Ground Breakers: Yellowcake green light as Paladin approves Langer Heinrich uranium restart
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Whisper the word uranium in the wind and wait a short while.
The hordes of the believers, growing more numerous as a feverish mood of optimism has set in over the past couple years, will not be far away.
It is now up to the mining hopefuls, who have grown more glowing in their visions of the future of a long downtrodden sector, to show their faith has not been misplaced.
It is one thing to talk about the window of opportunity presented by a looming uranium shortage, the reclassification of nuclear power as green energy and the impact of rising spot prices.
It is quite another to build and operate a successful and profitable mine.
Paladin will be digging yellowcake at the Langer Heinrich mine in Namibia from the March quarter of 2024 after green-lighting a US$118 million rebuild today.
While it was flagged several months ago, the decision to hit go at Langer Heinrich has not come without its challenges for Paladin.
Industry-wide cost pressures wrought by exorbitant inflation in labour, equipment and raw materials will add US$13.6m to the previously US$118m bill.
Utility work packages and changes to the scope of works, management team as well as an increase in contingencies balanced out by a foreign exchange adjustment will load another ~$17.5m.
But Paladin boasts US$177.1m in cash and has no corporate debt, meaning at the moment it is funded to first production itself.
Langer Heinrich shut back in May 2018 due to years of dirt cheap uranium prices, a legacy of the shutdown of Japan’s nuclear reactor fleet following the Tohoku earthquake and failure of the Fukushima Daiichi power plant.
“With the strength of the company’s uranium offtakes and the continuing strong uranium market fundamentals, Paladin has made the decision to return the globally significant Langer Heinrich Uranium Mine to production,” Paladin CEO Ian Purdy said.
“The increase in the capital required to restart operations reflects a combination of recent inflationary pressures and the bringing forward of key work packages to ensure the long term reliable supply of
power and water to site.
“We have also strengthened our project execution team via the appointment of leading African EPCM contractor ADP Group to ensure the successful delivery of the Langer Heinrich Mine into production.
“The Langer Heinrich Mine remains a low risk, robust, long-life operation that is poised to take advantage of the improving uranium market conditions and deliver sustainable value creation for all our stakeholders.”
BHP (ASX:BHP) boss Mike Henry expects inflationary pressure to last through 2023 but the world’s biggest miner is expecting to grow production in its headline iron ore and copper divisions after making the grade in 2022.
“Broader market volatility continues and we expect the lag effect of inflationary pressures to continue through the 2023 financial year, along with labour market tightness and supply chain constraints,” the major’s CEO warned.
“Over the year ahead, China is expected to contribute positively to growth as stimulus policies take effect, however, the continuing conflict in the Ukraine, the unfolding energy crisis in Europe and policy tightening globally is expected to result in an overall slowing of global growth.
“Our strong focus on safety, operational reliability, cost control and social value will help us navigate these challenges and continue to deliver for all of our stakeholders.”
BHP paced through the final stanza of FY22, lifting production at its WA Iron Ore business in the Pilbara by 7% to 71.7Mt on a 100% basis, shipping 282.8Mt from the mines it operates and selling a record 284Mt.
BHP has lifted the bottom end of guidance incrementally by 2Mt on each end to 278-290Mt for FY23.
It attributed a quicker than expected ramp up at its new South Flank lump mine in the Mining Area C region, which has already hit 67Mtpa against its full scale runrate of 80Mtpa, a stark contrast to Rio Tinto’s (ASX:RIO) delayed Gudai-Darri and Fortescue’s (ASX:FMG) still to be completed Iron Bridge.
At 1.574Mt BHP hit its updated copper guidance for FY22, with a 28% production lift at Escondida, 43% increase in output at Olympic Dam and similarly strong quarters at Pampa Norte and Antamina helping to reach revised guidance.
It expects copper output to grow between 4-16% to 1.635-1.825Mt in 2023 led by an 8-18% rise in Escondida volumes and 41-55% lift at Olympic Dam in South Australia.
A smelter outage in Kalgoorlie made BHP’s Nickel West business the only laggard, with its 76.8Mt output for FY22 seeing the firm miss guidance. BHP expects to produce 80-90,000t in FY23, most of which will be sold to the lithium ion battery market in supply deals with auto firms like Tesla and Toyota.
BHP produced 58.3Mt at its BMA met coal mines in Queensland, but is expected to try sell some of those assets after moving on thermal coal, PCI coal and its oil and gas business in the past year or so.
Henry warned the new Queensland coal royalty regime would make it harder to justify investments in the state, which counts met coal as its main export commodity.
“Queensland metallurgical coal delivered strong underlying performance for the quarter in the face of significant wet weather,” Henry said.
“BHP is assessing the impacts on BMA economic reserves and mine lives as a result of the increase in coal royalties by the Queensland Government. The near tripling of top end royalties has worsened what was already one of the world’s highest coal royalty regimes, threatening investment and jobs in the state.”
BHP’s Mt Arthur thermal coal mine hit guidance at 13.7Mt for FY22. BHP recently made the decision to keep the operation in the fold with plans to shut the open pit in 2030 as part of its transition out of fossil fuels.
Despite meeting guidance RBC Capital Markets analysts Tyler Broda and Kaan Peker said BHP’s iron ore division disappointed pre-results expectations.
They said realised pricing of US$113/t was well below RBC’s expected estimate of US$124/t. RBC expects costs, which BHP says are within its US$17.50-18.50/t guidance range, to come in at around US$18/t against US$16.20/t for the first half.
“This is unlikely to bode well for FY23 cost guidance to be given at FY results, albeit the current 0.68 AUDUSD rate should help,” they said.
BHP’s share price was up 1.89% this morning, despite what RBC sees as a negative outlook for costs and capex.
“BHP continues to trade at a premium to our global coverage (in part justified by dynamics surrounding its Australian listing) but we continue see risks to this relative momentum heading into a results where costs and capex are likely higher than anticipated, with negative knock on implications on future years expectations,” the analysts said.
“BHP is trading at 1.36x NAV and 4.2x CY23 EV/EBITDA. We rate BHP as Sector Perform.”