Paladin seeks funding amid uncertain future

IT IS not the best of times for a uranium producer to be tapping the market for fresh funding.

By InvestSMART · 29 Sep 2011

By InvestSMART ·
29 Sep 2011

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IT IS not the best of times for a uranium producer to be tapping the market for fresh funding.

But that is what ASX-listed African uranium producer Paladin Energy is doing, seeking up to $70 million from an institutional placement of shares. The funds are needed to strengthen the group's balance sheet to "ensure the company is well placed to meet all future commitments and pursue identified growth options."

It was not inspiring stuff from a company whose share price has been trashed since investor confidence in uranium stocks was undermined by the crisis at Japan's Fukushima nuclear power plant in March.

Paladin was a $5 stock before the power plant was knocked out by the earthquake and tsunami that hit Japan. Ahead of going into a trading halt for the bookbuild for the placement, Paladin was trading at $1.31 a share. Expansion at its Langer Heinrich mine in Namibia and development of the Kayelekera mine in Malawi have also caused headaches, contributing to a 74 per cent share price fall since Fukushima.

Last month the Perth-based group talked up the prospect of big-spending joint-venture partners picking up the pace on the development of its other uranium projects. It said that it had received eight "genuine inquiries" from potential joint-venture partners and it was a "reasonable aim" to have something finalised by the end of the calendar year.

Paladin managing director John Borshoff said at the time that introducing joint-venture partners to fund new developments would achieve growth in a much less costly manner. "This program of monetising some of our non-producing projects with third-party engagement for minority interests was always on our agenda," he said. "We are positioned to make Paladin a partner of choice and this is reflected in the interest and the intensity of discussions we are having."

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Frequently Asked Questions about this Article…

Why is Paladin Energy seeking fresh funding through an institutional placement?

Paladin is seeking up to $70 million via an institutional placement to strengthen its balance sheet so the company is well placed to meet future commitments and pursue identified growth options.

How much money is Paladin planning to raise and by what method?

The company is aiming to raise up to $70 million by issuing new shares through an institutional placement (a bookbuild to institutional investors).

How has Paladin’s share price performed since the Fukushima nuclear crisis?

Paladin’s share price has been heavily hit since the Fukushima crisis. The stock traded around $5 before Fukushima, was about $1.31 ahead of the trading halt for the placement bookbuild, and has fallen roughly 74% since the Fukushima event.

What factors have contributed to Paladin’s share price decline?

Investor confidence in uranium stocks was undermined by the Fukushima nuclear plant crisis. The company also faced challenges from expansion at its Langer Heinrich mine in Namibia and development work at the Kayelekera mine in Malawi, which the article says have caused headaches and contributed to the share-price fall.

What are Paladin’s Langer Heinrich and Kayelekera projects?

Langer Heinrich is Paladin’s uranium mine in Namibia and Kayelekera is a development project in Malawi. The article notes expansion and development at these sites have been sources of operational and financial strain for the company.

Is Paladin looking for joint-venture partners to help fund development projects?

Yes. The company reported receiving eight “genuine inquiries” from potential joint-venture partners and said it was a reasonable aim to have something finalised by the end of the calendar year to help fund new developments.

How does Paladin expect joint ventures to affect its growth strategy?

Paladin’s managing director said bringing in joint-venture partners to fund new developments would allow growth at much lower cost to the company. The plan includes monetising some non‑producing projects by selling minority interests to third parties.

What should everyday investors know about the risks facing Paladin Energy right now?

Investors should be aware the company is operating in a challenging market for uranium, has seen a large share-price fall since Fukushima, and is seeking fresh funding and partner agreements to stabilise its balance sheet and pursue growth. These factors point to an uncertain near-term outlook and potential volatility for Paladin shares.