- Paladin result falls short of expectations
- Net debt increasing, cash on hand also fell
- Corporate appeal a positive
- Opinions on Paladin remain divided

By Chris Shaw

Uranium producer Paladin has disappointed the market with full year earnings, reporting a larger than expected loss for FY11 of US$82 million. Underlying earnings were also lower than expected, largely due to higher financing costs.

In its review of the earnings release, RBS Australia notes the Paladin result highlighted a number of problems. The company fell short of delivering on previous production guidance, there was a decrease in cash for the period of US$233 million and net debt is now at US$602 million.

This adds to what is already a challenging outlook, as RBS notes Kayelekera is currently operating at a cash cost above the spot price and the Langer-Heinrich project needs further cash for development. As well, the uranium industry is currently dealing with negative sentiment given fallout following the earthquake and tsunami related problems at the Fukushima plant in Japan.

The low uranium price is impacting on earnings expectations for Paladin, BA-ML cutting its numbers aggressively post the profit result to reflect a more conservative outlook. Earnings per share (EPS) forecasts for BA-ML for FY12 have fallen to US2.5c from US8.8c previously, which also accounts for lower sales volumes and higher unit costs at Kayelekera.

The revision to numbers by BA-ML has been matched elsewhere, with the likes of JP Morgan, Macquarie and Citi also lowering estimates in coming years.