Paladin Energy (ASX:PDN) is a uranium miner, with projects located in Africa and Australia.
PDN’s long-term goal is to establish itself as a uranium producer through identifying, acquiring and evaluating advanced uranium projects.
The group’s current focus is on its African projects: Langer Heinrich (Namibia) and Kayelekera (Malawi).
PDN has been one of the shares to sell this year after facing a number of challenges including a nuclear crisis in Japan.
The future was looking bright for uranium companies like PDN as world energy needs surged on the back of expansion and industrialisation in China and India.
Nuclear energy seemed the next biggest thing until disaster struck this year following the earthquake and tsunami in Japan.
As Japan’s nuclear crisis deepened, the less attractive uranium looked as an energy source for the future.
Germany’s plans to move away from uranium entirely by 2022 have hurt uranium companies further.
In addition, a looming global economic crisis is threatening to slow energy demand worlwide.
Production lacks energy
PDN had a bad start to the year after downgrading its FY11 uranium production guidance to between 6.0 million – 6.3 million pounds (Mlb), from the previous 7 million pounds.
PDN said that second quarter production rose 7.6%, however full year output was going to be affected by power and maintenance disruptions at its Malawi-based Kayelekera mine.
Paladin Energy shares slid 7.7% following the update. To make matters worse, PDN’s final FY11 production came in at 5.7Mlb, completely missing the mark.
Following Japan’s nuclear crisis, PDN announced that it does not have any commercial relationship with Japanese utilities.
It further said that it had a strong balance sheet and is in a good position to meet global uranium demand given the expected supply disruptions.
Last month, PDN reported an FY11 net loss of US$82.3 million after costs related to acquisitions and mine expansions more than offset higher revenue from increased production.
This was wider than the US$52.9 million net loss reported in the previous year and was also larger than the average US$44 million net loss analysts had expected.
PDN said its costs rose due in part to lower uranium prices in the wake of Japan’s nuclear crisis.
PDN and its uranium sector peers have been under pressure after a catastrophic earthquake and a tsunami crippled reactors at the Fukushima Dai-Ichi reactor in Japan.
The event has raised fears regarding uranium as an energy choice. Whilst uranium is one of the greenest forms of energy when contained, disasters such as Chernobyl have led to long-standing controversy regarding nuclear power.
With Germany looking to move away from uranium entirely by 2022, there are wide fears that other developed nations will also reconsider their stance on uranium.
This uncertainty is likely to see uranium miners under pressure in the medium to long term with potentially devastating long term effects.
PDN’s price action has suffered, reflecting the underlying issues the company has been facing.
We feel PDN will continue to struggle on a combination of high debt levels, a tough economic outlook and a weak uranium market.
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