Pure-play uranium producer Paladin Energy (PDN-T) with two uranium mines in Africa produced 1.93 million pounds of uranium in the three months ended Sept. 30, down 5.8% from the June quarter due to a planned 16-day maintenance shutdown at its Kayelekera mine in Malawi.
Kayelekera produced 638,950 pounds of U308 while the company’s Langer Heinrich mine in Namibia produced 1.29 million pounds of U308 —99.2% of Stage 3 nameplate production. (Lower grades at Langer Heinrich were offset by higher than expected recoveries.)
Sales of 1.22 million pounds of U308 generated US$61 million or an average price of US$49.83 per lb. (the average spot price for the quarter was US$48.95 per lb.) and the company forecasts sales in the December quarter will reach 2 million pounds.
At presstime Paladin was trading at $1.26 per share within a 52-week price range of $1.12-$2.11. The company has 836 million shares outstanding.
Despite quarterly production that was slightly below his expectations and sales volumes that were weaker than he expected, Matthew Gibson of CIBC World Markets has a 12-18 price target on the stock of $3.80 per share. “On a price to net asset value basis, Paladin is trading near trough levels at 0.8 times NAV and is one of the least expensive in our uranium coverage universe,” he wrote in a note. “We believe that the market has baked into the share price a lot of uncertainty regarding the uranium market as well as investors taking a wait-and-see approach as execution and meeting production guidance remains a key focus.”
Gibson also points out under a subsection outlining his investment thesis that Paladin has “one of the steepest production growth profiles” in his coverage universe, and notes that production is expected to grow to 11 million lbs per annum over the next six years “as it establishes itself firmly in the top tier of uranium producers worldwide.”
In the meantime Paladin continues to focus on production results and cutting costs, he adds. At Kayelekera for instance Paladin says there is greater likelihood of cheaper grid power within the next year. The company has held several meetings with the local grid power provider, ESCOM, it says, and if it can connect to the grid cash costs should come down by about 10%.
David Sadowski of Raymond James in Vancouver has a six to twelve-month target price on the stock of $2.00 per share and recommends “adding to positions on ramping production, cost optimization, minimal near-term credit risk, attractive valuation and takeout potential.”
He also argues that cost optimization efforts should bear fruit. He expects company-wide unit costs will fall from the high US$50s per lb. back to the mid/low US$30s per lb. by the end of the financial year. “In addition to ongoing programs to reduce opex (acid, reagents, diesel, grid power at Kayelekera), the company announced it is looking to implement teeter separation at Langer in F2Q13E and nano-filtration at Kayelekera in F3Q13E, which should cut reagent consumption,” Sadowski says.
“Though likely to be a difficult quarter on an earnings basis, progress at the mines has put the company on track to meet year-end production guidance of 8.0-8.5 million pounds and in our view financial results should be much improved in F2Q13E,” he writes in a research note. “We believe Paladin shares are highly attractive at current levels and may be pricing-in an unjustifiably high level of operational risk relative to peers.”
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