Paladin Resources

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 (PDN) share price has fallen over 8.8% from all time highs of $10.75 in February after the board of Summit Resources rejected its takeover offer, observed by market analyst Maquarie Research Equities. Paladin is a focused uranium mining, development and exploration company with key development projects in both Africa and Australia. The company's flagship project, the Langer Heinrich mine in Namibia, entered into commercial uranium production at the end of 2006. Over the past five years the uranium spot price has surged from around US$10/lb to US$91/lb, its highest nominal level on record. In the short term, the market is expected to remain tight, and reactors are expected to continue to struggle to secure sufficient primary supply in the face of waning secondary supplies. The lion's share of forecast growth in output comes from a small number of mines - any disruption to production at any of these mines is likely to have a major upward impact on spot prices. Paladin has a solid asset suite, strong growth profile and significant leverage to a booming uranium price.

Name: Paladin Resources Ltd

ASX Code: PDN

Paladin is a Western Australia based ASX listed company involved in the mineral resource sector with a strong emphasis on uranium with projects both in Australia and Africa with control of two advanced uranium projects in Southern Africa.

Company URL: www.paladinresources.com.au