PDN 1.19% 8.5¢ paladin energy ltd

analysts are generally positive

  1. 365 Posts.
    What's In A Name Plate?
    FN Arena News - February 18 2008

    By Greg Peel

    There's been a few stumbles along the way, consistent with any start-up mining project, but Paladin Energy's (PDN) Langer Heinrich mine in Namibia has now reached "name plate capacity", meaning it is now producing at a rate of 2.6 million pounds of uranium per annum as planned. This achievement is seen by brokers are being more significant than Paladin's first half loss.

    Paladin lost US$25.8m in 1H08, more than brokers were expecting. The difference was due to higher costs and production shortfalls that forced the company to buy in uranium at spot to satisfy contract obligations. However, analysts have taken this in their stride suggesting cost increases on ramp-up are part of the game and these should level out now name plate has been achieved. And Paladin should not have to buy in any more uranium, so the way is clear to start seeing some real profits.

    The uranium price achieved was slightly disappointing, given analysts had all become carried away with the potential price upside just as the actual price began to fade. While expanding nuclear capacity across the globe should maintain strong demand for uranium, the vagaries of demand mean the price has currently fallen into a hole. The main reason behind this could be put down to real consumers trying to squeeze out unwanted hedge fund speculation by refusing to buy in at high prices. GSJB Were has called it a "reality check" and the analysts have reduced their forecast price for the fist half of 2008 from US$110/lb to US$90/lb. Given spot is currently US$75/lb, the tone remains bullish.

    Langer Heinrich may have reached name plate but plans are still on track to expand the mine to 3.7mlbspa capacity by the end of 2008. Further good news is that Paladin has overcome some initial objections to its Kayalekera project in Malawi and plans to achieve 3.3mlbspa from that mine are also on track and on budget. All up, the way is clear for Paladin to start making some proper dollars.

    There is concern, however, regarding the issue of power supply in Southern Africa. Neighbouring South Africa is currently experiencing rolling power outages that have crippled that country's commodity production, and insufficient power is an ongoing problem. Paladin has stated it has no power problems in Namibia, but analysts suggest the market might be slightly more cautious in the short term.

    Paladin shares are today trading around the $5.80 mark, having registered a high of $10.80 around a year ago when uranium mania was in full swing. Despite the difference, the stock scores three Holds along with three Buys at this level. Officially, the average target price in the FNArena database has slipped from $7.40 to $6.94, which included a trimming from ABN Amro (Hold) from $7.72 to $5.78. However, Deutsche Bank (Buy, $8.20) and UBS (Buy, $9.05) have been quiet for a while, so averaging the four more recent targets achieves $6.10, on a range from $5.20 (Macquarie) to $7.20 (Citi).

    While this may not be a hugely inspiring number, analysts are generally positive on Paladin and are looking forward to greater production and higher uranium prices ahead. The threat of a US recession and general market volatility have, however, kept analysts a little more to the conservative side.

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