It has taken twenty-three years, but the state government of Queensland in Australia has finally overturned a ban on uranium mining. The prohibition on uranium processing and waste storage, however, remains in place.
The announcement follows a recent trip to India during which Australian Prime Minister Julia Gillard was selling the benefits of uranium produced in Australia. Minister for Natural Resources and Mines, Andrew Crisp, estimates Queensland’s known uranium deposits are worth about US$10 billion and the state government is now convening a three-member committee to implement the resumption of uranium mining.
While the news is positive for companies like Paladin Energy (PDN-T), which owns a significant stake in a large uranium project in the state, Matthew Gibson of CIBC World Markets argues that it doesn’t mean that new projects will be developed in the near-term. As proof he cites the example of Western Australia, where a six-year ban on uranium mining was overturned in 2008. It took another four years, he says, for the state to give its approval to the first uranium mine — Toro Energy’s (TOE-A) Wiluna uranium project.
Gibson believes it may be another two years before any project in Queensland receives approval. Nevertheless, he argues that the decision “opens the door” for Paladin Energy to move its Mt. Isa joint-venture project forward.
Mt. Isa is a 50-50 joint venture between Paladin and Summit Resources (SMM-A) and contains 147 million pounds of U308. Total measured and indicated resources currently stand at 106.2 million pounds, grading 743 parts per million U3O8 and inferred resources add 40.7 million pounds at 574 parts per million U3O8.
Paladin owns 82.08% of Summit’s shares, which gives it a 91.04% stake in Mt. Isa, or about 132 million pounds of U308.
Gibson calculates that Mt. Isa is one of the largest undeveloped uranium projects in Australia, but it is also one of the lowest-grade deposits. The Toronto-based analyst describes Mt. Isa as “relatively comparable” to the Yeelirie project that Cameco Corp. (CCO-T, CCJ-N) recently acquired in Western Australia.
At presstime Paladin was trading at $1.25 per share and Gibson has a twelve-to-eighteen month target price of $3.70. He believes Paladin has “one of the steepest production growth profiles” in his coverage universe, and forecasts production will grow to 11 million lbs per annum over the next six years as the company “establishes itself firmly in the top tier of uranium producers worldwide.”
The pure-play uranium producer has two uranium mines in Africa, which 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.
In the third quarter 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.
Despite quarterly production that was slightly below his expectations and sales volumes that were weaker than he expected, Gibson said in an earlier research note on Oct. 16 that Paladin is trading near trough levels at 0.8 times NAV and is one of the least expensive in our uranium coverage universe.”
“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.”
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%.
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