Shares of Paladin Energy [ASXDN] rose by 3.49% on Friday, closing at 30.5 cents. The share price is primarily driven on investors’ best guess on when the Japanese reactors will restart. Why did this happen to the Paladin Energy Share Price?
Paladin Energy Limited is a uranium production and exploration company with projects currently in Australia, Canada, and Africa. The Langer Heinrich mine in Namibia is its flagship project.
Since the Fukushima uranium plant meltdown in 2011, the uranium industry hasn’t been the same. Following this event, the Japanese government turned off all of its 50 uranium power plants.
This week, the Japanese government released its annual energy report. Imports of LNG cost the Japanese 27 trillion yen last year, up from 10 trillion before the Fukushima incident — this is simply unsustainable for the country, and the pro-nuclear government knows it.
In this case, punters have renewed hope that reactors will restart soon.
For investors, I hope this is the case — the uranium environment isn’t healthy. The uranium spot price is now trading at around US$28.10 per pound. Certain estimates now place up to 60% of current annual global production with costs above the current spot price, which is unsustainable.
Coming back to Paladin — the company recently shut down its Kayelekera mine in Malawi due to the poor operating environment. Uranium prices likely need to rise to between US$70–75 dollars per pound for this plant to restart operations — this implies that the breakeven price for Kayelekera is significantly above the current spot price.
Overall the share price is declining because of a poor uranium environment. Last week, Japan announced that it won’t restart any reactors during 2014 — something that uranium punters were betting on. What now for Paladin Energy?
At times like this, it pays to look at the facts.
The key for the uranium price coming back in the short term is Japan restarting its reactors. It’s highly unlikely that any reactors will be restarted this year.
The Japanese Nuclear Regulatory Authority (NRA) is against it for now. It has a fight on its hands against pro-nuclear activists, including the Japanese government.
The NRA requires further safety approvals ahead of reactor restarts. Nonetheless, two NRA chiefs are set to leave in September. And it seems like Japanese Prime Minister Abe has chosen two more nuclear power friendly replacements.
It’s hoped that the changeover will speed up the process of restarting the reactors. However, a change of the guards doesn’t necessarily mean Paladin will make a staged comeback. Uranium reactors should take months to restart.
It’s important for investors to understand that there will be few reactors, at best, that restart any time soon. This will likely put a cap on where the uranium price can go in the short run.
Saying this, there is positive long term good news for the uranium environment: Russia and China are building uranium reactors. Nuclear power is central to Beijing’s efforts to reduce unpopular smog while keeping the manufacturing economy humming in its populous eastern cities.
Nonetheless, the majority of these reactors will come on stream between 2020 and 2030. Jason Stevenson+
Resources Analyst, Diggers and Drillers
PDN Price at posting:
30.5¢ Sentiment: None Disclosure: Unspecified
DN] rose by 3.49% on Friday, closing at 30.5 cents. The share price is primarily driven on investors’ best guess on when the Japanese reactors will restart.
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