Paladin teeters on the brink of receivership

VANCOUVER (miningweekly.com) – Australian uranium player Paladin Energy is on the brink of receivership as its debts outweigh potential revenues.

The ASX-listed miner, which will be stripped of its TSX listing on August 10, for failure to meet the exchange’s ongoing listing requirements, said on Friday that it had received an independent valuation for Langer Heinrich Mauritius Holdings of $583-million.

However, significant questions remain about whether joint venture (JV) partner China National Nuclear Corporation’s (CNNC’s) Overseas Uranium Holdings subsidiary will follow through on its option to buy the company’s 75% interest in the flagship Langer Heinrich Mine (LHM), in Namibia and, if so, whether and when it will repay outstanding interest-bearing loans, with a face value of about $254-million, which Paladin extended to Langer Heinrich Uranium.

The fair market value of Langer Heinrich Mauritius Holdings’ 75% interest in LHM is worth just $170-million, which falls to $162-million after a 5% discount to CNNC.

As of Thursday, CNNC has 30 days to announce its intentions.

The difficult uranium market has forced Paladin to halt operations at its Kayelekera mine, in Malawi, for now. With the fallen uranium price, the company suspended operations in February 2014 and placed the mine on care and maintenance from May that year, forcing Paladin to find options to fund its upcoming debt repayments. It has also sold off other noncore projects.

Eight Capital analyst David Talbot believes that, upon CNNC's likely exercise of its Langer Heinrich purchase option, Paladin will be entitled to receive about $416-million, plus accrued interest and other charges.

“This assumes CNNC actually pays off the loans to Paladin in full and in a timely fashion. A more likely scenario is receipt of only the $162-million mine valuation. While management has said in the past that this debt will be paid out by CNNC if they purchase the asset, there is no repayment schedule or hard maturity date,” the analyst said in a note to clients.

Likely, Paladin will be stuck with a $497-million cash shortfall to cover its debt obligations, assuming CNNC buys its 75% stake in LHM, and pending the repayment of the $254-million in intercompany loans.

After receiving just $162-million from the LHM sale, Paladin will still owe $115-million to Électricité de France, $362-million to debt holders, and about $20-million on its revolving credit facility to Nedbank.

The analyst sees no reason to own the stock.

“We don’t see any options but receivership, and one may argue it has begun with administrators writing the press releases. While bankruptcy has not been declared, administrators seek expressions of interest for recapitalisation. The main unknown is whether PDN gets paid the full amount from CNNC.

“We might find out within 30 days, delaying any potential [recapitalisation] funding. We will see how this plays out but don’t expect Paladin to come out with much,” Talbot stated.