be in the range of 1.1Mlb to 1.3Mlb U3O8.
    • LHM C1 cash costs — Expected to be within the range of US$21/lb to US$23/lb.
  • Guidance for the full-year to 30 June 2017:
    • Uranium production — Expected to be in excess of 4.0Mlb U3O8.
    • LHM C1 cash costs — Expected to be within the range of US$16.50/lb to US$18.50/lb.

Results
(References below to 2017 and 2016 are to the equivalent nine months ended 31 March 2017 and 2016 respectively).

Safety and sustainability
The Company’s 12 month moving average Lost Time Injury Frequency Rate(5) (LTIFR) increased to 2.2 as compared to 1.9 at the end of the last quarter. The 12 month moving average LTIFR for the previous year was 2.2.

Three Lost Time Injuries (LTI) were reported during the nine months at LHM: a process operator sustained an injury to the right ankle descending a fixed ladder, a maintenance tradesman injured a shoulder while using a drill and a process operator sustained a chemical burn to the foot when entering a flooded bund with inappropriate personal protective equipment.

The Company achieved 999 Lost Time Injury (LTI) free days at the Kayelekera Mine (KM) for ~1.7 Million man hours.

Langer Heinrich Mine (LHM)
LHM produced 3.396Mlb U3O8 for the nine months ended 31 March 2017, down 7% from the previous year (2016: 3.644Mlb U3O8).

  • Ore milled of 2,691,209t, down 1% vs. 2016.
  • Average plant feed grade of 651ppm U3O8, down 8% vs. 2016.
  • Overall recovery of 87.9%, up 3% vs. 2016.

The unit C1 cost of production for the nine months decreased by 32% from US$25.65/lb in 2016 to US$17.51/lb in 2017 primarily due to a strong operating performance and the impact of the write-down of LHM’s ore stockpiles that occurred at 30 June 2016.

Kayelekera Mine (KM) remains on care and maintenance

  • Activities at site focused on water treatment, discharge and monitoring.
  • Company in discussion with external consultants with respect to the potential to prepare a re-start project implementation plan.

Profit and Loss
Total sales volume for 2017 was 2.856Mlb U3O8 (2016: 3.094Mlb).

Sales revenue for 2017 decreased by 43% from US$121.9M in 2016 to US$69.4M in 2017, as a result of a 38% decrease in realised sales price and an 8% decrease in sales volume.

The average realised uranium sales price for 2017 was US$24.32/lb U3O8 (2016: US$39.41/lb U3O8), compared to the TradeTech weekly spot price average for the period of US$23.10/lb U3O8.

Gross loss for the period decreased by 186% from a gross profit of US$25.7M in 2016 to a gross loss of US$22.2M in 2017 due to a 38% decrease in realised sales price, an 8% decrease in sales volume, and an impairment of inventory of US$26.7M (2016: US$Nil), which was partially offset by a 33% decrease in cost of sales.

Impairments of inventory of US$26.7M were recognised in 2017 (2016: US$Nil)

Impairments comprise of a US$18.4M impairment of LHM ore stockpiles, US$5.1M impairment of LHM product-in-circuit and a US$3.2M impairment of finished goods due to low uranium prices.

Net loss after tax attributable to members of the Parent for 2017 of US$84.0M (2016: Net loss US$39.3M).

Underlying EBITDA has deteriorated by US$11.1M for the period from an underlying EBITDA of US$16.2M for 2016 to US$5.1M for 2017, mainly due to a 38% decrease in the realised sales price.

Cash flow
The Group’s principal source of liquidity as at 31 March 2017, was cash of US$21.8M
(30 June 2016: US$59.2M). Any cash available to be invested is held with Australian banks with a minimum AA- Standard & Poor’s credit rating over a range of maturities. Of this, US$19.5M is held in US dollars.

Cash outflow from operating activities was US$43.7M in 2017 (2016: outflow US$35.4M), primarily due to payments to suppliers and employees of US$111.7M and net interest paid of US$14.6M, which were partially offset by receipts from customers of US$70.5M and the receipt of US$12.7M of unearned revenue from the prepayment of sales.

Cash outflow from investing activities for 2017 was US$3.7M (2016: US$3.8M):

  • Plant and equipment acquisitions of US$6.6M
  • Capitalised exploration expenditure of US$1.6M
  • Partially offset by the proceeds from the sale of non-core assets of US$4.5M.

Cash inflow from financing activities was US$9.6M in 2017 (2016: outflow US$122.5M), was attributable to the drawdown of US$20M under the LHM secured Revolving Credit Facility, which was partially offset by a US$10.4M distribution to CNNC by way of repayment of intercompany loans owing by LHM that have been assigned to CNNC.

Cash position
At 31 March 2017, the Group’s cash and cash equivalents were US$21.8M, which was above the guidance range previously provided of US$10M to US$20M.

The documents comprising the condensed consolidated interim financial report for the nine months ended 31 March 2017, including 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).

Outlook
Uranium market

The TradeTech weekly spot price average for 2017 was US$23.10/lb, a fall of 34% compared to the weekly spot average for 2016 average of US$35.08/lb.

Following price increases at the start of the calendar year, uranium spot price has traded over a range of $21.15-$26.50/lb since late January and currently stands around $21.25/lb.

US reactor vendor and nuclear fuel services company Westinghouse Electric Co. filed for Chapter 11 bankruptcy protection on 29 March 2017. The company, a subsidiary of Japan’s Toshiba Corporation, is seeking to restructure its business to address financial losses and ongoing construction challenges at its US nuclear power plant projects. The US projects, four AP1000 units under construction at Vogtle in Georgia and VC Summer in North Carolina, now may face additional delays or even curtailment.

In Asia there have been positive developments in the process to restart Japanese reactors. In late March, the Osaka High Court overturned an injunction that had been preventing operation of Kansai’s Takahama Units 3 and 4 since it was imposed by a lower court in early 2016. The two units are anticipated to restart in May after completion of planned maintenance checks. A court in Hiroshima denied an injunction seeking to shutdown Shikoku’s Ikata Unit 3. This reactor was returned to service in September 2016. In April, Tokyo Electric Power Co. announced it plans to restart reactors at its Kashiwazaki-Kariwa nuclear power plant in Kashiwazaki, Niigata Prefecture in early 2019. The Kashiwazaki-Kariwa plant is one of the world’s largest nuclear power stations in terms of output capacity.

The board of directors of Électricité de France resisted government pressure to announce the permanent closure of France’s oldest reactor Fessenheim. In response, the government issued a decree specifying that the plant must close once the new Flamanville 3 plant comes into operation. Fessenheim’s ultimate fate may now be decided by the winner of the current French presidential election.

Paladin remains hopeful that a recovery in the uranium market is underway, albeit in its early stages. However, anticipated utility activity has been slow to manifest and future spot price increases and stability remain reliant on a more substantive re-engagement by utility end-users of uranium.

Company strategy
Paladin believes a uranium industry turnaround is imminent. However, given the current low pricing environment, its current strategies are focused on optimising actions to maximise cash flow whilst also prudently enacting capital management actions. Paladin’s strategies are aimed at maximising shareholder value through the uranium price downturn whilst remaining positioned for a future normalisation of the uranium market and price. Key elements of the Company’s strategy include:

  • Maximising LHM operating cash flows through optimisation initiatives that preserve the integrity of the long-term life of mine plan.
  • Maintaining KM and the Company’s exploration assets on a minimal expenditure, care and maintenance basis.
  • Minimise corporate and administrative costs.
  • Progress strategic initiatives with respect to partnerships, strategic investment, funding and corporate transactions, that result in de-risking Paladin’s funding structure or provide clear value accretion for stakeholders.
  • Prepare for growth

Company outlook
LHM’s adjusted Life of Mine plan (LOM) was implemented in November 2016, which involves reducing mining material movement combined with processing plant feed coming from stockpiled low and medium grade ores. The revised mine plan effectively shifts higher-grade ore processing into later years when uranium prices are expected to be higher. The FY2017 average feed grade will be reduced into the range of 550ppm to 570ppm vs our previous internal Company budget of 700ppm. The impact of the change will reduce finished U3O8 production by up to 1.0Mlb to 1.5Mlb per year for each of the next two years. However, the requirement for less movement of mined material on site during the period reduces cash operating costs by well in excess of any lost revenue. Using Paladin’s internal assumptions the initiative will generate approximately US$40M of cumulative incremental operating cash flow for FY2017 and FY2018.

Key relevant guidance items for the quarter to 30 June 2017 include:

  • Uranium production — In line with the reduced mining plan, the feed grade will be lower and uranium production is expected to be in the range of 0.75Mlb to 0.85Mlb.
  • Uranium sales — Anticipated to be in the range of 1.1Mlb to 1.3Mlb U3O8.
  • LHM C1 cash costs — Expected to be within the range of US$21lb to US$23/lb.

Guidance for the full-year to 30 June 2017:

  • Uranium production — Expected to be in excess of 4.0Mlb U3O8.
  • LHM C1 cash costs — Expected to be within the range of US$16.50/lb to US$18.50/lb.

GENERALLY ACCEPTED ACCOUNTING PRACTICE
The news release includes non-GAAP performance measures: C1 cost of production, EBITDA, 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, P.Geo 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) and as a Qualified Person as defined in NI 43-101. 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.

CONFERENCE CALL
Conference Call and Investor Update is scheduled for 07:30 Perth & Hong Kong, Wednesday 17 May 2017; 00:30 London, Tuesday 16 May 2017 and 19:30 Toronto, Tuesday 16 May 2017. Details are included in a separate news release dated 8 May 2017.

The documents comprising the Conference Call and Investor Update will be filed with the Company’s other documents on Sedar (sedar.com) and on the Company’s website (paladinenergy.com.au).

1 LHM production volumes and unit C1 cost of production include an adjustment to in-circuit inventory relating to leached uranium within process circuit.
2 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.
3 EBITDA = The Company’s Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) represents profit before finance costs, taxation, depreciation and amortisation, impairments, foreign exchange gains/losses, restructure costs and other income. EBITDA, which is non-IFRS information, is a widely used ‘industry standard’ term.
4 Underlying All-In Cash Expenditure = total cash cost of production plus non-production costs, capital expenditure, KM care & maintenance expenses, corporate costs, exploration costs and debt servicing costs and mandatory repayments, excluding one-off restructuring and non-recurring costs. Underlying All-In Cash Expenditure, which is a non-IFRS measure, is widely used in the mining industry as a benchmark to reflect operating performance.
5 All frequency rates are per million personnel hours

PALADIN ENERGY LTD ACN 061 681 098

CONTACTS
For additional information, please contact:
Andrew Mirco
Investor Relations Contact (Perth)
Tel: +61-8-9423-8162 or Mobile: +61-409-087-171
Email: andrew.mirco@paladinenergy.com.au