Paladin Resources

Paladin Resources (TSX:PDN) & (FSE:PUR)
Share price: CAD 8.27 (mar 16, 2007)
Number of shares: 501 million
Market cap: CAD 4,143 million
Resources: 188 mio. lb (Indicated)
Price per pund U3O8: USD 18,76
Estimated production start: 2.6 mio. lb. in 2007
Estimated production output in 2010: 6 mio. lb (probably higher)
Estimated revenue 2010 (U3O8 = $91) : USD 546 mio.
Estimated production costs per lb: $ 14
Estimated profit 2010: CAD 542 mio (USD 462 mio.)
Price target 2010 at p/e 10: CAD 9.85 (550 mio. shares)
12 month price target: CAD 10 (upside 21 %)

My analysis

From researching Paladin’s website I’m forecasting Paladin’s production to 6 mio. lb. in 2010, but it could very well be much higher. Their Australian projects might start producing right about that time. Furthermore, the planned acquisition of Summit Resources will push the production estimate up a notch. My 12 month target at CAD 10 is because of the surging uranium price and therefore the hunt for present uranium producers.

Resource Capital Research’s investment report on Paladin Resources (Sep 26, 2006)

Overview: Paladin Resources is an Australian company listed on the ASX and TSX. It is currently developing the Langer Heinrich uranium project in Namibia and has an advanced BFS at the Kayelekera uranium deposit in Malawi. PDN is positioned to become an established uranium supplier in 2006.

Langer Heinrich mine: The open cut and mill operation commenced staged commissioning Aug. '06. Capex is US$92m (incl. US$10m contingency) and average opex. is US$14.18/lb over LOM. Project life is currently 17 years at an initial production rate of 1,180tpa (2.6mlbspa) U3O8. Given the potential to increase the mine life to 25 years, a stage 2 plant expansion review is underway, with potential to increase the production rate to 3.7mlbspa (+ 44%) during 2008. The scale of the expected capacity increase will be driven by the uranium price and additional ore resources, off set by a potentially constrained water supply and ease of commissioning the alkaline leach plant. The deposit is open to the east where there is potential to find additional resources. PDN's hedging policy is to maintain exposure to the spot/term market. Uranium sales contracts to meet project financing requirements cover 6.6mlbs of production from 2007 to 2012. PDN indicates the contracts will generally receive market prices at time of delivery with some degree of price participation above contract cap levels.

Kayelekera: A BFS by GRD Minproc is underway. Project commitment is anticipated late 2006, followed by a 12 month construction period and commissioning in January 2008. Likely project parameters are open pit, mill processing, 1.0ktpa (2.3mlbs U3O8 production) for a minimum 10 year project life, opex ~US$15/lb.

Valhalla Uranium: (ASX:VUL) PDN's scrip takeover (38m PDN shares, ~A$1968m) of VUL has moved to compulsory acquisition. VUL's main asset is 50% of the Mt Isa Uranium Project (SMM 50%) and a 41.7% interest in the Bigrlyi deposit with Energy Metals Limited, ASX:EME. SMM is taking legal action in relation to pre-emptive rights in the Mt Isa Uranium Project against which PDN is indemnified in the event SMM wins.

Investment summary: Our NPV valuation is A$2.53/share, up 27% from A$1.98/share (10% discount rate) primarily reflecting our upward revision of the long term uranium price to US$35/lb from US$30/lb. PDN's share price has traded closely to its NPV valuation discounting the "forward" uranium price which is currently US$65/lb in 2007 (PDN NPV A$4.30/share).

More information on Paladin’s uranium projects: