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Paladin Energy share price on watch as weak uranium prices bite profits

The Paladin Energy Ltd  (ASX: PDN) share price is on watch this morning after the Perth-based miner reported a 108% fall in full-year net profit yesterday.

What did Paladin Energy report?

In an after-market release, Paladin reported a net loss after tax of US$30.3 million – down 108% on the prior corresponding period (pcp) figures of $367.8 million profit.

This translated to a loss per share of 1.7 cents, compared to a 21.5 cents per share profit in FY18.

The biggest catalyst was a 71% drop in revenue as uranium oxide sales fell from US$72.9 million in FY18 to just US$21.5 million in the latest financial year.

In the report, Chairman Rick Crabb stated that Paladin is well-placed to capitalised on an “expected substantial increase in uranium price”, but added that the “timing of such increase however, still remains elusive…given a degree of opaqueness in this market.” 

Paladin owns a 75% stake in the Langer Heinrich Mine in Namibia, which comprises the majority of its operations, while in June 2019 it announced the conditional sale of its Kayelekera Mine in Malawi.

There were some positives on the operational side, with Paladin lowering net cash outflows from operations by US$32.0 million on pcp following the succesful transition of the Langer Heinrich Mine into care and maintenance.

However, the company’s balance sheet weakened throughout the period with net cash falling from US$25.4 million to US$13.7 million in FY18, while Paladin’s gearing ratio surged from 43% in FY18 to 58% as at year-end.

The company did complete the takeover of Summit Resources in November 2018 with management expecting to see compliance and regulatory cost savings as a result.

The biggest factor driving Paladin’s profitability (or lack thereof) is the unstable global uranium market.

As noted by Paladin, a lack of clarity from a US Department of Commerce investigation into US uranium imports has weighed on the uranium price for the past 18 months and ultimately the uranium price recovery has “temporarily stalled”.

Foolish takeaway

While the headline earnings figures are weak for Paladin, the reality is that not much can be done by the company when it relies so heavily on the uranium market.

However, the long-term outlook remains intact for the group heading into FY20 with rising nuclear power growth in Asia and the Middle East, despite lower long-term contracting levels.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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