Two months of unplanned shutdowns to upgrade its plant and complete remediation work due to land movement at the Kayelekera open-pit uranium mine in Malawi have not stalled production for junior Paladin Energy (PDN-T), as it increased production by 14% in the fiscal year ended June 30, and boosted production 25% year-on-year at its Langer Heinrich open-pit uranium mine in Namibia.
Production from both mines totalled 6.89 million lb. uranium oxide (U3O8) in fiscal 2012 — a 21% year-on-year increase — after record production in the fourth quarter of 1.32 million lb. U3O8 at Langer Heinrich (up 26% over the March quarter), and 726,299 lb. U3O8 at Kayelekera, which is a slight increase over the previous quarter, and 88% of nameplate capacity.
In its quarterly activities report released on July 13, Paladin also provided guidance for fiscal 2013 of 8 million to 8.5 million lb., and pointed out that fiscal 2013 would mark the first time in the company’s history that no major construction is planned.
The mid-tier uranium producer noted that its strategic initiatives “are advancing well with selected nuclear parties, with the potential to form long-term, mutually beneficial relationships.” In May, Paladin Energy said it was considering a joint venture and strategic option offered from participants in the nuclear industry.
“The high level of interest from these parties has confirmed the global demand for high quality uranium assets, and the desire to partner with Paladin,” the company stated. “Due to the continued cancellation and postponement of new projects and brownfield expansions within the uranium sector, parties are increasingly interested in securing a partnership with a company that offers proven technical capabilities and low development risk.”
Paladin is evaluating “three mutually exclusive outcomes,” and expects decisions in the August–October period.
Canaccord Genuity analyst Orest Wowkodaw says in a research note that he believes the company has “turned the corner” with a price target of $2.10 per share. At presstime Paladin traded at $1.19, within a 52-week range of $1.07–$2.85.
“Our ‘buy’ rating is supported by our view of the company’s near-term growth profile, attractive relative valuation and gradually improving fundamentals,” he writes. “While Paladin has struggled with its ramp-up at both operations over the past three years, the company [has] . . . surpassed our production forecast for the third consecutive quarter. We note that the company achieved a record 96% of nameplate capacity in the fiscal fourth quarter of 2012.”
The mining analyst notes that Paladin trades at a 47.5% discount to his revised 8% net present value estimate of $2.38 per share. His uranium producer coverage universe is at a 32.7% discount rate.
“After badly missing our expectations through fiscal 2009, 2010 and 2011, we note that fiscal 2012 appears to represent the turning point for the company,” he continues. “This compares favourably to recent history, where the company missed ten of eleven quarters.”
The Langer Heinrich mine lies in the Namib Desert, 80 km east of the major seaport of Walvis Bay and 40 km southeast of Rio Tinto’s (RIO-N, RIO-L) Rossing uranium mine. The Langer Heinrich deposit was discovered in 1973, and Paladin acquired it in 2002.
The Kayelekera mine is in northern Malawi, 52 km west by road of the provincial town of Karonga at the northern end of Lake Malawi, and 575 km by road north of Lilongwe, the capital city. Paladin acquired the project in 1998.
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