Paladin Energy Ltd (PDN) Earnings Call Transcript & Summary

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

Thanks very much, and thank you to everyone for your time this morning. We'd just like to go through a quick overview of the announcement we put up this morning, where we've provided a Langer Heinrich Mine update and the revision of our financial year '25 guidance. With me today, I have Anna Sudlow, our Chief Financial Officer; and Alex Rybak, our Chief Commercial Officer. Paul Hemburrow is currently at our operations. The announcement we put out this morning revises our guidance down, our production guidance from a range of 4 million to 4.5 million pounds to 3 million to 3.6 million pounds. Having seen our October results and having taken into consideration some of the short-term challenges that we saw in the first quarter, the company and the Board believe it's prudent to trim our guidance to the range suggested. We are withdrawing the [ other guidance ] we've provided due to the potential variability given the production outcomes. The 3 million to 3.6 million pounds is quite a large range, reflecting the potential outcomes that can occur during a ramp-up phase. In particular, for October, a couple of issues that we saw that we've taken into consideration. Firstly, we saw continued variability in our stockpile ore. You will recall that the first phase of our operations is processing previously mined ore, which is in a stockpile close to the plant. We have seen more variability than we were expecting. And we're now in a position where we've got a range of scenarios where despite the fact that our model is showing better grades in the second half, we're allowing for the fact that there could be more variable outcomes on that stockpiled ore. In terms of the economics of the stockpiled ore, we're still making very good money off the ore that we're processing, and we're making good production levels. It is just not as high as we would have liked when we set our original guidance. I'll note that the stockpile phase is expected to come to a conclusion by June next year, at which stage we'll move into the open pit and start mining of fresh ore from the open pit, where we are expecting higher grades. And certainly, we'll have much less volatility given that we're in control of that mining cycle. The other issue we had for the month, we did have some disruptions to our water supply from NamWater. Again, it's a point-in-time issue. We can see a way forward. We have the infrastructure. NamWater has the capability. We've tested the infrastructure. It is capable of over-delivering what we require. And there are several processes and actions underway over the next few months that we believe will substantially change our exposure to short-term variability from NamWater. On the pleasing side, we did see an excellent recovery performance during October, where we achieved 87% recovery despite the grade and water issues I've mentioned, primarily as a result of the really good work our team is doing in Namibia in some of the operational improvements we talked about last quarter. Just another couple of points I'd like to make. In our disclosures last week, we highlighted what we perceive as some excessive volatility in our share price, which we believe is related to the Fission transaction, which is outstanding. That's an all-scrip deal to purchase Fission Uranium Corp. We are seeing continued volatility, we believe, which is partially as a result of that transaction being outstanding. And we are hopeful that, that transaction will come to a resolution by the end of December. Finally, I'd just like to pass on a comment one of the analysts made to me this morning, which I think on reflection is a fair assumption. The analyst said to me, my read on things, the operation appears like it's actually going pretty well. And you seem to be on track for your full production by the end of next calendar year. But with hindsight, you were probably a bit ambitious on the production levels you could achieve during ramp-up. On reflection, I think that's a fair comment. And I think we have now readjusted our guidance appropriate to what we've seen for the first 5 months. I note we're 7 months into a 21-month ramp-up. And we've got a lot of confidence that we'll get to the end of the journey by the end of calendar year next year, and we still see it very confident and achievable we can hit our full production. I'll leave my comments there because I want to give maximum time to Q&A. So please, can we go straight to Q&A?

[Operator Instructions] Your first question comes from Mitch Ryan from Jefferies.

The first one relates to -- with regards to today's downgrade to your outlook. Can you please attribute -- how much of it is attributable to the change in stockpile grade or stockpile variability? And then what component would be related to water availability? And then in terms of the third bucket, yes, if you could apportion sort of percentages or what are the biggest drivers.

Yes. Thanks, Mitch. Look, I've also related to that, I've also been asked the question, why now? Why are you changing your guidance now? One of the challenges in providing guidance and assessing guidance in a ramp-up is you're not looking at a steady-state base of operations. You're projecting trends knowing that the second half of the year will be higher production than the first half of the year, as you'd expect with all ramp-ups. So in analyzing our guidance, we have multiple scenarios that we revise and we review every month and every time we get a data point. And what we're doing is we're estimating probabilities of outcomes. So where we sit today, we still have scenarios where we can reach our original guidance. Now we've assessed that reaching that guidance, we now consider a stretch target, which is why we've determined it's prudent to reduce our guidance. We provided a range based on various scenarios that factor in various grade outcomes but how long it takes to get the steady-state water outcomes as well as various other factors that you'd normally see in a ramp-up. So Mitch, it's not a precise science. And the other side of it is the issues we're facing in October are different to the issues we've faced in the September quarter. And I'll give you 2 examples. We've done a lot of really good work on our water balance and our handling of the groundwater and the tailings recovery water. And we've done some really good outcomes, which has given us the fantastic recovery performance. What that means now is the water issue we're seeing for October is specifically NamWater deliveries. Secondly, with the grade, we've seen variability there. And although our model is suggesting that we will have better grades in the second half, we've now started to run scenarios that we continue to see that variability for the rest of the year. I think it's fair to say where we're sitting today, we feel we would have had another 30% throughput in October if it hadn't been for the NamWater issues. We think when we fill the bladders during the November shutdown, that will make a large difference. And we also think that the issues with the supply on NamWater where we had some outages are temporary and readily resolvable over the next little while. So we're watching water as a key issue. Going forward, Mitch, we think that will be a key driver. With the grade, we think we factored in the grade to that guidance range, and we expect that to be covered by that guidance range. So where we sit here today, we think the driver of our performance in the next little while is going to be water from NamWater, in particular. And then with the grade, we think we fully accounted for that. We've accounted for what we believe will be the NamWater ramp-up, and we've accounted for the other improvements that we're seeing in our plan.

As a derivative of that, so what data points should we be watching for to give us comfort that the water issues have been resolved?

I think it's pretty clearly our quarterly reports going forward will be pretty transparent as we have been with, as you saw, with our September quarter. And I think, again, we're looking at not only the production each month but also the exit rate. So I'll give you an example. We saw some really good data points in October where we had some excellent performance across the plants. Now the question is, with the variables we've mentioned, how sustainable is that day in, day out over the period of a month and then over the period of several months? So I think the 2 factors we're looking for is we're looking for breakout performance after the November shutdown, which is due in the last 2 weeks of November, where we're looking for a strong December, and we'll definitely refer to that specifically in our next quarterly. And secondly, we're looking for the exit rate of run rate and production towards the end of December, which we think will give us a very clear indication on the second half.

Yes. I guess I was looking more for a specific data point with relation to the water itself. You're saying that NamWater deliverability has been an issue and also then tailings recovery. So those sorts of data points, will they be provided? And when do you expect to be able to give us confidence that they have been -- that they are no longer ongoing?

We expect to give a full update with our next quarterly in January. And by then, we'll certainly know if our bladders are full and that's resolved our issues with NamWater. And we'll also report on how the NamWater deliveries have gone at the end of the quarter as well. And we'll also provide full transparency on the grade. And as we always do, Mitch, we'll also update our guidance position in a continuous basis. So we're very confident with the guidance we've set today. We'll remain fully transparent but we do expect strong performance in December.

Okay. And then can you just give us a bit more color on -- I note [ Note 5 ], prices realized for uranium sales is dependent on production levels and volumes. Can you just extrapolate on that comment, please?

Alex?

Yes, Mitch. As we've said, we've got a mix of pricing mechanism in our portfolio. We've obviously got a strong bias towards spot pricing with our Chinese customer offtake. We've disclosed the realized prices, which was $73.10 today, which does show that bias towards spot. We're continuing to deliver into a mix of contracts, and we made deliveries to all of our destinations around the world and several customers through the quarter and further through October. We've received cash payments through October for one of the sales, and we're now receiving several other cash payments for the other sales that we've done last quarter. So -- but in terms of price guidance and the reason why we haven't restated it is because there is -- it is dependent on production and dependent on the sales schedule, depending on the shipping line movements. So there's a lot of variability there. But at least you can see what we've realized today, and you can see how our portfolio is positioned for the uranium market.

Okay. So if I was to sort of pull that together, if you're towards the top end of your range at 3.6, then you will have more sales volume available for spot sales. So you would -- at current -- assuming spot rates remain, you would receive a higher realized price, whereas if you come in at the bottom end of your guidance, they'll be less available for spot sales, so you'll have a lower realized price. Is that a fair sort of summary?

Yes, Mitch. It's Ian. Let me be more specific than that. With the modeling we've done, the guidance we've given on our relative realized price versus the spot price, you can see from year-to-date, we're absolutely spot on and over the duration will maintain being spot on with the new range of production. And we're aiming to deliver sales roughly equivalent to production. Now that's subject to shipping schedules. So with the new schedule that we've got, it will come down to one shipment, which goes to one of our customers that has a spot price contract. And depending on the timing of that shipment, that could vary the realized price average for financial year '25. So that's what it comes down to. Now if we don't get that shipment in financial year '25, you could expect, all other factors being equal, we could receive a lower average realized price for that period. However, that shipment would then sail soon after, and you'd get back to the average of our realized price guidance. So it's shipment specific. And the schedule just has some uncertainty as to whether that final shipment flows in June next year or July. And that's literally what it comes down to. So with your modeling, I'd suggest you maintain the levels that we put in our guidance over the period. But for individual years, it will depend how the shipping schedule plays out.

Your next question comes from Cameron Taylor from Bank of America.

Just a question around the water issues, specifically with NamWater. Was that a sort of a regional issue? Is it statewide? Or is it more sort of specific around the delivery to the pallet and Langer Heinrich Mine? And then further to that, what sort of water storage do you have at Langer Heinrich? How many days buffer do you have? And are you looking to build new water storage to provide a bit more buffer?

Thanks, Cam. The issue we faced was twofold in October. The first issue is because we've been unable to fill our water storage at site because we haven't had the water availability, we're subject to variable water flows during the day in the ordinary course of business. Now once we've got our buffer filled, which we're aiming to do during our November shutdown, that will firstly provide about 8 days buffer for our operation in total. But more importantly, it allows us to manage the variable water rates we're seeing on a daily continuous basis and will normalize the water delivery. We're actually seeing over-delivery of water for periods of time, and then we're seeing under-deliveries. And hence, that buffer will normalize and level that on a micro level as we go through routine operations. In terms of the actual outage we had late in October, that related specifically to the upgrade that NamWater is still completing. So just to recap, we upgraded all our infrastructure and completed that on time, on budget. We assisted NamWater where we could with their upgrades. But there's certain areas on the booster and substations that NamWater need to complete themselves as a government entity, and they're still working through that process. We're confident that those issues will be resolved, hopefully in the near term. They're relatively straightforward. They're process control issues, not infrastructure issues. And we're confident that we'll get improved performance from NamWater once they complete that work. So the outage we had was very specific to our infrastructure and the new infrastructure that NamWater has recently commissioned and are continuing to optimize. And that water storage will provide about 8 days buffer as well as give us the opportunity to normalize our water flow into the plant on a minute-by-minute, hour-by-hour basis.

Fantastic. And then also on the mining side, like, I mean, you have targeted for July 2025. Is there any way to bring that forward slightly to sort of offset that variability in stockpile grade?

Yes, Cam. Really good question. And we've done a fair bit of modeling. The first thing I'd say, despite the fact we're seeing variability and we're below our initial guidance, we're still making good money off the stockpile processing. It still makes economic sense to push that stockpile through and then bring in the mining after the stockpile is depleted, even with the variability and even with the reduced guidance that we've indicated today. Now our thought process has always been if we can get more tonnes through in this ramp-up phase, which is a very specific phase, we would always prioritize more tonnes with the opportunity to bring mining on earlier. If we get to the point where we do have a solution and we do see strong stabilization of our water situation and the other ramp-up issues are progressing as we expect, we would still like to be in a position where we actually push through more tonnes, and we move into mining earlier. But that's yet to be seen. Our current schedule suggests that we, at this point, are continuing to expect to commence mining and feed of mining in July. But if we get the opportunity to push more tonnes through, we will bring that forward.

Yes, because you don't want to waste that sort of high-grade mined ore when you got these issues with the water and whatnot. So I understand that. That's great. Just last question. Any further CapEx expenditure above sort of what's expected in consensus for any upgrades? Or do you see any major sort of purchases required? I know you're putting some tailings facility pumps and stuff, but I imagine they're quite small, right?

Yes. Look, Cam, there's nothing in our guidance revision or our performance reporting that requires extra capital to what we were expecting. All the capital has been spent in the project phase. And the plant is actually working really well. We're just dealing with the specific issues that I've mentioned that don't require CapEx. The major piece of CapEx for the year is the preparation of our tailings storage facility 6, which is underway. Early days, we'll see how that lands, but we're not expecting any major capital. And obviously, with the production downgrade, we'll also look at any capital that we can defer or potentially push back as well. So we don't think capital is going to be a major issue this year, and we're pretty comfortable with where we're at.

Your next question comes from Andrew Hines from Shaw and Partners.

Yes. Look, obviously, a major reaction in the market today. The stock is down 25% as we're sitting here now, and sort of scratching head and trying to work out what the market's seeing and all this. So I think worst-case scenario, what you've lost 1 million pounds out of your resources in the stockpiles processing for this year, which at a margin of $40 a pound should only be about $60 million of value. So the market cap down $800 million, clearly, there's something else going on. I'm just wondering whether the market's getting concerned about your balance sheet. So I wonder whether you could talk to us about where you're at currently with cash, the balance sheet situation. Is there a risk that you need to come back to the market for further equity at any point? Or now that you're cash positive, is that not an issue?

I'll ask Anna to answer that one.

Yes. Thanks, Andrew. So look, at the end of the September quarter, we had $55 million cash, $55 million of undrawn debt. As Alex mentioned, we've got a number of customer receipts coming in this quarter. So we'll be in a very strong position from a liquidity perspective at the end of this quarter. We will be cash flow positive over this quarter. So we're not seeing any issues with liquidity. We're not anticipating coming back to market. No, I don't think there's any concerns on the balance sheet side.

Your next question comes from James Bullen from Canaccord.

Just a question here around -- I guess you're caught out with your grade in the stockpiles. I was wondering what additional work that could possibly be conducted prior to you entering the mining phase to make sure you don't get caught out on grades there and whether that's been conducted.

Yes. Thanks, James. Look, it's interesting. The issue with the stockpile, which, as I said, is a very discrete ramp-up phase for us, is not related to the resource model nor is it related to the grade estimation in the material that's previously been processed, stockpiled and will be mined in the future. The overall resource model reconciliation is actually, over the life of mine, incredibly accurate. And we've updated the resource model for all those 10 years of mining and reconciliations. The issue with the stockpile is the mining controls of delivery of material. What we're finding is there has been waste delivered to an ore stockpile. There's been high grade delivered to a medium-grade stockpile. So it's actually got nothing to do with the geological model nor the reconciliation. It's all to do with mining practices and mining controls that occurred in 2015 and 2016. So we're extremely confident that the variability and the issues with the grade shortfall against what we expected are restricted to this temporary phase while we're processing historically mined material.

Got it. Just during the late life at Langer Heinrich and its previous existence, it averaged about 480 PPM, but you are a bit higher than that in terms of your assumptions around grade. So that's just based on all the geological work that you've done to date and you're quite confident in that number, yes?

Yes, James, we are confident. Dave Princep, who's our independent geological expert who's worked with us since the discovery of Langer Heinrich, he was intimately involved in the feasibility work and the restart planning we did. And we updated all the geological models. We retested all the run-of-mine reconciliations, the dilution factors, the reconciliation factors. And it actually came out with a high level of confidence. We also engaged AMC to do a complete reoptimization of the pit. And Paul and the team have continued with that work ahead of mining. So we've actually got a very high level of confidence in the mining phase. Again, it's quite simple mining. It's shallow open pit. We've had 10 years of mining. The ore body is really well understood and well reconciled. We are very confident that the issues we're seeing on grade and control are very specific to the current historic stockpile.

Your next question comes from Regan Burrows from Bell Potter.

Just sort of following on from Mitch's line of question to start, just on a sales delivery point of view. From memory, I think when you were having to restart, your contract book was fairly full for the first 2 years. I guess the risk is obviously lower production guidance that in order to feed into those contracts, you sort of need to purchase pounds in the spot market. And I guess following on from that, there was a note in the announcement this morning just on the 200,000-pound loan material. Can you sort of just elaborate on that?

Alex, do you want to answer that one, please?

Yes. Sure, I will. Thanks, Regan. With the revised production guidance. We are today very confident of meeting our -- all of our customer delivery obligations. We've obviously ran a number of scenarios. And I've talked about -- previously about the flex that we have within our contract book. We've put that flex in quite consciously before the restart. And it gives us that flexibility now that we've actually already utilized because we've already had lower production than expected. So we're very comfortable there. In terms of the 200,000-pound material loan that we've utilized, that's again something that we've put in place to manage the day-to-day fluctuations and the timing of shipments. It's something that every uranium producer will have in their tool kit in managing inventory. You've seen we've managed inventory very tightly, and that's one of the things that allowed us to do that. There's obviously timing delays, material moving from production to converters, shipping delays, all that kind of variability. But today, we've been able to meet all of our customer deliveries. And we have a range of tools that allow us to do that, and that loan is one of those tools.

And just on that loan specifically, what are the terms on it? I assume you have to pay an interest on that.

Yes. It's -- look, it's a loan which we don't disclose interest rates. But what I will say is that it's no more onerous than our bank debt.

Yes. Okay. Great. And just obviously, I guess, more broadly, the whole of Southern Africa is going through quite a sort of sustained drought at the moment. I mean what's the risk that your allocation for water at Langer Heinrich gets sort of revised lower from NamWater?

Regan, it's Ian. Look, we're confident in the supply of water. The desalination plant in the region has more than enough capacity. The infrastructure upgrades we've done and NamWater have done give us the opportunity to get over-deliveries of what's required. We've got more capacity than we need. So we expect -- because the vast majority of the water in the region is from the desalination plant, we expect very good water availability, and it's actually not affected by drought conditions per se. Look, sorry, Regan, I note we've come to time. I'll take one more question, and then we're going to have to wrap it up because we do have scheduled calls throughout the day. So one more question, please.

Your final question comes from Shannon Sinha from Morgan Stanley.

I'll just keep it brief because I'm just trying to understand as well the share price reaction. So maybe once the mining restarts, is there any other issues that could -- we could see at the plant apart from the water issues that were flagged today?

Look, we're -- again, we're very pleased with the way we're operating. When we started this journey back at the end of March, when we produced first production, we predicted a 21-month ramp-up. And if I put aside the short-term challenges that we've spoken about, when we sit down and we look at how have we gone against our 21-month ramp-up, we're actually tracking very well. We've proven the capability and the throughput capability of the upgraded plant end to end. All of the upgrades we've done are actually working really well, and we can see a clear pathway forward towards full production. So we're very much firmly of the view that what we're seeing today is typical ramp-up issues. We probably were a bit optimistic in our early production. We've revised that. We're still making really good money off the production we are getting and the stockpile we're processing. And we've seen a lot of evidence to suggest we're right on track with our 21-month ramp-up.

Thank you. That does conclude our question-and-answer session. I'll now hand back to Mr. Purdy for closing remarks.

Yes. Look, thanks, everyone. What I will say, I know there will be more questions. Please reach out to Paula, and we'll answer each of your questions one-on-one by the close of today. We're very keen to talk with all of our shareholders and everyone who's got a query. And we'll continue on the journey, and we'll continue to be open and transparent. So thank you very much for your time today, and look forward to talking to you later in the day if you do have questions. Thanks very much.

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