Paladin Energy Ltd (PDN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Paladin Energy and Fission Uranium Investor Call. [Operator Instructions] I would now like to hand the conference over to Mr. Ian Purdy, Chief Executive Officer of Paladin Energy. Please go ahead.

Thanks very much, and thanks, everyone, for joining us on this exciting call. I'd like to firstly introduce Ross McElroy to our call. Ross is over in [indiscernible] at the moment on the West Coast of Canada. Ross, thanks very much for staying up tonight and joining us.

No. It's a pleasure to be here on this call and very excited about what we're about to talk about. So happy to join, Ian.

Thanks, Ross. Also with us are Anna Sudlow, our CFO; and Alex Rybak, the Chief Commercial Officer of Paladin. In today's presentation, Ross and I will provide an overview of the transaction. In particular, we'll focus on the benefits to both shareholders and the compelling rationale for this strategic combination. And we'll also briefly discuss the process and the time line for completion of the transaction. We'll leave plenty of time for Q&A after the presentation and to make sure we reach out to every shareholder in all jurisdictions, we'll be hosting a second call later this evening, and that will give a chance for, in particular, the North American and the Canadian shareholders to hear from Ross and myself as well. So if I can ask to turn to Slide #6, please. Just quickly, I'll point out the deal highlights of the Paladin and Fission combination. It is an all script proposal to acquire Fission Uranium Corp. by Paladin Energy via a Canadian plan of arrangement. The consideration is a 30% premium offered to Fission shareholders based on the 20-day VWAP. There's no Paladin shareholder approval required. And post closing, Paladin shareholders will own approximately 76% of the combined company and Fission shareholders will own approximately 24%. We're targeting completion in the September 2024 quarter and pleased to say the transaction is supported by all directors on the Paladin side and also by the Fission Board of Directors. In parallel with the transaction, Paladin has applied to list on the TSX. We see that as a really important commitment on our part to the Fission shareholders and also gives us an opportunity to expand our global presence and our global market reach. Turning to Slide 7. We will be a clean energy leader. We will absolutely be one of the top independent listed uranium companies in the world. Firstly, we're a proven uranium producer. The Langer Heinrich Mine has been successfully returned to commercial production, and we look forward to a successful 17-year life of mine underpinned by reserves. Pleased to say the ramp-up has gone incredibly well. We're now 3 months into the ramp-up and very pleased to note that our first customer shipment is expected in July in a couple of weeks' time and we'll be taking advantage of the strong uranium market fundamentals. We expect to reach our nameplate capacity of 6 million pounds during financial year '26. We also have a world-class growth pipeline. Firstly, we've got life extension work commencing at Langer Heinrich. The Patterson Lake project is a world-class project in a world-class jurisdiction. We're incredibly pleased to have the opportunity to combine that with our strong portfolio of assets. The work done on Patterson Lake is first class, and it's currently going through a feed phase, and the work done to date has been exceptional, and we expect to be successful in combining with Fission to deliver production in 2029 from that particular project. We also have the Michelin Project, which is on a different time frame. We've commenced the PFS at Michelin. And when you look at the global portfolio and the exploration opportunity in all of the leading Western uranium jurisdictions, I'd suggest it's the best in market. We'll have a strong dynamic large company backing us. We estimate the U.S. market cap to be $3.5 billion. When we combine very strong cash and liquidity, expanded global capital markets footprint and very importantly, increased development funding options for the PLS project, which are underpinned by our Langer Heinrich production and our world-class customer book. This transaction also embeds us in our recently appointed ASX 100 Index status. The operational and development expertise of both companies is incredibly complementary. I've had the benefit of working with Ross and his team. We've done extensive work over the last 6 months. Likewise, Ross has had the benefit of seeing my team and visiting Langer Heinrich, and Ross and I both agree that the combination of the 2 companies and the 2 teams will deliver benefits and results across the portfolio. And we're clearly committed to governance and ESG and both our companies have a clear purpose to provide a 0 carbon fuel source to our global customers. Turning to Slide 8. The beauty of this transaction is it's a compelling strategic rationale. It's simple, it's straightforward and it's compelling. And I'd like to step through the rationale. We've summarized it in 6 compelling points. Firstly, turning to Slide 9. We will have a world-class production and growth pipeline. If you look at this slide, you can see how well the projects fit together from our production at Langer Heinrich to the development-ready Patterson Lake South, along with the PFS Michelin. And then as I mentioned, an outstanding global exploration portfolio in the 3 top western uranium jurisdictions. If you look at the production pipeline growth chart at the bottom, we expect to have dual producing assets by the end of this decade, in the 2 top uranium western jurisdictions in the world. And in longer term, we see further opportunity for more production. Turning to Slide 10. We are creating a leading Canadian development hub. Firstly, I'll ask Ross to talk about his world-class project at Patterson Lake.

Thank you, Ian. Yes, pleased to talk about PLS. So just to put a little bit of context where we are. We're in the Athabasca Basin in Canada. That's the northern part of the province of Saskatchewan. It is often recognized as one of the premier uranium districts in the world, a globally important supplier to uranium and has been sold for some 70 years or so of continuous uranium production. So the PLS project is located in the southwest side of the Basin. We made a discovery there about 12 years ago. We found extremely high-grade mineralization sitting on surface in radioactive boulders, which we were able to turn into a very large deposit. We've outlined around 130 million pounds of high-grade uranium of just under 2% overall global grade. We moved the project through feasibility studies. So just over a year ago, we completed our feasibility study, and it shows that to -- promises to be a very, very low-cost operator, one of the lowest costs globally, looking at sub USD 10 a pound. Operating costs and all-in sustaining of around just under USD 14 a pound. And we've outlined a 10-year mine life. So -- and I think for us, the important point also to make here is where -- from where we sit right now, we're about 5 years from production. So as Ian mentioned earlier in the conversation, we're on target here to be producing assets by 2029. And with the averaging annual output at PLS of just over 9 million pounds a year for what we currently outlined is the 10-year mine life, but we see substantial growth opportunities on this deposit as well. Go ahead, Ian.

Thanks, Ross. And briefly, the Michelin Project is on the East Coast of Canada in Labrador. Again, a good project. It's on a different time scale. And Ross and his team will be able to bring value to the Michelin development time line as well. And we look to time Michelin to come into that window for potential development in the 2030s after we have Fission's Patterson Lake up and running. So just to be absolutely clear, we are all in on Patterson Lake South. We fully endorse the work that Ross and his team has done and we are committed to bringing this asset into production along with Ross and his team by the end of 2029. Turning to Slide 11. We're going to have an amazing global uranium resource, quite an impressive number, 544 million pounds, the second largest in the western world behind Cameco and if you look at the quality of those resources and the jurisdiction, they are absolutely stand-alone in the uranium space today. So that's a massive opportunity and Ross and his team brings some fantastic exploration experience in Canada and an amazing track record as well. Turning to Slide 12. Look, I think everyone on the call today is right on board with the uranium market fundamentals, strong uranium demand, which is being driven by global decarbonization and the question at the moment is the tightness in supply, where are the new projects coming from? And we see PLS as one of the projects that will start to bridge the gap between supply and demand. And we think PLS will be part of the solution, and we're very confident we can bring that into production and find customers to underpin that development and to underpin the delivery of that project. Looking at Slide 13. When you combine the 2 companies, we'll have a starting market capitalization of about $3.5 billion. As I mentioned, Paladin's recently been put into the ASX 100. This consolidates our position there. We have an exceptional global register, lots of support out of North America, lots of support out of Europe, Asia and obviously, very strong support in our home market of Australia. What this transaction does is just enhances our global position across the globe. As I mentioned, companies in production of this scale are incredibly rare and it will give us further access to the highly institutionalized international register that we've got. It will broaden our investor base, and we're absolutely committed to the TSX listing, which is great for the Fission shareholders but also great for our North American ambitions. Turning to Slide 14. We've got an incredible synergy between our approach to our local communities. Ross and his team have done incredible work with the First Nations. Ross saw some of the work we've done with our local community in Namibia. And the 2 companies are committed to that collective approach with all stakeholders and we see great alignment and synergies between our 2 approaches. So finally, turning to Slide 15. This is a deal that creates value for all shareholders. We've got the enhanced project development pipeline, multi-asset production by the end of the decade, leading diversified presence across all leading mining jurisdictions, increased exposure to the mid-term, short-term and long-term uranium fundamentals as well as increased scale and a global profile with the TSX listing and the leading ASX listing as well. In particular, to Fission shareholders, we're offering an attractive 30-day premium. The Fission shareholders are invited to come along for the journey with us. We're offering 24% of the combined company. We're offering a TSX listing and we're offering incredible upside and future opportunities to continue their journey with us. The exposure and the exploration upside at PLS is fantastic and we're derisking Fission's PLS development, which is being underpinned by our Langer Heinrich production in our customer offtake book. And I think, as I said, really importantly, we're just enhancing our global footprint not only from a uranium production point of view, but from an equities marketing point of view. I'll leave it there and please, if I can ask the operator to commence the question process.

[Operator Instructions] Your first question comes from Regan Burrows from Bell Potter Securities.

Perhaps just one for you first. Just on the timing, obviously, with Langer Heinrich coming into production and being sort of looking good there. Just curious why sort of the transaction line now, whether you sort of have any comments there?

Thanks, Regan. Look, it's a very good question. Ross and I actually started talking, I think, Ross did, at least 6 months ago. And one thing we recognized immediately in our early conversation was the synergy and the benefits of combining the 2 companies. And certainly, that's something that's grown and become stronger as we work through the project process. But what Ross and I agreed was 6 months ago, it was actually too early for both companies to do a transaction. Ross was fully supportive that we needed to get Langer Heinrich successfully up and running, which we've now done. So that was really important for us. And Ross had some significant milestones on his approval process that he needed to get away. As we've kept the conversation going, I think both Ross and I came to the point where we said, okay, now that our businesses are in great shape, and we've got our bases covered, now is the time to do the serious work on this transaction. We did that work. Alex Rybak led that from our point of view. It's a very thorough process. And I think, Regan, you can see by the proposal today, it's a compelling combination with benefit for all shareholders. So in conclusion, the timing is right for us, the timing is right for Ross and the timing is right for our shareholders.

Okay. And just another one. Just in terms of the register for Fission, Obviously, you guys need 66% of Fission shareholders to approve. Are you confident that you've got the support?

Regan, we are, yes. Look, we're very confident. We've done a lot of work. Ross knows he's registered very well. And we're very confident also I'll note that these types of transactions, which are supported by boards in Canada, have a very high closure rate. So we're extremely confident. We believe our shareholders will also be very supportive of the combination. And Ross, over to you on your thoughts of your support from your shareholders?

Sure. Thank you, Ian. Yes. No, we're very confident that we'll be able to -- we think this is a very good strong deal for shareholders. And you're right, we will require 66%, 2/3 approval of the shareholder vote, we're confident we'll get that. I think this is a deal that makes a lot of sense. It makes a lot of sense to me. It makes a lot of sense to Ian for all the reasons that we've put out here today. We think that our shareholders are going to see the same value in combining these 2 exceptional companies into 1 even more exceptional company. So certainly, a situation where 1 and 1 is significantly more than 2. I mean this is a 1 and 1 is 3, 4. It's just a transaction that makes an awful lot of sense and our shareholders are going to recognize that as well.

Your next question comes from Shannon Sinha from Morgan Stanley.

Interesting deal. I was just wondering what the synergies are that you see between these 2 projects? If you could give a bit more detail on what they are.

Thanks very much for the question. Interesting, this is a -- as Ross said, this is a 1 plus 1 equals 3 or 4. I'll be totally blunt on this. We're not looking for synergies, we're looking for growth. We're looking for the strategic rationale, and we're looking at the benefits for both shareholders. We intend to keep Ross and his whole team. They've got a fantastic capability in Canada. We intend to TSX list, which shows our commitment to the Fission shareholders, but also provides an opportunity to expand our footprint in North American equity markets and we intend to put the resources into PLS. So this project is all about growth, about opportunity and building a large globally significant uranium powerhouse. If you count on one hand, the number of globally-listed production uranium companies, you won't need many fingers. And this establishes us right at the top of the pile, just up there a little bit behind Cameco, but not too far. So this is all about growth. This is all about strategic fit, and this is all about the future.

Great. Maybe if I could just ask about Fission, what offtake -- is there any offtake agreements in place and what maybe the plan is for you guys for the additional volumes that you'll add on?

Look, I might ask Alex Rybak to answer that one, our Chief Commercial Officer.

Yes. Thanks, Ian. So Fission have an offtake with CGN, which is one of the leading Chinese utility companies on par with our partner, CNNC. They are also an 11.6% shareholder in Fission, and they will become a smaller shareholder in the combined entity. So we obviously look forward to them becoming or being -- continuing being a customer of the combined entity, and we'll have those dialogues with them after we close the deal.

And I think what I can say is Ross and I share the same, what I'd call, fundamental view of uranium markets. We are firm believers that you need to do the technical work first. You need to have your customers in place before you commit to development and you need to have a world-class customer book to underpin a uranium operation and project given the small size of the spot market. One of the things we bring, which derisks the PLS project, is we bring a world-class customer book that we've built up through our work at Langer Heinrich and those customers will be very interested to underpin the PLS project at the right time.

Great. Just one quick follow-up. What was the size of the offtake with CGN?

It's 20%.

Your next question comes from James Bullen from CGS.

Congratulations, Ian, Ross. I must say you sound remarkably fresh, which is a bit of a surprise. Just a question for you, Ross, around the draft EIS went in, I think it was in March. Obviously, down here in Australia, we don't know a huge amount about the permitting process in Canada. I was hoping if you could talk to any feedback there, any potential hurdles that you've got to get over to get the full environmental approval.

Yes. So the environmental approval, you're right. The key part of that is the EIS, the Environmental Impact Statement that we submitted in early March. For our project, it's reviewed or approved strictly at the provincial level. So that's unique amongst other developers that are going through the same process in the Athabasca Basin. So we do only require the federal -- or the provincial approval. And we anticipate receiving that by September of this year. So that's a huge step along the way on the permitting path. The next, of course, we'll be getting the federal approval through the CNSC and that's for the construction -- building of the mine construction than that, but the environmental assessment, which is the first phase of the major permitting step, that's well underway. As you say, we submitted early in March. We anticipate September to have a ruling -- a favorable ruling on the project. So we're kind of halfway through that process right now.

James, from our point of view, we obviously did a lot of technical due diligence work, and we had Canadian specialist advisers look at the regulatory framework and Ross' plan and his published plan. And what really pleases us, Ross' and his team have taken a fundamental approach to this, very similar to our approach at Langer Heinrich, where we are committed to bringing the project into operations as is Ross and his team. And the timetable they put in place is realistic and supported by this legislative processes in Canada. Ross has had questions in the past. So why is it taking until 2029 when others can do it quicker? And the answer to that from where we're sitting is Ross has actually based his timetable on what is appropriate for the legislative processes and what is achievable. So hats off to Ross and his team, they've taken a serious approach with an intent to deliver, and we support Ross with his timetables and his process.

And just, I guess, a bit of a follow-up. You are quite close to next gen. Is there any opportunity for sharing of infrastructure or alternatively, is there any risk that a regulator or somebody forces you to share infrastructure, thinking primarily around the mill there?

Ross?

Yes. Well, let me start with the -- yes, sorry, let me start with the last question first. There's no risk. I mean, projects are allowed to develop independently. There's no restrictions on number of mills, that type of situation. So we were able to build the infrastructure up as is required for mine development at PLS. Are there potential synergies? I mean you're nearby. The projects sit about 5 kilometers apart. There are certainly shared roads, potential for shared roads and other opportunities. But really, our mandate is just to -- we're very focused on our project, building PLS into being an operating mine by 2029. And as Ian mentioned, we're very confident in our time lines. But no, I don't see any restrictions on the regulatory side for being able to build the infrastructure that's required for the site. And we'll always look for opportunities that make sense. But right now, this is our path forward.

Your next question comes from Daniel Roden from Jefferies.

Congratulations on the transaction. I was just wondering, with Langer Heinrich kind of coming into production phase now, what's the expectations for development funding for the Patterson Lake project. Is it all cash flow from Langer Heinrich? What assumptions go into that cash flow? And is there any potential forward debt funding being introduced into mix as well?

Thanks, Daniel. I'll get Anna Sudlow, our CFO, to answer that one.

Thanks, Daniel. So look, as you're aware, the PLS funding requirement is about CAD 1 billion. I would say we've got plenty of optionality around how we fund that. But the thing to note, I guess, is that there's not a lot of material spend until 2027. So we've got plenty of time. As you mentioned, we've got cash flows in Langer Heinrich, which we can rely on. We're selling material into an improving uranium market. We've also got very good banking relationships, we've put in place that debt in January this year. So I think it's fair to say we've got plenty of time. We've got lots of options in front of us, and we're very confident we can secure the funding we need, and we've got plenty of time to do so.

Awesome. Perfect. Maybe I could try and sneak in another one just on, Langer Heinrich is ramping up, those events have seen how impressive is the assets performing going. And is there any sense that we can get some color on, I guess, what FY '25 looks like and how the assets is kind of able to produce that cash flow that's required for that funding?

Daniel, thanks. I'm so glad you asked that question. We've had a few queries because we were planning on putting out some guidance for financial year '25 right about now. Hopefully, this call explains why we're a little bit delayed with that. Pleased to say that the plans for Langer Heinrich are looking great. The guidance has all come together well. But clearly, with the transaction, it's a change. So maybe I'll ask Anna to just give you some color on what to expect going forward.

Yes. Thanks, Daniel. So yes, we haven't released our guidance. And as Ian mentioned, we're working with Fission on the offering circular for the shareholders, and that will have a lot of the Paladin information in it for a much further dated period than just FY '25. So you just need to bear with us as I guess we coordinate those processes. Look, I would say that we've done a lot of work on our guidance. I'm pretty happy with the work that we've done and things are looking, I guess, in line with our expectations, but you'll have to wait a couple more weeks I'm afraid.

Very close, Daniel, very close, and you'll have more the information that you can model.

No trouble and just confirming that circular will be released around the 23rd of July?

Yes. Look, that's a convention. We're quite well advanced. So we'll get that out as soon as we can because that really starts to clock on the shareholder vote, but consider that a backstop date.

[Operator Instructions] Your next question is a follow-up question from Regan Burrows from Bell Potter Securities.

Ian and Ross, apologies. Most of my questions were answered before, but potentially just one more, just in terms of rationalization of the portfolio. Obviously, there's a lot of balls in the air now combining 2 businesses. Just sort of thinking how you're sort of thinking about the other sort of maybe later of -- earlier exploration assets? Are they still core to the business? Or are you sort of thinking potentially parking those?

Absolutely not, Regan. We love them all. It's like saying, which child do you want to give away, not happening. The portfolio just worked so well. We've got a producing asset in Langer Heinrich that's going to be pushing out cash starting next month. We've got a serious project that will be ready for development '27 to '29, which we'll go after. The Michelin Project is PFS, which is fantastic, but low spend and the exploration potential will wind up and wind back as we choose to, depending on our priorities, our free cash and our targets. The Australian assets, fantastic assets. We're not working them at the moment. There's no required to work them but their fantastic long-term optionality. We've got a project pipeline that is in production today that could theoretically be producing uranium by 2060. I'll be long gone. I think Ross might still be here. But no, we've got no intention to rationalize our portfolio.

Okay. Got it. And just essentially following on what Anna was saying about expenditure around PLS not sort of being until 2027. I guess, Ross, if you get the final sort of approvals in September this year, what's the focus for that asset over the next couple of years? I guess, what's sort of holding you back from advancing that construction time line?

No. Well, the construction time lines are really guided by the whole regulatory process. And as I mentioned earlier, the next step here is to receive approval from the CNSC, which is the federal regulatory nuclear commission. So that -- from where we sit right now, that's -- you wouldn't have that sort of approval for likely another full 2, 2.5 years. So really, the time lines that we're talking about here are really -- they're realistic and driven by the regulatory process. So what we're doing at the operations level right now, we are at the -- we're basically close to completing our front-end engineering, our feed process and be transitioning to detailed engineering, which is essentially getting yourself ready for mine build. So we'll be in a position to be ready, but the -- we'll have early stage development of the project in 2026. But as Anna had mentioned, talking about the need for capital, that really doesn't start coming in until 2027 in that time -- '27, '28 to be in a position to be a producer by '29. So we're very, very confident in these time lines. I've said the same time lines for several years. And we still find ourselves right on track with being right in that position.

Okay. And if I could just sneak one in there. Obviously, going through the feed process. Do you anticipate, I guess, that capital bill changing potentially?

No. I think we're very comfortable. We had an extremely solid feasibility study, our front-end engineering work is going according to plan. We're seeing no real surprises at all in any of our assumptions and estimations that we've made along the way. So we're quite comfortable. I think if anything, we'll probably be surprised on the upside. But I don't see any reason for changing or increasing our capital needs, as we've already outlined in the feasibility study.

In the interest of time, your next question is the final question. Your next question is from Daniel Roden from Jefferies.

I was just wondering if you could provide any color on the assumed uranium price that was used in the valuation of the transaction?

I'll hand over to Alex Rybak.

Yes. Look, it's probably a bit of a theoretical question because we are both uranium companies and exposed to that positive dynamic. But we've looked at a number of uranium price forecast published by TradeTech, you exceed as well as broker consensus. So there's a range sort of out there and -- but as I said, we both are pure uranium companies.

And I think, Daniel, what I will say, because I've already been asked this question a couple of times, the question was, how do you feel about doing this transaction at this point in the cycle? It's interesting. This is a transaction that Ross and I agree, we would do at any point in the cycle. It just makes sense putting those assets together. We've got world quality assets that stack up in the full cycle. And the combination and the opportunity this provides and the scarcity factor of large global uranium producers with gross prospects and exposure to the upside on uranium. As I said, you can count on less than one hand. So it's an opportunity that we would do in any point of the cycle. It works now in this point of the cycle. It will work at any point in the cycle.

Congratulations again.

I'll now hand back to Ian Purdy for closing remarks.

Look, thanks very much, everyone. Really appreciate the opportunity. We're creating a global leader, a clean energy leader, and we're creating value for all shareholders. I'll leave it there. Thank you, Ross, and Anna and Alex for joining us on the call, and thanks, everyone, for your time. And please, any further questions, reach out to either company, our advisers and we'll love to take you through more detail on the deal. Thanks, everyone.

That does conclude our conference for today. Thank you for participating. You may now disconnect.