And uranium’s rise will come sooner, not later, says Paladin’s John Borshoff
by Greg Klein
With uranium selling well under $40, “no one will or can move forward with growth, never mind maintaining current production,” said Paladin Energy TSX:PDN managing director/CEO John Borshoff. While summarizing his company’s fiscal 2013 he expressed incredulity about the uranium market’s “absolute absurdity” of low prices despite looming shortages. He also predicted a dramatic change, emphasizing “the price can only go up sooner than some think.”
His remarks came as the company reported record production of 8.255 million pounds uranium oxide (U3O8), 20% above fiscal 2012, and revenue of US$408.4 million, 12% above 2012, but an after-tax loss of $420.9 million and a total impairment of $335.9 million.
Addressing a conference call from his Western Australia office on August 30 (August 29 in the Western Hemisphere), Borshoff acknowledged “an extremely challenging year, what with the uranium price falling from about $50 in July 2012 to $35 this month and currently sitting on an eight-year low.”
He attributed this month’s fall in share value to the uranium price, a general weakness in world markets “still waiting by and large for Japanese nuclear re-starts post-Fukushima” and uncertainty about the sale of a minority interest in Paladin’s Langer Heinrich mine in Namibia. Borshoff expressed confidence a sale will go through “at a fair price in the current financial year,” with the money used to pay down debt. Paladin also operates the Kayelekera mine in northern Malawi.
But he spoke most emphatically when discussing the state of the market in general.
People who say prices will rise in 2016 following a supply shortfall “seem to miss a key point,” he said. “The uranium price, in reality, has to rise two or three years before the shortfall to justify development of the new projects. This will happen because utilities will need to come into the term market soon, in a serious sort of way, in a bid to start filling their needs post-2014, 2015. Price hikes will be severe, I believe, because of these forward shortages, and when this happens and everyone wakes up, it will take six to nine years minimum to get supply sorted. There’s absolutely no incentive for miners or juniors to develop anything today in anticipation of this shortage. This time around, prices will have to rise and stay there on a sustained basis before the time of the shortfall for the developers to commit, and the end user needs to realize this fact.”
Why this is not worrying the hell out of the utilities completely astounds me.—John Borshoff, managing director/CEO of Paladin Energy
Borshoff said new development will remain stalled “until a price of at least $70 or higher is reached to galvanize some action. It’s only at this price level, and above, that sufficient capital for new development can be raised.”
Pointing out that high prices “dramatically influenced” supply growth from 2006 to 2011, the year of Japan’s earthquakes and Fukushima disaster, he said demand will call for twice as much growth by 2020. But an effective moratorium on development has taken place. “Why this is not worrying the hell out of the utilities completely astounds me.”
Borshoff did indicate, however, that a $200-million pre-payment from Paladin’s off-take deal with Electricité de France S.A. shows utilities are becoming concerned about long-term supply.
Meanwhile, he said, Paladin intends to produce 8.3 million to 8.7 million pounds in fiscal 2014, complete the minority interest sale in Langer Heinrich, continue cost-cutting measures and “pursue negotiations of joint ventures in advanced, undeveloped assets.”