Australia | Jun 14 2007
By Greg Peel
As surely as night follows day, start-up mines will encounter some sort of teething problem that forces downgrades from initial production estimates. This has been the case with every mine opened in the history of mankind.
Thus it followed that more than one broker has warned the euphoric uranium investing throng over the past few months that it should also be assumed Paladin Resources’ (PDN) Langer Heinrich mine in Namibia would likely suffer the same fate. Nothing to be overly concerned about, especially as the uranium price has just kept soaring higher, but something to bear in mind nevertheless.
Apparently there have been some ramp-up issues in Namibia, and it’s taking longer than expected to stabilise the heat exchanger section.
The result is a downgrade in FY07 production of U3O8 from 400kt to 270kt. At 32.5%, this is no minor downgrade. But the analysts were on to it from the start. Merrill Lynch, for example, had already assumed production of only 260kt, making allowances for teething problems.
Merrills has not adjusted its earnings assumptions as a result of the downgrade, and wants to see if Paladin expenses or capitalises the additional costs. Vessel delays have also reduced FY07 sales assumptions, but these are simply rolled forward to FY08.
The good news is that Paladin remains confident of reaching its forecast production capacity of 2.6Mlbs in FY08, and the uranium price doesn’t appear under a lot of pressure.
Paladin retains a 3/1/1 B/H/S ratio and an average target of $10.53 in the FNArena database. the stock is off today to $8.00 in morning trade, bucking the market trend.
