Paladin Energy Ltd., the Australian company producing uranium in Africa, will sell shares to institutions after ending talks to sell a stake in its Langer Heinrich mine in Namibia, citing low prices for the nuclear fuel. The shares plunged the most in eight years in Toronto.
Paladin plans to sell stock to institutional investors for as much as 15 percent of its issued equity capital to bolster funding, the Perth-based company, which has a market value of A$837 million ($745 million), said today in a statement. A 10 percent stake in the mine is valued at $111 million, Simon Tonkin, a Perth-based analyst at Patersons Securities Ltd., said today in an e-mail.
“This leaves a question mark over their balance sheet,” Andrew Shearer, a Melbourne-based analyst at PhillipCapital Ltd., said today by phone. “The decision to terminate the asset sale is contrary to the company’s guidance that the process was continuing well and heading toward a conclusion.”
The company’s cash position dropped to $78.1 million at June 30, down from $112.9 million at the end of the previous quarter and it had planned to use the proceeds from the sale of a stake to reduce its debt and strengthen its balance sheet. Paladin in June delayed the outcome of the talks to mid- to late-August, saying it was in talks with two nuclear companies and that it was confident an agreement would be reached.
Paladin tumbled 22 percent to 72 Canadian cents at the close in Toronto, the biggest drop and the lowest price since the stock started trading there in 2005. Trading was halted in Sydney.
Assuming the share sale raises a minimum $75 million, this along with cost cuts, is expected to provide adequate funding into the September quarter 2014, even if the spot uranium price remains at a level of $42.50 a pound, the company said.
Uranium dropped to $34.50 last month, the lowest since November 2005. It has averaged $40.90 in 2013, according to data compiled by Bloomberg.
“The current depressed uranium price has meant that it is unlikely that a price that appropriately reflects the strategic value” of the Langer Heinrich stake will be achieved, the company said in a separate statement. “Proceeding at this time would be detrimental to long-term shareholder value.”
The company, which also has a project in Malawi, expects to book a further impairment charge of about $180 million before tax for the year ended in June 30, it said. Paladin had about $670 million of debt at the end of March, according to data compiled by Bloomberg.
Prices may average $42.82 a pound this year, according to Morgan Stanley, while Bank of America Corp. is predicting $43.80. BMO Capital Markets, which cut its price estimate by 10 percent in July, forecasts $43 a pound.