Paladin Production Poor, Opinions Mixed

This story features PALADIN ENERGY LIMITED. For more info SHARE ANALYSIS: PDN

By Chris Shaw

Having endured a significant pullback from prices of US$136/138 per pound the uranium price appears to have begun trending higher once again, but the move is coming too late for emerging producer Paladin ((PDN)) shares according to ABN Amro.

The broker has downgraded its rating on the stock to Hold from Buy on the back of lower expected uranium production through to the end of FY09. This follows revised guidance from management on the back of problems with the IX circuit and delays in getting additional IX delivered.

The company has now indicated the second half of 2007 should see production of 613,000 drums, down from 900,000 previously and ABN Amro’s own forecast of 776,000 drums. Guidance for 2008 remains for production of 2.6 million barrels.

This brings the broker’s earnings estimates down accordingly, with its 2008 profit forecast being cut to US$25.6m from US$31.5m previously, while for 2009 its forecast is lowered to US$171.5m from US$240.9m.

This puts the broker in a somewhat different position to Macquarie, which cut its 2008 forecast by almost 40% but did little to its 2009 estimate, while UBS has made changes more in line in cutting its forecasts for 2008 by 56% to US$20m and in 2009 by 19% to US$303m.

In contrast to ABN Amro, UBS continues to rate the stock as Buy on what it sees as solid underlying fundamentals for the uranium market and the company’s potential to expand production at the Langer Heinrich project.

It values the stock at $6.01, while ABN Amro’s valuation has fallen to $5.94 from $6.35. GSJB Were has a valuation on the stock of an even more conservative $5.42, rating it as a Sell.

One supportive factor for the shares according to ABN Amro is the more production problems it faces in ramping up Langer Heinrich the better it will be for the global uranium price as it will mean a tighter market.

As a result the broker will be watching to see how the ramp-up proceeds, GSJB Were noting while management expect the issues will be dealt with by the end of the year there is scope for problems to remain into 2008.

Overall the FNArena database shows the stock scoring two Buys, two Holds and the one Sell recommendation, with an average price target of $7.56, which is down from $7.84 prior to the production report.

Shares in Paladin today are stronger despite the lower earnings guidance and at 1.40pm the stock was up 14c at $7.98. This compares to a range over the past 12 months of $5.09-$10.80.

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