Analyst Actions: Credit Suisse Keeps "Outperform" Rating on Paladin Energy After "Solid" December Quarter Production

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Credit Suisse says: "Dec-Qtr Production Solid; Operating Trends Support Further Cost Reductions"

Event: "PDN announced Dec-Qtr (2Q13) production of 2.19Mln lbs U3O8 vs. our estimate of 2.04Mln lbs. Uranium sales volumes of 2.78Mln lbs U3O8 were ahead of our 2.4Mln lbs estimate, partially offset by a softer realized price of C$48/lb vs. our C$53/lb estimate. Dec-Qtr revenues of C$134Mln compares to our C$125Mln."

View: "Good quarter. Production at Langer Heinrich ( LH ) of 1.42Mln lbs U3O8 increased 9.9% QoQ and compared to our estimate of 1.23Mln lbs. Kayelekera production of 0.772Mln lbs U3O8 increased 20.9% QoQ and was largely in-line vs. our 0.810Mln lbs. Mgmt noted that total production for the Dec-Qtr increased 13.6% QoQ and represents 103.1% of nameplate production capacity. PDN maintained its FY13 production target of 8-8.5Mln lbs U3O8. Through the Dec-Qtr, production has totaled 4.12Mln lbs, or 50% of the mid-point of the range, placing PDN in a good position to achieve production targets."

Catalysts: "Keys to the PDN story remain strategic initiatives, deleveraging, and cost optimization. PDN previously announced a program to realize cost savings of C$60-80Mln over the next two years, including targeted reductions in FY13 at Langer Heinrich (C$10Mln), Kayelekera (C$10Mln), and in exploration (C$4Mln), inventory management (C$15Mln), and corporate overhead (C$3Mln). We currently forecast cash cost improvements of 8% YoY in FY13 (to C$35/lb from C$38/lb). PDN noted that its strategic initiatives process is ongoing, the results of which are expected by March/April 2013. PDN has targeted a D/D+E ratio of below 30% in the medium-term (from 43% at end 1Q13), a level we believe is mostly achievable through pre-payment cash inflows (EdF contract) and the sale of a minority stake (20-30%) in its Queensland (Australia) assets, which could raise proceeds of C$80-100Mln. We estimate that PDN's total development portfolio (excl. Michelin) is worth ~C$500Mln (based on an in-situ value of C$3/lb)."

Valuation: "Maintain Outperform. Our TP of C$2/share is based on 1x our NAVPS of $1.93/share. Our valuation includes $0.36/share for the Michelin project and $0.62/share for exploration and development properties."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: LH

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