Thursday, May 10, 2007

May 10 Uranium Stocks Update: Paladin Resources (TSE:PDN)

Befitting its status as one of the go-to uranium plays, Paladin has made steady progress over the last few months. Its flagship Langer Heinrich project in Namibia opened and should have been running at 100% of design throughput since late April. The company projects that Langer Heinrich will reach output of 2.6 million lbs of yellowcake per year sometime next month; an expansion late next year should increase output to a minimum of 3.7 million lbs/year.

Meanwhile, its Kayelekera project in Malawi will be 85% owned by Paladin and 15% by the government, a compromise that assures the company of ten years worth of no taxation or royalty increases. A bankable feasibility study (BFS) confirmed the viability of Kayelekera to produce 3.3 million lbs of yellowcake over the first seven years, with a CapEx of $185 million. Environmental approval and a mining license has also been obtained by Paladin and the project is slated to be commissioned in September 2008 with full production expected Q2 2009. In addition, the threat of non-governmental organizations (NGOs) in Malawi potentially stopping Paladin from mining seems to have faded as local support for Kayelekera appears to be strong.

Putting the two projects together, if Paladin continues to meet production deadlines (which the company has been able to do thus far), it expects to cash flow ~$2.8billion US from now until 2012, assuming a yellowcake price of $90 US/lb.

Moving to the acquisition side of things, Paladin appears to be successful in its second bid for Summit Resources Ltd, which holds 50% of the Valhalla uranium deposit in Western Australia. As of April 27, the company had received acceptances of 58.21% of Summit’s issued capital and has also extended the bid period until May 18. However, the caveat here is that Areva, the French uranium giant, has filed a complaint against Paladin with the Takeovers Panels, insisting that Summit shareholders be allowed to decide on the deal at a general meeting. Areva owns a 10.46% stake in Summit, so this controversy could take some time to resolve itself.

With a $4.2billion Cdn market cap, Paladin is by no means a small company anymore, but with one of the best track records thus far of uranium producers, continues to trade at a premium. Truly a good stock to hold and perhaps buy on weakness.


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