Publishing Date 20 Jan 2014 1:11pm GMT Author Michael Quinn
John Borshoff, the world’s biggest uranium bull, claims the deal Paladin Energy Ltd has revealed with China National Nuclear Corporation (CNNC) completely vindicated the decision by Paladin’s board to walk away from negotiations last August and raise money from institutional investors to tide the company over.
The institutional investors could be forgiven for slightly wondering otherwise!
For while Australia-listed Paladin’s shares closed slightly up on the day the deal was announced - and are up more than 25% over the past month - they remained 20% below the A$0.70/share that institutional investors paid back in August 2013.
While Borshoff, chief executive, was unsurprisingly adamant the US$190 million deal (for 25% of the Langer Heinrich operation in Namibia), trumped the previous negotiations from which Paladin walked, he refused to divulge any details.
There could be some suspicion that CNNC were the party involved last time round – when according to Borschoff the “goal posts were moved” – given a non-refundable US$20 million deposit is to be paid by the Chinese company.
Brokerage RBC said the US$190 million was at the “lower end” of the US$273 million it had been modelling the 25% as being worth.
But whatever the case, Paladin has taken a whack of pressure off its balance sheet, with gearing reducing from 45% to 35% as net debt falls from US$557 million to US$367 million.
And RBC certainly sees some breathing room if Paladin can continue to deliver strong operational performance.
“Prior to today we had estimated that Paladin required an average uranium price of US$56/lb over 2014 and 2015 to meet the US$300 million convertible note payment due in November 2015,” RBC said. “We now believe if Paladin can deliver operational cost savings as planned it should be able to meet this payment at current uranium prices.”
If RBC is right, those investors that paid A$0.70 a share last August will certainly be breathing a lot easier.
And if John Borshoff’s finally right about the uranium price sometime soon, investors that bought into Paladin at much higher levels will also be a lot happier.