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Paladin Energy suspends production at Malawi uranium mine

The low price of uranium is more than some can handle. Australia’s Paladin Energy (TSE:PDN) announced late Friday afternoon that it would suspend operations at its Kayelekera mine in Malawi.

“The suspension will involve placing the Operation on care and maintenance until the price of uranium recovers,” the company wrote in a news release. “This decision will preserve the remaining ore body until a sustained price recovery occurs and Paladin determines that production may be resumed on a profitable basis.”

Paladin has notified the Malawi government – a 15% share holder – of its decision.

Two factors influenced the decision, Paladin explained.

“The continuing depressed price for uranium oxide, which has been severely negatively impacted since March 2011 following the nuclear reactor damage caused by the Fukushima earthquake and tsunami; and the unsustainable cash demand to maintain the loss:making Operation at KM.”

CEO John Borshoff said it would be in the best long-term interest of all stakeholders and that Paladin would only resume operations once it becomes profitable to do so.

Following the Fukushima diaster, uranium prices tanked, dropping from a spot price of around $72 per pound to $35 at present.

Kayelekera has not been breaking even despite performing “exceptionally well technically,” Borshoff said.

The move will render many jobs redundant and the retrenchment process has begun.

“Retrenched national employees will receive generous redundancy packages that exceed Malawi’s minimum legal requirements,” Paladin wrote.

The financial impact on the company will include an impairment charge of approximately $32 million. Though the financial impact on Paladin’s balance sheet will be immaterial because the value of the mine has already been written down to zero. The company took a $180 million write down on the project in August last year.

The company also noted that its flagship Langer Heinrich mine in Namibia – which it tired but failed to sell last year – would not be affected because it has a “significantly” lower cost profile than Kayelekera.

Paladin was<ahref=”” target=”_blank”> eventually able to sellpart of Langer Heinrich to a subsidiary of China National Nuclear Corporation (CNNC); the Chinese company bought a 25% stake in January.

Paladin’s projects are low grade and high cost open pit mines which makes them more vulnerable to weak uranium prices.