Paladin Shares Drop as Debt, Costs Contribute to Loss

By Jason Scott

Aug. 27 (Bloomberg) -- Paladin Energy Ltd. fell in Sydney trading, making the stock the third-worst performer on the energy index after the uranium producer said soaring financing costs contributed to a $36 million full-year loss.

Shares of Paladin dropped 2.9 percent to A$5.32 on the Australian stock exchange, the third-worst performer on the 17- member S&P/ASX 200 energy sub-index, behind Roc Oil Co. and Felix Resources Ltd.

Paladin is working to get two mines in Africa operational in the next 12 months to meet a surge in demand for nuclear energy, with the International Atomic Energy Agency forecasting 60 plants will be built in the next 15 years. The expansion drive helped more than double financing costs, as the Perth- based company services $575 million of corporate debt.

``They're getting operational costs down but when you get marketing, corporate, exploration and financing costs so high, it totally overshadows the operational performance,'' said Gavin van der Wath, an analyst at BBY Ltd. in Sydney. ``I don't know if they can cut those costs. They've got a lot of debt now.''

Paladin's loss narrowed in the 12 months ended June 30 from $37.6 million a year earlier, even as sales soared to $101.9 million, from $11.2 million, it said yesterday.

Financing costs more than doubled to $30.7 million from $13 million, exploration and evaluation expenses almost doubled to $13.1 million from $7.1 million, and other expenses, including corporate and exploration costs and foreign exchange losses, rose to $35.7 million from $28.5 million.

Acquisitions Planned

The group almost doubled its cash reserves in the period to $338 million, which will allow it to seek acquisitions even as it pays interest on existing debt, Chief Financial Officer Ross Glossop said in a conference call yesterday.

``They're going to buy something, otherwise why leave all that money on the balance sheet,'' BBY's van der Wath said. ``Investors are concerned they might overpay for an asset.''

Output is set to more than double this year as volumes increase at the Langer Heinrich mine in Namibia and a new project starts in Malawi.

Production should rise to 3.6 million pounds of uranium oxide in the year ending June 30, 2009, from 1.71 million in the preceding 12 months, Managing Director John Borshoff said on a conference call. Output should increase to 6.8 million pounds the following year, to 7.4 million pounds in 2010-11 and 9.3 million in 2011-12, he said.

Paladin is due to complete an expansion of the Namibian project by the year end. The $200 million Kayalekera project in Malawi is due to start operating in January. It is also seeking to develop ventures in Australia, including the Mt. Isa and Angela projects. Global demand for uranium is rising as the construction of nuclear power plants gathers pace.

The outlook for the uranium market is ``very strong,'' with ``stagnant'' supply and ``very bullish'' demand, Borshoff said.

The world needs to build 32 new nuclear plants each year as part of measures to cut greenhouse gas emissions in half by 2050, the Paris-based International Energy Agency has said.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net.