Paladin Energy Ltd (PDN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Paladin Energy and in 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, sir.

Thanks very much, and thanks, everyone, for joining us on this call. It's my absolute pleasure to talk tonight about the combination of Paladin in Fission. And I'd like to welcome Ross McElroy, President and CEO of Fission Uranium. Ross, thanks very much for joining me this evening.

It's a pleasure to be here with you, Ian and very excited to tell our investors about this story.

Thanks, Ross. And with Ross and I today, I've also got Anna Sudlow, the Paladin CFO; and also Alex Rybak, the Paladin Chief Commercial Officer. So thanks, everyone. It's a pleasure. This is our second call. We did 1 earlier today to capture the Southern Hemisphere, and it's a pleasure to be here evening Australia time, morning Canadian North American time to talk to you about the deal. So we will dive straight in, I'll turn to Slide 6, please. We'll touch on the deal highlights. It's an All Scrip acquisition of Fission Uranium by Paladin Energy via a Canadian plan of arrangement. The transaction consideration represents a 30% premium to Fission shareholders based on the 20-day VWAP. No Paladin shareholder approval is required. And post closing, when we look at the combined company, the Paladin shareholders will own approximately 76% of the company, and the Fission shareholders will own approximately 24%. We're targeting transaction completion in the September 2024 quarter. And I'm really pleased to say the transaction has been supported by both the Boards of Paladin and Fission. And I think you'll see from the presentation why the Boards are supporting this deal and why we're excited to be bringing you this deal on this call. Also very pleased to let you know that concurrently with the deal, Paladin will be listing on the TSX. That's really important for us. we want to show our commitment to the Fission shareholders. And being an All scrip deal, we're really excited to offer all shareholders the opportunity to continue on in this journey and not only to see the incredible upside of the PLS project, but also to join in the upside of the whole Paladin portfolio. Turning to Slide 7, please. This is an amazingly strong, simple deal. And when you look at the combination of Paladin and Fission, one thing that stands out is we will be a clean energy leader. We will be right up there with the top independent Western-listed uranium companies of the world. Firstly, we are a proven uranium producer. The Langer Heinrich Mine has successfully returned to full commercial production with a 17-year life of mine, really pleased to update that the ramp-up continues to go exceptionally well. We're looking at our first customer shipment in a few weeks' time, and we'll be taking full advantage of the strong uranium market fundamentals. We're expecting to hit our nameplate capacity of GBP 6 million per annum during financial year '26. This combination gives us an attractive growth pipeline on par with any other uranium company in the world. We've got life of mine extension work commencing at Langer Heinrich, the Patterson Lakes South region in the project is approaching the start of detailed engineering design and is on schedule to produce in 2029. And Paladin is standing right behind that plan. We've had a good look at what Ross and his team have been up to. We're incredibly impressed with the work that has been done, and we're going to work right alongside Ross and his team to deliver this project as per the plan. and as per the work that has already been done by Ross and his team and will bring the resources to deliver this project. We've also got the Michelin project which is on the eastern side of Canada in the Labrador region. Another good project but on a different time line. We're just starting the pre-feasibility study on Michelin, and we'll look to bring that forward during the phase at which we're developing PLS with a view to Michelin potentially coming into development and production in the 2030s. And very importantly, when you look at our global exploration portfolio in the 3 top Western uranium jurisdictions of Canada, Australia and Namibia, I think it's arguable that we've got the best uranium exploration holding of any company in the world. And I'm really pleased to have the expertise and track record of Ross and his team helping us unlock that potential going forward. When we combined, we'll have a pro forma market capitalization of USD 3.5 billion. We'll have a strong balance sheet and we'll have an expanded global capital markets footprint. We'll have to increase development funding options, which are underpinned by Langer Heinrich mine production in our customer book and this will really consolidate Paladin's position in the ASX 100 and also give us a platform to have a significant presence in North America through our TSX listing. What's really pleasing about this deal, and Ross and I have talked about this on numerous occasions, is the combination of our operational and development expertise. Ross has an exceptionally strong team in Canada and we back Ross and his team to deliver this project, and we're standing right alongside the team. We've got an exceptionally strong team in our corporate office and in Namibia. And when you bring that together, we're extremely confident to drive value across our whole portfolio of global assets. We've also got a very clear purpose we see a fantastic opportunity to provide zero carbon fuel source to our global customers. We're committed to leading environmental practices, and we're really pleased to see our alignment in terms of our social profile and our commitment to the regions in which we operate. We've got an outstanding track record at our Langer Heinrich mine in working with our local communities and Ross and his team have done a fantastic job engaging and working with the First Nations in his local region as well. So we're culturally aligned and we're set for success. Turning to Slide 8. This deal has a compelling strategic rationale. I always held the view if you can't describe the rationale for a deal simply and succinctly, you have to question why you're doing it. I'm pleased to say the rationale of this deal is self-evident and I think, incredibly strong. Firstly, we are creating a world-class production and growth pipeline. If you look at Slide 9, please. The incredible aspect of this deal is the way the respective portfolios fit together. And I think Slide 9 shows that well, we've got the Langer Heinrich mine, which is in production and has a 17-year life of mine. Patterson Lake South, it's a world-class ore body in a fantastic jurisdiction and a location that Paladin is very keen to expand our footprint. It's got a 10-year life of mine and a low-risk mine plan with development advancing on schedule to produce in 2029, we then will move to Michelin, which is at an earlier phase, and we're currently completing a PFS. And when you look at our advanced exploration and early-stage exploration, we've got the best uranium mining jurisdictions in the world covered. The production time line on the bottom just shows you the opportunity we have here to be a multiple mine globally significant uranium independent company with 2 assets up and running by 2030. The second rationale for the deal is we will be creating a leading Canadian development hub. Ross, I'll ask you, please, to overview your Patterson Lake South project, please?

Sure. Thank you very much, Ian. So the PLS project is located in the Athabasca Basin in Northern Saskatchewan. The Athabasca Basin is no stranger to anybody in the uranium business. It's been such an important global supplier of uranium that's famous for hosting the world's highest-grade uranium deposits. And our project is located on the southwest side of the Athabasca Basin. We -- it's been about 12 years now since the discovery, and we've been able to move -- successfully move and grow this project, move it down the path towards production. We recently, just over a year ago, completed a feasibility study at PLS. And as Ian has already highlighted, we've shown a 10-year mine life with a little over [ 9 million pounds ] a year annual production and extremely important there is it promises to be one of the lowest operating cost uranium mines in the world. We we continue to move the project forward. Earlier this year, we submitted our environmental impact study. So it's now in the process of getting through the approval process of the environmental assessment phase. We anticipate being able to have a favorable ruling for advancement on the EA side by September this year. The project does continue to move along towards the time line of production by 2029. So we're well on target for this and very pleased to be part of this story.

Thanks, Ross. And on the other side, on the eastern side of Canada, you can see there the Michelin project. Look, we're really excited to get Ross and his team to add value and help us out with Michelin. I know the guys on the ground in St. John's, Steve and just out of our corporate office. They know Ross and came in well. And we're really excited to get Ross' expertise to move Michelin along as well. Thirdly, on Slide 11, please. We've got a globally significant uranium resource, the second largest in the Western world and the third largest overall. What's the standout of this resource is the quality? If you look at the pie chart on the right-hand side, you can see the quality and size of the assets around the world. And this excites us as much as the opportunity to bring a second production platform by 2030. The exploration potential across this portfolio is unlimited and having Ross's expertise and his team's expertise, combined with our exploration expertise, gives us great confidence for the future. Slide 12. We've got enhanced exposure to a highly attractive uranium market. I think it's well socialized and well documented. The turnaround in the uranium market over the last couple of years. We're seeing strong uranium demand driven by global decarbonization, and we continue to see supply tightness due to underinvestment for the last decade. We're seeing a shortage of existing production in the market today with a growing deficit over the next few years, continuing out well into the 2030s. We see PLS as part of that solution, we believe in delivering PLS, we'll be able to deliver it into a very strong sustainable market, and we'll bring the customers to underpin that development. Next, on Slide 13. We're also very excited by the increased international capital markets presence. Scale is important in mining and particularly when you're looking at bringing forward development, having that scale is incredibly useful and also derisks the project delivery significantly. So the pro forma market cap, as I mentioned, about USD 3.5 billion. And we will be in the top echelon of the leading uranium companies globally. We'll have a broader investment base and increased research coverage and enhanced liquidity. Slide 14. As I mentioned, Ross and myself and our teams have a shared commitment to a sustainable future, and we're committed to reporting to best practice standards in all of our operations. and we've got combined ESG commitments, which are very closely aligned. Slide 15, please. So in conclusion, this deal is creating value for all shareholders. For both shareholders, we'll see an enhanced project development pipeline. Very importantly, we'll have multi-asset production by 2029, diversified presence across all of the leading Western mining jurisdictions, increased exposure to the highly attractive long-term uranium fundamentals and that increased scale I mentioned, especially with our commitment to the TSX listing, in particular, for Fission shareholders, an attractive 30% premium to the 20-day VWAP and most importantly, the ability to participate in the upside of Paladin and PLS going forward, meaningful 24% ownership in a leading global multi-asset uranium company. We will derisk Fission's PLS development with funding underpinned by Langer Heinrich production and customer offtake contract book and the opportunity to retain TSX listed shares in a leading ASX 100 growth-focused uranium company. Thank you very much. We'll now hand over to questions.

[Operator Instructions]. And today's first question comes from Puneet Singh with Eight Capital.

First question at Ross, I had for you, just on the timing of the deal. Fission is always traded cheap, and I think it was investors' belief that you were on the cusp of a re-rating. So maybe just discuss more of the rationale behind doing this deal now?

Yes. Well, certainly, Ian and I have been looking at this opportunity for several months now. And I think that seeing where we're at in the pipeline on development -- we're -- as I said, we're -- we've obviously made major strides forward on the regulatory permitting front, looking for EA approval this September. But when you also look at the path forward where we'll have still another 2 years, 2.5 years to complete all the regulatory side will begin construct in early 2026. Now when we looked at -- when we see with Paladin and the Langer Heinrich operation, of which I had the opportunity to go down and have a look at this wonderful project and meet the team. We felt that it was a really good fit. We are extremely impressed with the operations team with the overall project down there. I just think that the timing is right. We're firm believers in the uranium industry, the uranium sector. We just -- and this gives us an opportunity to continue to develop this project going forward and yet have a world-class leading uranium company with production with world-class development, excellent exploration portfolio. It just felt like the right time. We're obviously very bullish on the sector. We're happy with where Fission is right now on this path forward to development of the PLS project and it's just the timing is right.

Okay. Got it. And then my second question is for Ian. Just regarding deal value. At first glance, to me, it seems a little light, one of the best assets in the world, 5% of global supply. If you look at the Street, basically entire Street values Fission, much higher. Maybe just speak to the rationale behind the $1.30 that you're offering and how you came to that specific number?

Yes. We -- as Ross said, we've both done a lot of work from both sides and we really have considered it closely and discussed it over a fair period of time between Ross and I. Look, we're really pleased to make a very strong offer to the Fission shareholders and a very attractive premium, that's 30%. And one of the principles that I agreed very early with Ross in the early days is we would not argue at all about the full equity value of the Fission project and the shareholders' valuation of his company, and we would base a strong premium of the VWAP of the shares. So we think we've offered a very strong premium. We're satisfied that it's fair to all shareholders. we're satisfied that it offers a great opportunity to the Fission shareholders and being a scrip deal and with our commitment to the TSX listing. We love all the Fission shareholders to come on the journey and share in the upside, not only with PLS, but also across the Paladin portfolio. And look, it's a great question, and I've had very similar questions from my large shareholders already saying, look, we can see the deal makes sense from a portfolio point of view. But why are you giving Fission shareholders full value plus a premium for an undeveloped asset. So look, I think Ross and I are very satisfied from both sides of the equation. I think both our shareholders probably have different views and I think that's great. That probably is that we've got it just about right. But look, we really want all Fission shareholders to come along with us and share in the upside of the group, take advantage of the premium and let's move forward together.

And our next question today comes from Alexander Pearce with BMO.

You've got what looks like a fairly ambitious time line for closing the transaction. So I was hoping you can just comment on how confident you are on able to get the approvals -- regulatory approval that quickly, particularly with a focus on the Investment Canada Act. I know Paladin has received exemptions in the past. But what is the likelihood of being able to get that exemption again?

Alex, thanks for the question. I'll hand over to Alex Rybak, who's run this transaction from outside, Alex?

Yes. Thanks, Alex, for the question. Look, as you can imagine, we've done a lot of work on this and seek advice from our legal counsel, Fasken Canadian law firm. We are seeking -- we're obviously notifying the -- doing the notification on the Investment Canada Act under the Competition Act. We're not making the NROP approval or condition to the deal that will be done as part of the deal transaction, but not as a condition precedent. We are confident in getting all of those approvals in those time frames, although the NROP approval will take longer, but that's not a condition to the deal. And as you mentioned, we have previously received NROP approval for 100% ownership and operation of our Michelin project. So we are confident in receiving that as well.

And then maybe I can just ask a follow-up question. Ian, Ross, maybe you can just talk about how this could change the priority list for development? And do you think the cash flows from Langer Heinrich and expedite development of PLS?

I think, Alex, I'll start and then I'll hand over to Ross. Look, from our point of view, we're all in on the PLS project. This is a world-class project. Ross has done some great work with his team, and we'll be working with Ross and his team to resource the next phase and to move the project forward as per the Fission plan. We think it's a great plan. We think it's realistic. Ross and his team have been very realistic and have done quality work to this point in time. We think bringing Fission into the Paladin group and combining substantially derisked that delivery gives us funding optionality, gives us the strength of the cash flows out of Langer Heinrich. But Alex, I think in terms of acceleration, one thing that Ross and I are very similar on is we deal with the reality of time frame. So you may recall with the Paladin restart of Langer Heinrich. We've stuck to our timetable, our budget. Some people thought it was a bit long. We delivered on time, on budget. Ross has got a very structured timetable that's driven by its regulatory time frame. And from where we sit, we think he's accurately portrayed that and we fully support that. Ross, anything you'd want to add on that?