Paladin shuts Kayelekera (for now)

7 February 2014

Australian mining company Paladin Energy has announced that it is putting its Malawian open-pit uranium mine Kayelekera in 'care and maintenance until the price of uranium recovers.'

Managing Director and CEO of Paladin, John Borshoff, said: "The Kayelekera Mine has performed exceptionally well technically, with production levels recorded at or near nameplate capacity over the past 12 months and significant achievements made in PAL's cost-reduction programme. That is a credit to all the staff at KM and something of which they can be very proud. Nevertheless, despite these considerable efforts, KM continues to operate at a loss due to the low prevailing uranium price. Paladin is unable to continue to provide the level of financial support that PAL has required in recent years, hence the decision at this time."

"By placing Kayelekera on care and maintenance now, we are preserving the remaining value of the ore body until it can be mined profitably to make a positive contribution to the Paladin Group. This is in the best interest of all PAL stakeholders, including the Government of Malawi," Mr Borshoff said. (The government of Malawi owns a 15% stake in the mine).

Since the Fukushima earthquake and tsunami in March 2011, the spot uranium price has more than halved from its pre-Fukushima level of US$72.63/lb to a current price of US$35.50/lb, the company said. While PAL has achieved successive cost reductions quarter by quarter, these efforts have not been sufficient to achieve cash break-even at KM. For example, during financial year 2012-13, PAL reduced KM's year-on-year direct cost of production by 24% to US$39.20/lb, while maintaining uranium production at optimal, near-nameplate levels. In the same period, the uranium spot price declined by 32% -- from US$50.75/lb in June 2012 to US$34.50/lb in July 2013. It also successfully installed and commissioned one of two major cost-reduction initiatives at KM for FY 2013:14 - a nano-filtration acid recovery plant.

Paladin also said that since Fukushima, the negative impact on KM of the very low uranium spot price was partially offset initially by several higher-priced term sales contracts put in place before March 2011; however, KM delivered its last product under these contracts in September 2013. Subsequent uranium produced from KM is now fully-exposed to the depressed uranium spot market. The very low continuing uranium spot price, together with the Operation's cash cost of production, which remains above the spot price, makes continued operation at KM unsustainable in both current market conditions and in conditions projected in the medium term.

While mining operations at KM are being suspended, processing of ore will continue during a transitional rundown phase until reagents and consumables on site have been depleted and the production circuit has been emptied and cleaned. At this time, the plant will be sterilised, shut down and placed on care and maintenance. This rundown/sterilisation phase is expected to be completed by April or May 2014.

PAL is committed to maintaining the mine and infrastructure at KM in good working order to facilitate a rapid resumption of production when market conditions dictate that it is possible to profitably do so. For this reason, PAL will retain some 194 Malawi national employees and 27 expatriate staff to maintain the site, including staff to strengthen physical security measures at the operation.
Paladin said that production and cost guidance at Paladin's Langer Heinrich Mine in Namibia, which has a significantly lower cost profile than KM, will not be affected by this move. Paladin has revised down its total production guidance for the year to 30 June 2014 from 8.3-8.7 Mlb U3O8 to 7.8-8.0 Mlb U3O8.

Paladin said that it has consistently stated that current pricing levels for uranium oxide are unsustainable. KM is one of numerous uranium mines currently operating at or below break-even. PAL's decision to place KM on care and maintenance is the latest in a sequence of closures, production suspensions and deferrals of major planned greenfield and brownfield expansions in the uranium sector, including Paladin's decision in 2012 to suspend evaluation of a major Stage 4 expansion of the Langer Heinrich Mine in Namibia.

Borshoff stated: "We will not contemplate any such an expansion until uranium prices reach at least US$75/lb and are sustainable at or above this level." He added that, consistent with that decision, Paladin would invest in future production only when it made economic sense to do so - and this included recommencement of production in Malawi, as well as expansion in Namibia.

"This unfortunate but necessary curtailment of world uranium production will have impacts well into the future. Even when uranium prices improve, it is inevitable that the lead time to return mothballed operations to production and re-evaluate the development timeframe for deferred brownfield and greenfield projects will exacerbate the uranium supply-demand imbalance that will become increasingly evident in the course of this decade."



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