PDN 6.67% 40.0¢ paladin energy ltd

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    Paladin Resources is an attractive target for Cameco, Areva, Uranium One, BHP, analysts say

    By Catherine Raisig in Hong Kong.
    The Financial Times Limited
    Published: July 18 2007 11:53

    Paladin Resources, the listed Australia uranium miner, is an attractive takeover target as it is the only independent uranium miner, analysts argue, adding that much of its resources are so far un-contracted. They say that aside from listed Canadian miner Cameco, French nuclear energy company Areva, Australian mining group BHP Billiton, the other Canadian uranium miner Uranium One or even a major oil player could be possible bidders.

    Shares in the company are currently trading at AUD 8.46 after a high of AUD 10 earlier this year. One analyst said the company was “priced to perfection” when it was trading at AUD 10 and explained the share price decline was due to the recent difficulties the company was encountering. “Nothing unusual, start up issues really,” he said, adding that fundamentally the story had not changed since it was valued at AUD 10. A valuation of AUD 12 in a takeover situation was entirely possible according to him. A second analyst concurred. A third analyst said bidders could be expected to pay up to AUD 12 if an offer were made. “And if there is a bidding war, the price could be driven up to AUD 15 per share,” he said.

    Following a report in Tuesday’s Australian Financial Review suggesting Cameco could buy Paladin, Paladin issued a statement to the ASX denying it had been approached by Cameco.

    Analysts explained that Paladin is an attractive target because it is the only independent uranium producer and it has attractive assets. Paladin is in the process of ramping up its first uranium mine, Langer Heinrich in Namibia, and is constructing its second, Kayelekera in Malawi. Adding to these analysts said the recent acquisition of Summit Resources has brought the Valhalla resource under Paladin’s control. The Valhalla resource is an exploration target in a highly attractive Mount Isa exploration region and will increase Paladin’s exploration opportunities, two analysts said.

    Paladin’s attractiveness also stems from the fact that most of its output is un-contracted which means that when agreeing prices for its future output the company will benefit from the recent uptake in uranium prices. This places Paladin in a stronger position than its competitors. They are in many cases locked into up to 5 year long pricing contracts, unable to take advantage of the increased uranium prices, two of the analysts explained.

    Two analysts also pointed out that Paladin has a wide open shareholder register, with no significant individual shareholder who would be able to block a deal although management itself holds a 12% stake.

    Cameco would be a possible bidder for Paladin since the flooding of its Cigar Lake development project has placed a strain on the company. “Production from the project has now been delayed until 2011,” one analyst said, “given that it was scheduled to be providing 10% of the global uranium supply, it is not only understandable why uranium prices have increased so significantly but also why Cameco would be interested in ensuring its uranium production via the acquisition of Paladin.” Another analyst argued that by buying Paladin, Cameco would be diversifying its mining operations significantly.

    Aside from Cameco, all the analysts suggested Areva as a potential bidder. Areva already owns a 20% stake in Summit Resources, with Paladin holding the remaining 80%. Areva tried to gain full control of the business but lost out to Paladin in a bidding war. By making an offer for Paladin, Areva would gain control of Summit and its highly attractive Valhalla mine after all.

    Two analysts claimed that the Canadian listed Uranium One would be another possible bidder, particularly considering it has been very acquisitive of late. However a third argued that the company had reached the end of its acquisitions spree and would instead focus on stabilizing the business.

    Another potential bidder for Paladin could be BHP Billiton, itself the largest uranium miner, one analyst suggested, but another pointed out that this would mean a clear focus on uranium by BHP – something he felt was less likely. A third analyst said he felt it was unlikely that a diversified miner would bid for Paladin and instead said it would be a pure play uranium miner who would bid for Paladin

    Only one analyst suggested that the big oil companies could be bidders for Paladin. “They are flush with cash and so Paladin with a market cap of AUD 4.5bn (USD 3.9bn)would be quite a small deal for them,” he said. He specifically mentioned UK listed oil giant BP as a possible bidder.

    While it is clear that Paladin is an attractive target, there is however also reason for caution. “The Paladin board clearly has a vision for the company and being bought is not part of that vision,” one analyst claimed.


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