Published on Friday February 07 2014 (AEST)
The company told investors that the suspension will involve placing the operation on care and maintenance status until the price of uranium recovers.
The move is expected to preserve the remaining ore body until this time, when Paladin decides that production can resume on a profitable basis. The price of uranium oxide has been depressed ever since March 2011, when the Fukushima earthquake and tsunami hit in Japan. During this period, the spot uranium price has more than halved from US$72.63 per pound prior to Fukushima, to a current price of US$35.50 per pound.
The government of Malawi holds a 15% interest in Paladin's African subsidiary (PAL), which holds the uranium mine in Malawi. The company said it will work with government authorities to implement the suspension, which is also a result of the "unsustainable" cash burden to maintain the loss-making operation.
"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," said CEO John Borshoff.
"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."
Indeed, the company said that based on a uranium price of US$35 per pound, Paladin would have had to inject a further US$20 to $25 million in cash for each of the next two years to maintain the operation.
Paladin is forecasting that putting the mine on care and maintenance will improve its expected cash flow position by US$7 to US$10 million in 2014 and in the range of US$20 to US$25 million in 2015.
The cost of suspension, estimated at US$12 million per year, will be funded from proceeds to be received from the sale of uranium oxide on hand and produced during the rundown phase, Paladin said.
The company noted that production and cost estimates for its Langer Heinrich mine in Namibia, which has a significantly lower cost profile than Kayelekera, will not be affected by the suspension.
As a result of the decision, the company revised its production forecast for this year downwards, to 7.8 to 8.0 million pounds of uranium oxide, from its previous guidance of 8.3 to 8.7 million pounds.
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