Re: PDN - Paladin Resources
Re my previous post on the issue of forward sales by Paladin.......look maybe there is probably no reason for concern........however I make the point, because it is just too hard to determine for certain..... one way or another, from the company disclosures.
Remember PDN have forward sold 7.5 million lbs over the period 2007 to 2012.
This is what they said in the March quarterly report;
" Paladin has term sales contracts to US utilities for approximately 7.5Mlbs U3O8 for delivery between 2007 to 2012. These contracts were required to meet bankers' conditions for its Langer Heinrich Project loan."
Note...comment to meet bankers conditions - that means a hedge to ensure from the banks point of view that Paladin can service their loan.
Would an end user allow deferment of a presold uranium supply contract. Can you imagine Paladins customer saying..... OK we have a contract - but seeing your having problems, provide the uranium in a couple of years of time instead.
I don't know - not enough explanation from Paladin.
more here:
11/7/2006
The Mining & Resources Team of Nedbank Capital is pleased to announce the successful conclusion of a limited recourse project finance facility for the establishment, development, construction and operation of a R850 million uranium mining and ore treatment facility at Langer Heinrich in Namibia.
The project finance facility was concluded jointly with Societe Generale Australia Branch (“SG”) and Standard Bank. The project is Nedbank Capital’s first limited recourse project finance transaction in Namibia, in the minerals and resources sector.
Nedbank Capital acts as a joint-underwriter and arranger to Paladin Finance (Pty) Ltd, providing project finance debt for a 7-year term sharing equally in a USD $71 million facility together with SG and Standard Bank. In addition, Nedbank Corporate Namibia has been mandated to act as transactional bankers to the Namibian Project Company.
“We are pleased to have been able to provide our client with a debt funding solution enabling it to advance its world-class uranium project, together with ensuring compliance with the Equator Principles,” says Mark Tyler: Head of Mining & Resources at Nedbank
_________________________________________________________________
Here is a self explanatory story that new investors may find to be of interest. I don't ever suggest that it is at all relevant here....but read it anyway.
Sons of Gwalia's gold hedging had big holes
By Stephen Bartholomeusz
September 4, 2004
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Email to a friend Printer format
One of the perplexing questions raised by this week's collapse of Sons of Gwalia is how so many smart investors could have got it so wrong.
Stranded on the register of the failed tantalum and gold producer are some of the cannier institutional investors, while some of their equally clever peers escaped in the nick of time.
Among Sons of Gwalia's substantial shareholders are the Templeton group, Schroeder and Aviva. Canadian miner Teck Cominco owns about 10 per cent and a major tantalum customer, Cabot Corp, is also on the register. Goldman Sachs, Wellington and National Australia Bank's funds management businesses were all shareholders until very recently.
Also exposed to the collapse are some of the world's biggest banks, including Citigroup, HBOS, Goldman Sachs, JPMorgan, Dresdner, HSBC and, locally, ANZ and Commonwealth.
The institutions which got caught are angry. They knew the company's tantalum and gold arms had their challenges but hadn't envisaged the implosion.
While Sons of Gwalia is Australia's third-largest gold producer, that wasn't its main appeal to the institutions. They were attracted because the company controls more than half the world's production of tantalum - a rare metal used to make capacitors, used in electrical circuits.
Every mobile phone, laptop and video camera has tantalum in it, making Sons of Gwalia a seductive story for fund managers.
While the tantalum operations have had their share of problems - production difficulties, declining grades and long-term contracts that haven't enabled it to cash in on rising spot prices - they weren't behind Sons of Gwalia's demise.
It was the gold operations that undermined the group.
Sons of Gwalia, founded by the Lalor brothers, descendants of the Peter Lalor who led the Eureka Stockade rebellion in 1854, has produced about 5 million ounces of gold since it began producing the metal in 1984. Until this week, it had been expected to produce about 500,000 ounces a year.
Its ability to generate that production was critical because throughout its history it has fully hedged its production - in effect selling forward its entire output using some extremely complex strategies.
Generally that strategy has been profitable, although the group was hit hard in 2001 when the Australian dollar dived and its currency hedge generated losses.
Earlier this year the Lalor brothers, Peter and Chris, left the company and a new chief executive, former Pioneer International executive John Leevers, was appointed. A number of board changes followed and the new board commissioned a major strategic review of its operations.
That review's findings, supposed to be released late last month, appear to have catalysed the decision to call in administrators after talks with lenders failed.
Sons of Gwalia's chairman, Neil Hamilton, said this week that the review had identified a serious deterioration in the status of the group's gold reserves and resources which raised concerns about the company's ability to meet its hedge book commitments.
The position in which Sons of Gwalia found itself doesn't appear particularly complicated. It had committed to deliver a net 1.3 million ounces of gold to hedge-book counter-parties but the review had revealed a shortfall in economic reserves of about 500,000 ounces.
Sons of Gwalia had no way out - its hedge book was about $350 million underwater at June 30 on a mark-to-market basis and a rising Australian dollar gold price was exerting further pressure on the economics of the book.
The group had sold a lot more gold than it could produce. Its fundamental problem wasn't the hedge book or its gold operations but the interaction between the two.
The issue of how that could have happened is being investigated by the Australian Stock Exchange and the Australian Securities and Investments Commission.
There appears, however, to be an obvious explanation. The stated reserve estimates and production forecasts were wrong. Whether the miscalculation was deliberate or inadvertent will, obviously, be of consequence.
Sons of Gwalia had had some production problems in its mines, particularly those acquired from Teck Cominco when it bought PacMin for $160 million in 2001. It had experienced falling grades and rising cash costs after the failure of a pit wall, heavy rains, labour shortages and drilling difficulties.
But while revising down its profit expectation for 2003-04 to $21 million to $22 million in mid-July, the company had not indicated how parlous its position was.
That profit warning was the trigger for some of the institutions to exit the register. Most, however, were waiting for the outcome of the strategic review before coming to any conclusions.
In their enthusiasm for the "21st century metal" prospects for tantalum, the professionals, with hindsight, didn't focus enough on the gold operations and hedge book.
The complexity and the opacity of the hedging wasn't given sufficient emphasis, nor did the investors recognise that the problems within the gold operations might create a question mark over the economics of the resources and therefore over Sons of Gwalia's ability to meet its hedge book commitments.
They will pay a steep price for their distraction. The administration will crystallise the losses in the hedge book and inevitably exacerbate them.
There are suggestions that at least two of Sons of Gwalia's three gold operations are considered uneconomic, which in turn suggests the losses for the hedge book counter-parties could be very substantial and virtually guarantees that equity holders won't see any return once the tantalum business is sold and creditors absorb its proceeds.
The fate of Sons of Gwalia and its investors will reinforce the lesson provided by Pasminco's collapse and other hedge-related disasters.
Even sophisticated institutions will be reluctant to invest in companies with extensive hedging operations, particularly where the strategies are complex. And one suspects that even the investment banks which sit on the other side of the hedges will be more cautious in assessing the quality of the resources that underpin the production commitments and the proportion of production that can be sold forward.
Sons of Gwalia's strategy left it with no margin for error.
Re my previous post on the issue of forward sales by Paladin.......look maybe there is probably no reason for concern........however I make the point, because it is just too hard to determine for certain..... one way or another, from the company disclosures.
Remember PDN have forward sold 7.5 million lbs over the period 2007 to 2012.
This is what they said in the March quarterly report;
" Paladin has term sales contracts to US utilities for approximately 7.5Mlbs U3O8 for delivery between 2007 to 2012. These contracts were required to meet bankers' conditions for its Langer Heinrich Project loan."
Note...comment to meet bankers conditions - that means a hedge to ensure from the banks point of view that Paladin can service their loan.
Would an end user allow deferment of a presold uranium supply contract. Can you imagine Paladins customer saying..... OK we have a contract - but seeing your having problems, provide the uranium in a couple of years of time instead.
I don't know - not enough explanation from Paladin.
more here:
11/7/2006
The Mining & Resources Team of Nedbank Capital is pleased to announce the successful conclusion of a limited recourse project finance facility for the establishment, development, construction and operation of a R850 million uranium mining and ore treatment facility at Langer Heinrich in Namibia.
The project finance facility was concluded jointly with Societe Generale Australia Branch (“SG”) and Standard Bank. The project is Nedbank Capital’s first limited recourse project finance transaction in Namibia, in the minerals and resources sector.
Nedbank Capital acts as a joint-underwriter and arranger to Paladin Finance (Pty) Ltd, providing project finance debt for a 7-year term sharing equally in a USD $71 million facility together with SG and Standard Bank. In addition, Nedbank Corporate Namibia has been mandated to act as transactional bankers to the Namibian Project Company.
“We are pleased to have been able to provide our client with a debt funding solution enabling it to advance its world-class uranium project, together with ensuring compliance with the Equator Principles,” says Mark Tyler: Head of Mining & Resources at Nedbank
_________________________________________________________________
Here is a self explanatory story that new investors may find to be of interest. I don't ever suggest that it is at all relevant here....but read it anyway.
Sons of Gwalia's gold hedging had big holes
By Stephen Bartholomeusz
September 4, 2004
Page Tools
Email to a friend Printer format
One of the perplexing questions raised by this week's collapse of Sons of Gwalia is how so many smart investors could have got it so wrong.
Stranded on the register of the failed tantalum and gold producer are some of the cannier institutional investors, while some of their equally clever peers escaped in the nick of time.
Among Sons of Gwalia's substantial shareholders are the Templeton group, Schroeder and Aviva. Canadian miner Teck Cominco owns about 10 per cent and a major tantalum customer, Cabot Corp, is also on the register. Goldman Sachs, Wellington and National Australia Bank's funds management businesses were all shareholders until very recently.
Also exposed to the collapse are some of the world's biggest banks, including Citigroup, HBOS, Goldman Sachs, JPMorgan, Dresdner, HSBC and, locally, ANZ and Commonwealth.
The institutions which got caught are angry. They knew the company's tantalum and gold arms had their challenges but hadn't envisaged the implosion.
While Sons of Gwalia is Australia's third-largest gold producer, that wasn't its main appeal to the institutions. They were attracted because the company controls more than half the world's production of tantalum - a rare metal used to make capacitors, used in electrical circuits.
Every mobile phone, laptop and video camera has tantalum in it, making Sons of Gwalia a seductive story for fund managers.
While the tantalum operations have had their share of problems - production difficulties, declining grades and long-term contracts that haven't enabled it to cash in on rising spot prices - they weren't behind Sons of Gwalia's demise.
It was the gold operations that undermined the group.
Sons of Gwalia, founded by the Lalor brothers, descendants of the Peter Lalor who led the Eureka Stockade rebellion in 1854, has produced about 5 million ounces of gold since it began producing the metal in 1984. Until this week, it had been expected to produce about 500,000 ounces a year.
Its ability to generate that production was critical because throughout its history it has fully hedged its production - in effect selling forward its entire output using some extremely complex strategies.
Generally that strategy has been profitable, although the group was hit hard in 2001 when the Australian dollar dived and its currency hedge generated losses.
Earlier this year the Lalor brothers, Peter and Chris, left the company and a new chief executive, former Pioneer International executive John Leevers, was appointed. A number of board changes followed and the new board commissioned a major strategic review of its operations.
That review's findings, supposed to be released late last month, appear to have catalysed the decision to call in administrators after talks with lenders failed.
Sons of Gwalia's chairman, Neil Hamilton, said this week that the review had identified a serious deterioration in the status of the group's gold reserves and resources which raised concerns about the company's ability to meet its hedge book commitments.
The position in which Sons of Gwalia found itself doesn't appear particularly complicated. It had committed to deliver a net 1.3 million ounces of gold to hedge-book counter-parties but the review had revealed a shortfall in economic reserves of about 500,000 ounces.
Sons of Gwalia had no way out - its hedge book was about $350 million underwater at June 30 on a mark-to-market basis and a rising Australian dollar gold price was exerting further pressure on the economics of the book.
The group had sold a lot more gold than it could produce. Its fundamental problem wasn't the hedge book or its gold operations but the interaction between the two.
The issue of how that could have happened is being investigated by the Australian Stock Exchange and the Australian Securities and Investments Commission.
There appears, however, to be an obvious explanation. The stated reserve estimates and production forecasts were wrong. Whether the miscalculation was deliberate or inadvertent will, obviously, be of consequence.
Sons of Gwalia had had some production problems in its mines, particularly those acquired from Teck Cominco when it bought PacMin for $160 million in 2001. It had experienced falling grades and rising cash costs after the failure of a pit wall, heavy rains, labour shortages and drilling difficulties.
But while revising down its profit expectation for 2003-04 to $21 million to $22 million in mid-July, the company had not indicated how parlous its position was.
That profit warning was the trigger for some of the institutions to exit the register. Most, however, were waiting for the outcome of the strategic review before coming to any conclusions.
In their enthusiasm for the "21st century metal" prospects for tantalum, the professionals, with hindsight, didn't focus enough on the gold operations and hedge book.
The complexity and the opacity of the hedging wasn't given sufficient emphasis, nor did the investors recognise that the problems within the gold operations might create a question mark over the economics of the resources and therefore over Sons of Gwalia's ability to meet its hedge book commitments.
They will pay a steep price for their distraction. The administration will crystallise the losses in the hedge book and inevitably exacerbate them.
There are suggestions that at least two of Sons of Gwalia's three gold operations are considered uneconomic, which in turn suggests the losses for the hedge book counter-parties could be very substantial and virtually guarantees that equity holders won't see any return once the tantalum business is sold and creditors absorb its proceeds.
The fate of Sons of Gwalia and its investors will reinforce the lesson provided by Pasminco's collapse and other hedge-related disasters.
Even sophisticated institutions will be reluctant to invest in companies with extensive hedging operations, particularly where the strategies are complex. And one suspects that even the investment banks which sit on the other side of the hedges will be more cautious in assessing the quality of the resources that underpin the production commitments and the proportion of production that can be sold forward.
Sons of Gwalia's strategy left it with no margin for error.
