The proposal to restructure will look to reduce Paladin’s debt obligations and extend the maturity of remaining debt.
The main purpose of the restructure proposal is to address the upcoming maturity of Paladin’s outstanding US$212 million convertible bonds due 30 April 2017.
A restructure provides the opportunity for a holistic solution that provides a stable and sustainable capital structure for the benefit of all stakeholders and a platform for future growth when the uranium market improves.
Alex Molyneux, CEO, commented: “In the absence of the Langer Heinrich stake sale, I’m very happy that our bondholders are supporting the company with a viable restructure that preserves long-term value for all stakeholders.
“Paladin will have a manageable debt load with a longer-term repayment profile, which means the company is better positioned to ride out the current poor uranium market conditions and generate upside for shareholders when uranium prices have recovered.”
A number of convertible bond holders have signed binding undertakings pursuant to which those bondholders have agreed to support the restructure proposal.
The restructure proposal proposes that the total US$362 million of existing convertible bonds will be exchanged into:
- US$115 million (circa 32%) of new secured bonds due 2022, with a 7.00% cash coupon;
- US$102 million (circa 28%) of new 2024 convertible bonds with a zero coupon and conversion price of US$0.0512 per share (circa A$0.07);
- US$145 million (circa 40%) of new Paladin ordinary shares to be issued at A$0.05; and
- Any accrued unpaid interest on the existing convertible bonds outstanding at completion of the restructure proposal to be exchanged 75%:25% into the new secured bonds and the new 2024 convertible bonds respectively.
The restructure proposal is subject to a number of conditions being satisfied including a minimum of $75 million being raised in a new equity issue.
Uranium price increase
Over the past three weeks, the uranium price has added over 20%, outlining the long term bear market in the commodity may have come to an end.
The spot price indicator has uranium at US$22.25 a pound.
The impact on uranium focused stocks has been very positive, with the re-rating of companies in North America rapidly flowing through to their ASX-listed counterparts.
This restructure proposal has the potential to be transformational for Paladin and immediately reduce its total debt by US$145 million, positioning the company well for the future.
The deal creates value for shareholders because despite having to take some dilution from the new shares issues to bondholders, it looks to eliminate any debt risk for the foreseeable future.
The $0.05 debt for equity swap price is below current share price but can be seen as equivalent to a rights issue pricing and it is positive for Paladin that bondholders were convinced not to do restructure at prices of $0.01 to $0.02, which can often be the case in these situations.
Paladin maintaining its 75% in the Langer Heinrich Mine means that it retains its position as being a senior producer with the best leverage to uranium upside.
As the market improves, the lower debt position will ensure Paladin is better positioned to consider consolidation and growth opportunities in the future.
The precipitous fall in uranium prices to 12-year lows in 2016 was largely exacerbated by a lack of purchasing activity from U.S. nuclear utilities; however, evidence is building for a reversal.
The price of natural gas, a key competitor in the U.S, is up 50% from its lows of just over 12 months ago and its becoming clearer that nuclear will enjoy more policy support in the U.S. as a clean and strategic energy source.
The market has witnessed U.S. buyers return with a couple of major tenders prior to Christmas and the uranium spot price has finally shown some positive momentum, which is expected to continue if buyers continue to return to the market.
The implementation of the restructure proposal enables Paladin to address its obligations in respect of the US$212 million outstanding 2017 convertible bond whilst at the same time preserving value for shareholders and positioning them to benefit when uranium prices recover with a stable and sustainable debt structure.
Paladin is a uranium production company with two mines in Africa and projects in Australia and Canada with a strategy to become a major uranium mining house.
It owns 75% of the low-cost Langer Heinrich mine, the world’s fourth largest open pit uranium mine, located in Namibia.
The Langer Heinrich mine commenced production in 2007 and is a calcrete uranium deposit being mined through a conventional open pit with a project life of 20 years.
The Stage 3 expansion is complete with production at 5.2 million pounds per annum. Studies are underway for a further expansion.
The company’s second mine, Kayelekera, is located in the African country of Malawi and was placed in care and maintenance in May 2014 after opening in 2009.
Paladin owns a number of pipeline uranium deposits and projects located in Australia and Canada.
Paladin also holds an 82.08% interest in Summit Resources (ASX:SMM), with the stake having a current market value of circa $16 million.