Resource Boost Makes Expansion More Likely For Paladin

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

By Chris Shaw

With the market only expecting an increase in the uranium resource at Paladin’s ((PDN)) Langer Heinrich project of around 25%, yesterday’s announcement of a 55% increase was warmly recieved. Even more importantly, Deutsche Bank notes of the project’s 164 million pounds of contained uranium, 72 million pounds are now in the measured and indicated categories, increasing the likelihood such reserves will increase to more than 100 million pounds over the next 12 months.

This would mean the company could then proceed to a stage III expansion of the operations, which would lift output to around six million pounds per year while at the same time extending the mine’s life to at least 15 years and possibly more than 20 years.

On the broker’s numbers, its net asset value for the stock increases to around $5.00 if a 100 million pound reserve is modelled, while if a long-term uranium price of US$80 per pound was used, and this is in line with the current term price, this valuation would increase to around $7.30 per share.

Little surprise then the broker rates the stock as Buy, suggesting the next share price catalysts will be improvements in the mine’s operating performance and greater clarity with respect to uranium pricing contracts. Overall, the outlook is good and the broker is forecasting earnings per share (EPS) to grow from US7c in FY09 to US27c in FY10.

Citi is equally positive and also expects the company will move to a phase III expansion given the latest reserve and resource numbers. The broker notes that by including inferred resources, there is now potential for mine life to be extended to as much as 27 years against 16 in its previous forecasts.

The feature of the upgrade for JP Morgan is that it was achieved without cut-off grades being lowered, making the quality of the increase all the better. On its numbers the new resource and reserve figures add at least five years to the current mine life.

Post the update the market remains largely positive on the stock, the FNArena database shows a total of six Buy ratings, one Hold and two Sells. Both of the Sells are post the profit result and in the case of Macquarie, represents concern over higher costs, but neither they nor GSJB Were have yet to update their view post the increase in resources and reserves.

The average price target on the stock has not changed on the news and remains at $6.31. There is a range of several dollars from Were’s at just over $4.00 to UBS at $7.60. The median price target according to Thomson One Analytics is $7.00.

Today, shares in Paladin are slightly stronger and as at 11.40am the stock was up 10c at $5.80. This compares to a trading range over the past 12 months of $3.80 to $9.36.

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