Uranium miner Paladin Energy Ltd (ASX: PDN) has announced sales of US$69.9 million in the December quarter, a rise of 79% over the previous quarter.
But despite the news, shares are down 2.8% at 35 cents at lunchtime.
So why are investors selling out of a stock reporting such strong growth?
The problem is that Paladin sold 1.9 million pounds of uranium in the quarter, at an average price of US$36.58 per pound. That last figure is the issue – that price is well below what it costs Paladin to produce the uranium, and there are no signs that the price is going to recover anytime soon.
Paladin’s C1 costs in the September quarter were US$35.1/lb. Once you consider all the other expenses the company has to consider, all-in sustaining costs are well above the current price, so Paladin will likely report another massive loss this financial year, following the US$338 million loss in 2014.
While Paladin notes that Japan has begun the process of restarting some of its nuclear reactors, it’s a slow process, and uranium prices are volatile, rising from US$28 per pound in mid-2014 to US$44 per pound in mid-November. Then prices fell to US$35.50 per pound (/lb) as demand fell off, and are still trading around that level – despite management’s view in November 2014 that “uranium is set for a long period of price strength“.
As we wrote back in June last year, forecasts suggest a price of between US$40/lb to US$45/lb, which remain an issue for Paladin, not to mention other uranium stocks Energy Resources of Australia Limited (ASX: ERA) – which is majority owned by Rio Tinto Limited (ASX: RIO).
Paladin also has to contend with US$640 million worth of debt, forcing the company to keep raising capital to prop up its operations. Paladin raised $205 million late last year to partly repay US$300 million in convertible bonds due in November 2015.
It’s been a sad story for shareholders, with Paladin reporting a sum total of US$1.9 billion in losses since 1994, and heavy destruction of shareholder worth – with shares trading at a fraction of their all-time highs.
And much like rare earths miner Lynas Corporation Limited (ASX: LYC), Paladin is fighting for survival – both heavily dependent on commodity prices recovering. If they don’t, Paladin is at high risk of going out backwards.
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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga
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