Paladin Resources (PDN) Update

Paladin Resources (PDN) have a reiterated $9.30 share price target and a Neutral broker call from Australian shares analyst Macquarie Research equities. Paladin shares plummeted over 5% yesterday, compounding a 33% fall over the past 2 months, following an announcement that uranium production from its flagship Langer Heinrich project would be around half (~0.27mlb U3O8) for the June 07H of the previous guidance of 0.4–0.6mlb. With the stock now around $8.10, and with standout leverage to a booming uranium price, the analysts maintain their $9.30 price target.Recovery issues: The slower than anticipated ramp-up was attributed to equipment failure principally associated with the heat exchangers (caused by the leach tank liner failure and now essentially rectified) and achieving the necessary beneficiation prior to reaching the leaching circuit (being achieved more slowly). Essentially the project is achieving design throughput but the issues still needing to be addressed relate to optimising recovery and improving plant efficiencies. Extended ramp-up: The cumulative magnitude of the downgrades (from original expectations of ~1mlb for the half) is concerning, although it must be remembered that nearly all projects have some commissioning difficulties. They have pulled back our already conservative FY08 production forecast to 2.38mlb (from 2.47mlb). However, management remains confident that the plant is quickly reaching the end of the transitional phase and moving to full production. In short, the analyst would be cautious but not alarmed. Covering purchases: On the sales front, unanticipated delays and seasonal cancellations of vessels from Walvis Bay (Namibia) have caused a temporary misalignment between delivery destinations during the ramp-up phase. PDN is in the process of "making suitable commercial arrangements in accordance with standard industry practice" to ensure all delivery obligations are met. It is unsure whether this implies the need to purchase uranium from third parties at current spot prices (eg 0.1mlb at US$135/lb = US$13.5m). Reality bites: These issues do highlight a key risk with Paladin Resources equity exposure – it’s now delivery time. As the newest entrant to the booming uranium market, the stock has enjoyed the benefits of excellent valuation leverage to uranium price increases, and an attractive apparent growth profile. Delivery challenges include the current plant recovery issues, the recent development injunction sought by NGOs in Malawi (Kayelekera project) and eventual Phase 2 expansion challenges at Langer Heinrich (power and water). Paladin Resources (PDN) has a solid asset suite, strong growth profile and standout leverage to a booming uranium price. Upside drivers include a bullish short-term outlook for spot uranium prices (now US$135/lb and expected to rise further) and clear corporate appeal in a frenzied uranium M&A environment. Key risks include operational delivery (short-term), project development timing (medium-term), and stretched valuation metrics (as with nearly all other uranium plays globally).

Paladin Resources Limited is listed on the Australian Stock Exchange (ASX) under stock code PDN. You can view their investor website here. PDN was listed on the ASX on 29 March, 1994. John Borshoff is the Managing Director of Paladin Resources. Paladin operates in the mineral resource sector with focus on uranium and has projects in Australia and Africa. In line with its long term vision to become an established uranium producer, the Company’s strategy is to identify, acquire and evaluate advanced uranium projects. Since 1998, during a period of sustained downturn in global uranium markets, Paladin had been accumulating a quality portfolio of advanced uranium projects each having production potential. Paladin Resources, Ltd., together with its subsidiaries, engages in the evaluation and development of uranium projects in Africa and Australia. The company owns 100% interests in the Langer Heinrich project located in Namibia; the Kayelekera project located in northern Malawi, Africa; the Manyingee Uranium project located in the northwest of Western Australia; and the Oobagooma project located in the west Kimberley region of Western Australia. The company also has joint venture with Quasar Resources Pty, Ltd. covering two exploration licenses in South Australia. Paladin Resources was founded in 1970 and is headquartered in Subiaco, Australia. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade PDN. Check your charts and good luck with your share trading!