Australian Resources Weekly Update

Submitted by Jim Thesiger on 9 May, 2008 - 15:33

Lower near-term uranium price forecasts for Australian resources provided by Australian stockmarket analyst Macquarie Research Equities.

Australian Resources

Lower near-term uranium price forecasts

Lower uranium price forecasts:

This week our global team lowered UBS' near-term uranium price forecasts. In 2008, we are now forecasting US$71/lb, (vs US$90/lb previously); and in 2009 we are now forecasting US$90/lb (vs US$100/lb previously). Our 2010, structural period (2011-2016), and long-term price forecasts remain unchanged at US$110/lb, US$50/lb, and US$27/lb respectively.

ERA - No change to near-term earnings forecasts:

Given ERA's legacy contracts, the changes to our 2008 and 2009 uranium price forecasts do not impact our earnings forecasts in those years. Our 2010 earnings forecast is 1% lower, but our NPV drops 6% to A$11.37. ERA remains one of our top sector picks underpinned by a strong outlook for uranium, and the potential for mine life extensions at Ranger. We are increasing our 12-month price target to A$26/share based on 2x NPV for Ranger and including the potential value of the open cut push back.

Paladin - Leverage to the uranium spot price:

Paladin is the most levered company to the uranium spot price that we cover. As a result, the changes to our uranium spot price forecasts have a material impact on our earnings forecasts. Our FY08 NPAT drops only 3%, but our FY09 NPAT declines 33%. As a result, our NPV falls to A$4.47 per share. We are maintaining our Buy rating but lowering our price target to $6.50 per share based on 2x NPV for Langer Heinrich and Kayelekera plus US$13/lb for the undeveloped assets.

Rio Tinto - Minimal changes:

The changes have only a minimal impact on our earnings forecasts for Rio Tinto.

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