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Paladin Energy Ltd

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ASX : PDN


Paladin Energy Ltd

February 14, 2013 09:03 ET

Paladin Energy: Financial Report for Six Months Ended 31 December 2012

PERTH, WESTERN AUSTRALIA--(Marketwire - Feb. 14, 2013) - Paladin Energy Ltd ("Paladin" or "the Company") (TSX:PDN)(ASX:PDN) announces the release of its consolidated Financial Report for the six months ended 31 December 2012. The Financial Report is appended to this News Release.

Highlights

• Record half year combined production of 4.120Mlb U3O8, an increase of 34% over the December 2011 half year achieving 97% of nameplate production for the half year.
• Record quarterly combined production of 2.191Mlb U3O8, an increase of 14% over the September 2012 quarter achieving 103% of nameplate production for the quarter.
• Total annual production for CY2012 of 7.946Mlb U3O8, a 34% increase over the previous calendar year.
• C1 cost of production continued to fall quarter by quarter. Langer Heinrich C1 cost of production for the quarter decreased 7.0% to US$29.60/lb U3O8in the December 2012 quarter. Kayelekera C1 cost of production for the quarter decreased 11.3% to US$43.50/lb U3O8in the December quarter.
• Sales revenue for the December half year increased by 13% from US$172.7M in 2011 to US$194.9M in 2012. Sales volume increased by 21% from 3.320Mlb U3O8in 2011 to 4.008Mlb U3O8in 2012.
• Average realised sales price of US$48.63/lb U3O8for the six months, compared to average UxC spot price of US$45.95lb.
• Due to continued uranium price weakness, an impairment expense of US$54.9M recorded at Kayelekera for the December quarter, totalling US$96.0M for the half year.
• New mid-term sales contracts secured for a total of 6.3Mlb U3O8, for delivery from late 2012 to end of 2015 at market prices, with a fixed price component above the current spot price.
• Both mines now operating at nameplate performance and continuing effort on production optimisation is expected to lead to improved recoveries and further reduction in unit operating costs.
• Cash of US$104.7M at 31 December 2012. Balance of prepayment (US$150M) received on 31 January 2013 pursuant to the Long Term Off-take Contract with Electricité de France S.A.
• Strategic initiatives continuing with a modified and more focused approach and results expected early during the June quarter.
• Queensland State Government lifted its ban on uranium mining in October 2012. Implementation Committee report expected in March 2013 to provide an interim framework for the recommencement of uranium mining in Queensland.
• Post quarter, Completion Tests ("CT") satisfied at Langer Heinrich and Kayelekera.
• FY2013 production guidance of 8.0-8.5Mlb U3O8remains well on target.

Results

(References below to 2012 and 2011 are to the equivalent six months ended 31 December 2012 and 2011 respectively).

• Safety and Sustainability:
- Continued high safety performance with a 12-month moving average Lost Time Injury Frequency Rate of 1.1.
• Production:
- Record half year combined production of 4.120Mlb U3O8, an increase of 34% on the December 2011 half year achieving 97% of nameplate production of 4.250Mlb U3O8 for the half year. December 2012 half year affected by a 16-day planned annual maintenance shutdown at Kayelekera.
- Record quarterly combined production of 2.191Mlb U3O8, an increase of 14% on the September 2012 quarter, achieving 103% of nameplate production of 2.125Mlb U3O8 for the quarter.
- Total annual production for CY2012 of 7.946Mlb U3O8, a 34% increase over the previous calendar year.
• Langer Heinrich Mine:
- Record half year production of 2.709Mlb U3O8, an increase of 33% over the half year ended 31 December 2011 achieving 104% of nameplate design capacity.
- Record quarterly production of 1.419Mlb U3O8, an increase of 10% over the September 2012 quarter achieving 109% of nameplate design capacity.
- Ability to produce at nameplate with feed grades below design demonstrated.
- Record quarterly recovery of 87.4% compared to design of 85%.
• Kayelekera Mine:
- Half year production of 1.411Mlb U3O8, an increase of 37% over the half year ended 31 December 2011, achieving 85% of nameplate design capacity.
- Record quarterly production of 0.772Mlb U3O8, an increase of 21% over the September 2012 quarter, achieving 94% of nameplate design capacity. Remaining constraints of resin-in-pulp (RIP)/elution circuits are being addressed.
- Maintaining improved acid plant production as a result of upgrades during the shutdown, which continue to provide positive cost implications with reduced dependence on imported acid.
- Benefits of process optimisation continue to be realised.
• Impairment:
- Due to continued uranium price weakness, an impairment expense of US$54.9M has been recorded at Kayelekera for the December quarter, totalling US$96.0M for the half year.
• Completion Tests:
- The CT under both the Langer Heinrich Mine project finance facility and the Kayelekera Mine project finance facility have been satisfied which will result in a reduction in interest charges and provide greater flexibility with regards to voluntary prepayments and distributions under both facility agreements.
• Sales:
- Sales revenue increased 13% from US$172.7M in 2011 to US$194.9M for the six months ended December 2012, as a result of higher sales volumes. The average realised uranium price for the six months was US$48.63/lb U3O8 (2011: US$52.00/lb). The average UxC spot price for the six months was US$45.95/lb.
- Total sales volume for the six months of 4.008Mlb U3O8 - a 21% increase over the December 2011 half year sales of 3.320Mlb U3O8.
- Uranium sales volumes are expected to fluctuate quarter-on-quarter due to the uneven timing of contractual commitments and resultant scheduling by customers. Now that production has reached design levels, sales and production volumes are expected to be comparable on an annualised basis.
• C1 Cost of Production:
- Langer Heinrich C1 cost of production for the quarter decreased 7.0% to US$29.60/lb U3O8 from US$31.80/lb U3O8 in the September 2012 quarter, mainly due to the cost benefits of the increased Stage 3 production and the weakening of the Namibian dollar against the United States dollar.
- Kayelekera C1 cost of production for the quarter decreased 11.3% to US$43.50/lb from US$49.00/lb in the September 2012 quarter, highlighting that the cost benefits from the cost optimisation programme at Kayelekera continued to be realised. Cost optimisation continues to be a key focus, with specific target areas including mining, acid, reagents, diesel, transport and staff rationalisation. Major benefits from these cost reductions and production optimisation efforts are expected over the next 18 months.
(1)C1 Cost of production = cost of production excluding product distribution costs, sales royalties and depreciation and amortisation before adjustment for impairment.C1 cost, which is non-IFRS information, is a widely used 'industry standard' term.
• Cost Reduction/Production Optimisation Initiative:
- Following both operations reaching nameplate performance, the sites are now entering a period of optimisation, which will lead to improved process recoveries and reduced unit operating costs. Some elements of this work have the potential to expand the reserve base for both projects by being able to use lower ROM feed grades.
- In November 2012, the Company announced its programme to reduce costs within the Group, which is expected to realise US$60M to US$80M total savings over the next two years. The comprehensive cost and production optimisation review is part of the process of moving from development to a sustained production phase. The cost review encompassed examination of all activities within the Paladin Group from its mining operations, corporate/administration overheads, future development considerations, exploration, sales and business development. Opportunity for re-negotiation of key mining and consumables contracts has arisen, paving the way for material cost reductions over the next two years.
- In terms of cost savings the Company is targeting a 7.5% reduction in unit cash costs for the remainder of FY2013 at both Langer Heinrich and Kayelekera and, for FY2014, is targeting a further 7.5% reduction at Langer Heinrich and 15% at Kayelekera. For the remainder of FY2013 exploration will be scaled back by 20% (US$4.0M) of budget, mainly through deferring non-essential drilling and corporate overheads, which are targeted to be reduced by 10% (US$3M).
- The Company remains focused on reducing costs across all facets of the business and work continues to identify more cost saving opportunities.
• Profit and Loss:
Three Months Ended Six Months Ended
31 December 31 December
2012 2011 2012 2011
US$M US$M US$M US$M
Revenue 134.2 70.4 195.5 173.4
Costs before depreciation and amortisation (101.1 ) (44.3 ) (152.4 ) (124.0 )
Impairment loss in prior year relating to inventory sold during the year 9.0 1.3 19.4 11.3
Impairment - inventory (7.8 ) - (10.4 ) -
Royalties and distribution (6.3 ) (3.0 ) (10.6 ) (9.0 )
Depreciation and amortisation (17.9 ) (7.4 ) (29.0 ) (24.7 )
Gross profit 10.1 17.0 12.5 27.0
Exploration expenses (0.4 ) (0.6 ) (0.9 ) (1.4 )
Site non-production costs (4.1 ) (4.8 ) (7.6 ) (10.2 )
Corporate, marketing and administration (7.0 ) (5.1 ) (11.8 ) (11.0 )
(1.4 ) (6.5 ) (7.8 ) 4.4
Non-cash costs (1.4 ) (1.9 ) (3.5 ) (4.4 )
Other income & expenses (55.1 ) 0.8 (99.0 ) (185.1 )
(Loss)/profit before interest and tax (57.9 ) 5.4 (110.3 ) (185.1 )
Finance costs (16.6 ) (14.1 ) (33.6 ) (27.9 )
Loss before income tax (74.5 ) (8.7 ) (143.9 ) (213.0 )
Income tax (expense)/ benefit (97.8 ) 10.8 (79.7 ) 72.1
(Loss)/profit after tax (172.3 ) 2.1 (223.6 ) (140.9 )
Non-controlling interests 24.7 1.1 30.1 20.7
Net (loss)/profit after tax attributable to members of the parent (147.6 ) 3.2 (193.5 ) (120.2 )
- Gross profit for the six months decreased to US$12.5M from US$27.0M in 2011 due to lower prices (partially offset by higher sales volumes) and a US$10.4M impairment of inventories at Kayelekera (2011:US$Nil).
- Site non-production costs for the six months were reduced by US$2.6M to US$7.6M due mainly to a decrease in expenditure relating to the Langer Heinrich Mine Stage 4 expansion evaluation study, which is being reviewed in the light of the experience gained through the optimisation of Stage 3 and the new pathways that have been identified. This has been partially offset by US$1.0M expenditure on process optimisation testing and pilot work at Kayelekera.
- Corporate and marketing costs were US$0.8M higher for the six months predominantly due to restructure costs of US$0.4M.
- Non-cash costs, mainly share-based payments, were reduced by US$0.9M to US$3.5M as a result of a reduction in share rights granted compared to 2011.
- Other income and expenses mainly reflect the impairment of the Kayelekera Mine asset expense of US$96.0M (2011: US$178.9M) caused by the continued low uranium price. Further pit optimisation work will be undertaken in the next quarter and, in addition, benefits should arise when future U3O8 price forecasts reflect the supply/demand imbalance. Additionally, other expenses include the write-off of fixed costs during the plant shutdown of US$2.3M (2011: US$9.2M).
- Income tax expense for the six months of US$79.7M is predominantly the result of the de-recognition of the net deferred tax asset ("DTA") of US$98.2M at Kayelekera arising from unrealised foreign exchange differences and carry forward tax losses previously recognised. The unrealised foreign exchange difference has arisen on intercompany loans due to the extreme devaluation of 103% in the Malawian Kwacha over the last 12 months from an average of US$1=MKW160 to US$1=MKW327 at 31 December 2012.
- Net loss after tax of US$193.5M was recorded for the six months, mainly as a result of the US$98.2M de-recognition of the Kayelekera Mine net DTA, US$96.0M impairment associated with the write-down of the Kayelekera Mine assets, the US$10.4M inventory impairment at Kayelekera and finance costs relating to interest payable on the outstanding convertible bonds and project finance loans.
• Cash Flow:
- Positive cashflow from operating activities of US$49.3M for the six months ended 31 December 2012 was primarily due to receipts from customers of US$214.6M and receipt of the first tranche of the off-take agreement funds of US$50.0M. Positive cash flow of US$47.5M was generated by the Langer Heinrich and Kayelekera operations before investment in working capital required to support higher production levels, payments for administration, marketing and non-production costs of US$19.8M. The remaining expenditure comprises US$0.9M for exploration and net interest paid of US$21.7M.
- Cash outflow from investing activities of US$25.6M for the six months ended 31 December 2012 relating mainly to plant and equipment acquisitions of US$15.5M, predominantly the new tailings facility at Langer Heinrich and capitalised exploration expenditure of US$10.2M. Exploration expenditure in foreseeable periods will be lower.
- Cash outflow from financing activities of US$31.7M for the six months ended 31 December 2012 was mainly attributable to repayment of project financing for KM of US$20.0M and LHM of US$11.2M.
• Cash Position:
- Cash of US$104.7M at 31 December 2012.
• Long-term Off-take Contract with a US$200M prepayment:
- US$50M first tranche payment received pursuant to the Long Term Off-take Contract with Electricité de France S.A., with the balance of US$150M received on 31 January 2013.
• Mid-term Sales Contracts Secured:
- Two mid-term off-take agreements secured for a total of 6.3Mlb U3O8 being delivered from late 2012 to end of 2015 at approximately 2Mlb pa from both mines. Pricing will be determined predominately by the market price at the time of delivery (without floor or ceiling limitations), while a minority portion of the delivery prices will be in accordance with a series of specified fixed prices, which exceed current spot uranium prices.
• Exploration and Development:
- Aurora - Michelin Uranium Project, Canada - Summer drilling programme completed in October. A winter drilling programme is expected to start in late February and will continue into March and April as weather permits. An updated mineral resource estimate for the Michelin deposit is expected in 2013 after all assays have been received and validated.
- Manyingee Project, Australia - Drilling programme was completed during November. After the completion and verification of all data and assays, an updated mineral resource estimate is expected in the March quarter of 2013.
• Guidance FY2013
- The strong combined production over the 6 months ending 31 December 2013 of 4.12Mlb U3O8 with signs of continued improvement place the Group in a good position to achieve its stated production target guidance of 8.0-8.5Mlb U3O8 with opportunity to deliver in the upper end of that range.

The documents comprising the Appendix 4D - Financial Report for the six months ended 31 December 2012, including the Management Discussion and Analysis, Financial Statements and Certifications will be filed with the Company's other documents on Sedar (sedar.com) and on the Company's website (paladinenergy.com.au).

To view the December 2012 Half Year Report, please visit the following link: http://media3.marketwire.com/docs/121231_December_2012_Half_Year_Report.pdf

Generally Accepted Accounting Practice

The news release includes non-GAAP performance measures: C1 cost of production, non-cash costs as well as other income and expenses. The Company believes that, in addition to the conventional measures prepared in accordance with GAAP, the Company and certain investors use this information to evaluate the Company's performance and ability to generate cash flow. The additional information provided herein should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Declaration

The information in this Announcement relating to exploration and mineral resources is, except where stated, based on information compiled by David Princep B.Sc who is a Fellow of the AusIMM. Mr Princep has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity that he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves", and as a Qualified Person as defined in NI 43-101. Mr Princep is a full-time employee of Paladin Energy Ltd and consents to the inclusion of this information in the form and context in which it appears.

Conference Call

Conference Call and Investor Update is scheduled for 06:30 Perth & Hong Kong, Friday 15 February 2013, 17:30 Toronto and 22:30 London, Thursday 14 February 2013. Details are included in a separate news release dated 11 February 2013.

ACN 061 681 098

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