Sunday, July 22, 2007

Paladin Resources: Next Uranium Takeover?

In these days of multi-billion dollar M&A largesse, $4.5 billion Cdn Australin uranium upstart Paladin Resources (TSE:PDN) just might be a potential takeover candidate, if the rumors swirling around are true. Potential suitors being bandied around include Canadian uranium behemoth Cameco Corporation (NYSE:CCJ TSE:CCO), French counterpart AREVA, and always lurking in the background, BHP Billiton. Another name tossed in is Uranium One (TSE:SXR), itself a $5.1 billion product of recent mergers.

Paladin has been busy the last several months. At the beginning of June, the company closed its bid for Summit Resources Limited, acquiring 81.8% of shares and taking full control of the Valhalla exploration project for all intents and purposes.

On a more sobering note, however, Paladin spent the rest of the month defending its Kayelekera Project in Malawi. First, both the company and government were sued by NGOs to delay the project until issues with Malawi's Environmental Management Act (EMA) as well as protective measures for the local community were addressed; the government has said that it has fully complied with the EMA. Secondly, Paladin reiterated its stated goal of commissioning Kayelekera in September 2008 and dismissed contentions that there may not be sufficient power for the project as the company is placing an order for a 10MW power generation facility.

Rarely seen on the defensive through its meteoric rise as a uranium upstart, Paladin also had to announce a 130,000lbs shortfall of uranium from a projected 400,000lbs to the end of June due to initial start-up issues at the Langer Heinrich project in Namibia. The company is still confidant that Langer Heinrich will ramp up to fulfill its 2.6 million lbs of yellowcake a year production target.

A look at the 2-year chart of the company exemplifies the current weakness that Paladin is experiencing, probably exacerbated in recent weeks by the pessimism in the uranium sector as a whole. Naturally, takeover speculation arises as other companies evaluate the intrinsic value of Paladin and compares it to the market├Ęs current valuation. Astute uranium investors looking to buy this stock must ask themselves whether they believe that Paladin's is just having some growing pains transitioning from an upstart uranium explorer to a bonafied uranium producer, or is there something more fundamentally wrong?

Monday, July 16, 2007

Uranium Stocks: Short Selling

As short interest mounts in Cameco Corporation (NYSE:CCJ TSE:CCO) to 6.2% of shares outstanding, short sellers are betting that the confluence of certain factors presents a ripe time to bet against a uranium stock that has seen a healthy YTD increase.

The first decreases in the uranium spot price to the current $129US/lb, coupled with Cameco's July 11 announcement of further delays in Cigar Lake that will delay production until at least 2011 have spurred short sellers into their present bearish position on the uranium giant.

As Cameco struggles being the bellweather uranium stock most synonymous with general market sentiment, the pessimism surrounding the future trends of yellowcake has never been greater. This is further exemplified by the essentially flat performance of other uranium seniors not named Cameco.

Whether it be Paladin Resources (TSE:PDN) or sxr Uranium One (TSE:SXR), and to a lesser extent, Denison Mines (AMEX:DNN TSE:DML), they have collectively been both flat YTD in the context of an ever-rising North American market. Moreover, they have reacted very little to the announcement to delay Cigar Lake for another year; usually a bullish supply-demand argument, it carried much less weight in the context of falling uranium spot prices.

However, one must remember that we saw a diversion between the uranium spot price and uranium stocks much earlier in the year. While uranium spot has essentially doubled YTD, the aforementioned uranium seniors-not-named-Cameco have assuredly not. In this context, although much fear has been injected in recent weeks as experts predict a uranium meltdown scenario where the spot price plunges, the astute observer will question exactly how much froth is in these stocks.

Yes, there are concerns overhanging uranium stocks: millions of pounds held by funds who have no intention of using uranium, nuclear utilities who are banding together to collectively halt the rising spot price, and the general inability for uranium stocks in the last few months to head higher despite favorable market conditions. Even so, the fundamental story of nuclear power must dictate that investors take advantage of irrational overselling and stake positions when fear and apathy abounds.