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."
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