It was good news today for Paladin Energy (TSX:PDN,ASX:PDN) with the successful refinancing of the Langer Heinrich facility. The uranium company has refinanced the existing US$110-million project finance facility and US$20-million working capital facility to a new US$70-million syndicated loan facility.
Proceeds from the Langer Heinrich minority sale, which was completed in conjunction with the financing, were used to prepay US$30.83 million of the existing facility, lowering the outstanding balance to US$70 million.
As Paladin reported, the â€śnew facility will provide significant cash flow benefits and further strengthens Paladinâ€™s financial position.â€ť The company is looking at annual principal repayments being reduced by US$32.4 million over the first 3.5 years of the facility, from US$18.33 million to US$9.09 million, with the first payment of US$4.55 million due only in December 2014.
Despite the companyâ€™s positive news, Raymond James analyst David Sadowski still sees challenges ahead for the uranium company.
â€śDespite the relief, we remain cautious on the name given US$644 mln inÂ debt, particularly US$300 mln in convertible bonds maturing Nov-2015 â€“ a challengingÂ hurdle to clear in the weak uranium price environment (spot US$28/lb: a nine-year low),â€ť Sadowski said in a note to investors.
With spot prices still depressed, Sadowski modeled operational cash flows from the companyâ€™s remaining stake in the Langer Heinrich project as being insufficient to cover the debt payments and â€śstubbornly high G&A.â€ť Furthermore, Sadowski noted that bond maturities in November 2015 and April 2017 will require a capital markets solution. As a result, the firm has a projected funding shortfall of $130 million expected for about the F2Q16 . He expects the shortfall to rise to US$480 million in about F2017.
In order for Paladin to avoid â€śpotentially punitive re-financing terms,â€ť Sadowski believes that it needs to see a swift and dramatic move in uranium prices. Given the latest price prediction of US$35 per pound of U3O8 in about 2015, the road ahead for Paladin wonâ€™t be easy.
Following the news, Sadowskiâ€™s price target remains unchanged, at $0.30, due to significant balance sheet risk. Paladin Energy was down slightly in Wednesday trade, closing 2.63 percent lower, at $0.37.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.Â