PDN - Paladin Energy

[Sean K]

Re: PDN - Paladin Resources

Agree with the potential turn around here. Those last 2 candles represent a change in sentiment to me. The (almost) dragon fly doji is a potential reversal signal. The longer tails on the previous two candles are also more positive, both touching $8 and pulling back. Also close to 200d ma which might provide support also.

Of course anything can and will happen.

Would like to see a higher low and high for a start.

Not out of the wood yet IMO, but I might be too conservative and am always in too late.

Looks to me like around $9.00 is going to be some trouble. I'm sticking with my call that a higher low and high it required. Breaking $9.10 ish is probably getting there.

Well done to you guys that had the courage to get in at what looked to be a reversal at $8.00.

 

[Uncle Festivus]

Re: PDN - Paladin Resources

Interesting Kennas. Telling signs in early trading when looking at the tape action which showed a persistent buyer @ 851 all morning then it just exploded with the afternoon rally, finishing near the high & up 4% for the session. More important was the good follow up volume. Failed to break the trendline, so may re-trace a bit? Any elliot people care to comment?

 

[Kauri]

Re: PDN - Paladin Resources

As per my earlier posts..for my entry to be triggered I need a pullback to form a W2...my entry would then possibly come in on the following W3... mind you sometimes it doesn't pullback and I miss out.. story of my life but that is another story.....

 

[Sean K]

Re: PDN - Paladin Resources

As per my earlier posts..for my entry to be triggered I need a pullback to form a W2...my entry would then possibly come in on the following W3... mind you sometimes it doesn't pullback and I miss out.. story of my life but that is another story.....

I'd expect there to be some hesitation just under $9.00 and that downward trend line Kauri. But you're right, might have missed out on a dollar + by then. On the other hand, how many times have you seen a stock stop under resistance, and fail? Will be interesting to see how it plays out, if not just for education.

 

[Kauri]

Re: PDN - Paladin Resources

I'd expect there to be some hesitation just under $9.00 and that downward trend line Kauri. But you're right, might have missed out on a dollar + by then. On the other hand, how many times have you seen a stock stop under resistance, and fail? Will be interesting to see how it plays out, if not just for education.

Kennas
Yes, for me correct entries are everything... I'm still sporting a black-eye from the last time I tried to nail the bottom... ..

 

[j4mesa]

Re: PDN - Paladin Resources

The going ups of PDN (4.01%) is also folllowed by the going ups of ERA (10.18%).
Fundamentally, is this the sign of the coming back of the uranium sector ?
We shall see what happens tomorrow....

 

[Sean K]

Re: PDN - Paladin Resources

Gapped up to just under 9 and has paused. Slightly outside downward trend line. Potential breakout at this moment perhaps.

 

[Kauri]

Re: PDN - Paladin Resources

11 June...In (my) perfect world we would have a fake of the horizontal support that closed up at its high on high buying volume that also co-incided with the typical larger W(4) and also the typical intermediate W5 and that also came close to the trading chanell. If a strong buyer supported minor W1-W2 then happened I would probably be in with my ears pinned back.. : .. Now back to work on my Lotto system...

Hi Kennas,
Kind of frustrating when everything plays out the way you wanted.... all except the entry .. may pull back yet and provide an opportunity to get in but the RR for a long-term trade may not be there(for me).. maybe a shorter-term trade though.. if not there are plenty of other stocks out there..
Cheers
Kauri

 

[chris1983]

Re: PDN - Paladin Resources

hmm..still could run further? I sold too early..thought it might pullback..doesnt look like it will I was going to hold till 9.50..too bad I dont follow my own advice to hold also!

 

[Uncle Festivus]

Re: PDN - Paladin Resources

This ones off & running gents. Don't miss the boat while thinking of what could have been
_________________________________________________________________

 

[rapidex]

Re: PDN - Paladin Resources

Solid breakout looks in place. Strong volume too over the last week or so. Looking good at the moment. Looks like a number of U stocks coming back into flavor.

 

[Kauri]

Re: PDN - Paladin Resources

Has tried to pull back into a W2 but not really convincing yet... if it is extremely bullish it may get away with a 25% pullback but it leaves me out for an acceptable RR longer-term trade... just might be a chance for a shorter-term trade though?? Time will tell...

 

[It's Snake Pliskin]

Re: PDN - Paladin Resources

Has tried to pull back into a W2 but not really convincing yet... if it is extremely bullish it may get away with a 25% pullback but it leaves me out for an acceptable RR longer-term trade... just might be a chance for a shorter-term trade though?? Time will tell...

Kauri,

What R/R do you look for?

I see from entering now a 3x oportunity - but that is in my world and derived from my acceptance of where the risk lies.

I just picked up some at $9.01.

 

[Kauri]

Re: PDN - Paladin Resources

Kauri,

What R/R do you look for?

I see from entering now a 3x oportunity - but that is in my world and derived from my acceptance of where the risk lies.

Hi Snake,
On the longer-term part of my trading I look for 4xRR... on the shorter-term part I look for 2xRR... not basd on my trading strike rate as such but on backtesting of the results to give me the optimum number of trades with close to the optimum return... With an entry of $9.26 and a stop at $7.91 and a likely wave5 area of $14 odd I come up closer to the 3xRR area If it does take off without me there is always a good chance of jumping on later on in the wave on a shallower correction...
As my old father used to tell me constantly.."Nothing is foolproof to a talented enough fool"...
.....Cheers
.........Kauri

 

[It's Snake Pliskin]

Re: PDN - Paladin Resources

Hi Snake,
On the longer-term part of my trading I look for 4xRR... on the shorter-term part I look for 2xRR... not basd on my trading strike rate as such but on backtesting of the results to give me the optimum number of trades with close to the optimum return... With an entry of $9.26 and a stop at $7.91 and a likely wave5 area of $14 odd I come up closer to the 3xRR area If it does take off without me there is always a good chance of jumping on later on in the wave on a shallower correction...
As my old father used to tell me constantly.."Nothing is foolproof to a talented enough fool"...
.....Cheers
.........Kauri

Thanks Kauri.

As I am pure discretionary I like anything higher than 2x, including 2x. My bias is to take short term near sure trades that can exhibit 2x and try at least for 3x for the longer term ones. Maybe my stop is too tight on this one:$8.40
Entry $9.01 taken not long ago.

Cheers..

 

[Kauri]

Re: PDN - Paladin Resources

Thanks Kauri.

As I am pure discretionary I like anything higher than 2x, including 2x. My bias is to take short term near sure trades that can exhibit 2x and try at least for 3x for the longer term ones. Maybe my stop is too tight on this one:$8.40
Entry $9.01 taken not long ago.

Cheers..

Snake,
$8.40 looks good from a Wycoff view, I have been trying to incorporate Wycoff principles into my E/W plan but so far with limited success... hard to track down good info on it..
.....Cheers
........Kauri

 

[It's Snake Pliskin]

Re: PDN - Paladin Resources

Snake,
$8.40 looks good from a Wycoff view, I have been trying to incorporate Wycoff principles into my E/W plan but so far with limited success... hard to track down good info on it..
.....Cheers
........Kauri

Kauri,

Yes material is hard to get and I personally don't use it 100%. I am a hybrid

Some discussion and analysis of the hindsight kind for PDN.

A breach of $8.40 I see as bearish and time to get out until it is clear what it wants to do.

Cheers

 

[dj_420]

Re: PDN - Paladin Resources

article found on PDN, fairly lengthy had to split it up over three posts

Uranium, Paladin
By Charlie Aitken

Our focus is on long duration themes supported by strong industry fundamentals. We believe an investment strategy with a macro top-down view, which is complemented by a micro bottom-up analysis, highlights real investment opportunities and long-term outperformance. This strategy can be even more self-fulfilling if the theme is supported by Government policy and incentives. In this context we believe the resurgence of the global uranium price represents the emergence of new genuine long-term bull market.

Positive fundamentals

The long term fundamentals of the uranium market remain very strong, with a significant increase in global demand, against a backdrop of future supply shortages, supported by the first synchronised effort by world Governments to reduce global carbon emissions. There is no doubt that global warming is a very major issue for political parties worldwide, seeking to reduce the dependence on fossil fuels and promote the usage of clean energy alternatives.

The uranium supply

Interestingly, the uranium market is supported by precisely the same supply constraint characteristics as base metals. Decades of low uranium prices (U3 O8) previously discouraged any investment in future primary production. As a result, there are major production constraints and serious delays in the supply response to the increase in global demand.Since 1985 static mine production has resulted in up to 50% of reactor uranium requirements sourced from secondary supply.

The uranium supply side is unusual in commodity markets considering a large proportion is sourced from secondary sources and stockpiles. However, both these sources of supply are currently under serious threat.The two main sources of uranium supply have been Western inventories accumulated from the shutdown of reactors, and the Highly Enriched Uranium (HEU) supply form nuclear weapons. However, the security of this supply is problematic with the rundown in Western inventory supplies to critical levels of just 12 months reactor feed.

In addition, the future HEU supply from nuclear weapons is also in doubt with the Russian government recently announcing that it would not continue the “Megatons to Megawatts” programme when it expires in 2013.This program has been the major source of secondary supply and its imminent closure has serious ramifications for Western World supply. It is worth noting that in 2006, according to World Nuclear Association (WNA) figures, the deficit between mine supply of 39,655kt, and global demand was a massive 40%.In other words, last year secondary supply totalled 22,981kt.To put this in context, Cameco is the world’s largest producer with production of 8,039kt last year. There is a critical and structural uranium supply deficit, which is expected to deteriorate significantly unless new supply is commissioned.

No cigar thanks.

However, the mine supply response has recently suffered a huge blow with the flooding of the massive Cigar Lake project in Canada. The reserve estimate of 100kt was expected to support initial production of 2kt pa in 2008 before ramping up the full production of 8kt pa in 2010. The problems at Cigar Lake are expected to delay first production until 2009 at the earliest. Elsewhere there is some new supply expected to be commissioned before 2010 ex Cigar Lake, but the majority is expected to come form Kazakhstan. Yes, uranium is Kazakhstan’s second best export after Borat. However, Kazakhstan is suffering massive skilled labour and infrastructure shortages and new production is expected to suffer serious delays. We believe a meaningful uranium supply response will be delayed until at least 2011.

The implications of the unexpected delay in the Cigar Lake project cannot be underestimated. Considering there is a 4-5 year lead time to convert uranium to a reactor fuel source, utilities require long dated contracts of at least 5 years for security of supply. Consequently, the massive spike in the uranium spot price is reflecting a significant gap in the supply horizon. Despite the market scepticism, we think the current uranium spot price is very sustainable for at least the next 4-5 years.

Tight supply

The static nature of global uranium production is highlighted by production figures from the World Nuclear Association (WNA).Global production from 1998 averaged 34,665kt pa, for the 6 years to 2003.New supply resulted in a small increase in production in 2004 and 2005 before falling 5% to 39,655kt last year. This was entirely due to a 20% fall in mine production from ERA’s ranger mine. Importantly, the global uranium industry is an oligopoly, so even a small problem with one incumbent producer has a disproportionate impact on global production. We think the uranium market is another perfect commodity storm, with supply disruptions occurring against a backdrop of rising demand and chronically low inventory levels. Sound familiar? I think the playbook has already been written in the base metal markets.

Reactor requirements.

The major source of uranium demand is for base-load electricity generation. The International Energy Agency (IEA) projects a doubling of world electricity demand by 2030, creating the need for some 4700 GWe of new generating capacity in the next quarter of a century. According to the WNA figures, from 2010 to 2020, Asia comprising mostly China, Japan, India and South Korea, will account for about 36% of the world’s new electricity generating capacity, of which nearly 40% will be sourced from nuclear power. In East and South Asia there are currently over 109 nuclear power reactors in operation,18 under construction and plans to build a further 110.

BRIC demand

Already in some parts of Asia, nuclear power forms a large part of total electricity generation. Currently South Korea and Japan generate 45% and 30% respectively of electricity through nuclear power using roughly 18% of world uranium production. However in China, nuclear power produces just 1.4% of electricity generation, and only 4% in India. Historically China has generated the vast majority of electricity through its enormous coal reserves, however recently China has now become a net importer of coal for the first time. We believe there is potential for China and India to massively increase electricity generation through nuclear power. In a similar scenario to base metals, we believe the BRIC economies will drive a significant increase in nuclear power.

The WNA reported that in May this year there were 437 operable reactors worldwide supplying about 16% of the global energy requirements. However as we have noted, the current figure is set to change rapidly with the planned additions to nuclear powered electricity generation in Asia from 2010.

Europe renaissance

However, in Europe the tide appears to have turned full circle in favour of nuclear power in just a few years. Only two reactors had been built in Europe since the Chernobyl disaster. However, recently the UK Government admitted nuclear power was back as an alternative energy source, and in Germany, the Government admitted that closing nuclear plants was ill advised and the country needed a balanced energy mix.

The turnaround in Europe is for two reasons-the monopoly position of Gazprom as an energy provider to Europe, and the determination by governments world wide, to cut greenhouse gas emissions. The WNA estimates that the total fuel costs of a nuclear power in the OECD are typically about a third of those for a coal-fired plant and between a quarter and a fifth of those for a gas combined-cycle plant.

Finally it appears that the long held irrational fears of nuclear power are beginning to fade. It is amazing that despite the paranoia there are over 400 reactors currently operating worldwide.

 

[dj_420]

Re: PDN - Paladin Resources

Nuclear, gas or coal

The economic cost of comparing electricity generation between nuclear, coal and gas is complicated by the capital cost of building a reactor. It varies enormously between countries. In addition it is also complicated by the relative access to fossil fuels, hydro-electric power etc.

However there are few obvious advantages over fossil fuels. Firstly uranium has the advantage of being a highly concentrated source of energy which easily and cheaply transportable. In addition, the quantities needed are very much less than for coal or oil. One kilogram of natural uranium will yield about 20,000 times as much energy as the same amount of coal.

Secondly, the contribution of nuclear fuel to the overall cost of electricity produced is relatively small. Therefore even a large uranium price escalation will have relatively little effect on cost. For example a doubling of the uranium price will increase the reactor fuel cost by 26%, but the electricity cost by just 7%.However a doubling of the gas price will typically add 70% to the electricity cost. This will be very significant advantage for nuclear power in a “higher for longer” commodity cycle.

Thirdly, nuclear power has always been characterised by a combination of higher construction and lower operating costs compared to fossil energy. However, the capital cost of building nuclear generating capacity has fallen significantly over the last few decades. In 2003 the Energy Information Agency (EIA) estimated a starting point of $2083kW for nuclear power electricity generation. However just 4 years later, the new generation Westinghouse reactors are in the range of$1000-1500 per kW. As a result, the WNA estimates that nuclear fuel costs in the US have fallen from 1.28c per kWh in the mid 1980s to only 0.44 cents per kWh today.

Global warming.

The other huge and long term positive for the economics of nuclear electricity generation is global warming. There is no doubt that greenhouse emissions have become the number one political issue for governments worldwide. In addition, as fossil fuel begins to incur costs through carbon taxes or emission trading schemes, the competitiveness of new nuclear plants clearly improves significantly. his is particularly so with the comparison of coal-fired plants because they are so carbon intensive.

The increased competitive position of nuclear power under a carbon tax regime is highlighted by a recent study by the Canadian Energy Research Institute (CERI).The study assumes imposing a carbon tax of C$15 per tonne of emitted CO2. The impact is to raise the generating cost of a coal plant by 27% per MWh, which is line in line with nuclear cost in Canada, whereas a gas plant rises by about 8%.It is worth noting that this study assumes a static cost of commodity prices in the future, which is highly unlikely. Clearly the impact of a global missions trading scheme will be huge positive for electricity generation through nuclear power.

Pricing power

In the light of the supply constraints, and the concentration in the power of the producers, there has been a distinct shift in pricing power from consumers to miners. The result is a change in the nature of contract pricing to a price floor with no caps, and a larger proportion of market linked pricing mechanisms rather than fixed. Currently about 15% of uranium is sourced through the spot market while long term contract price account for 85% of the balance of global supply. In addition, the duration of contracts are changing from 3-5 years to longer dated 10 year contracts as utilities seek security of supply.

Yellowcake and it eat it too.

The case for a sustained long term bull market for uranium is compelling. There is a structural not cyclical, long term supply deficit of uranium. In addition, any meaningful increase in production is not expected until 2011 and that is only expected to supplement the terminal decline from secondary sources. In addition, global inventories are now virtually non-existent.

Further, global electricity generation demand is expected to double out to 2030, and the world is committed to lowering greenhouse gas emissions by imposing a carbon tax regime.

At the same time electricity generation through nuclear power is more cost efficient compared to fossil fuels. This not rocket science it is about electricity generation. Uranium is green, clean, lower cost and a longer term alternative to fossil fuels power generation.

Analysts are currently factoring in a long term uranium price of approx $US40 -50lb.However just like the dramatic increases in long term oil assumptions we believe consensus forecasts will prove too conservative. We think the long term fundamentals support a uranium price remaining above $US100lb for at least the next decade with the potential for spot price spikes higher than the current level of $US135lb.This has significant implications for current producers to benefit from substantially higher contract prices, while the incumbent uranium remain fixed on legacy contracts of $US25-30lb.In this context Paladin (PDN) as a producer is in a unique position to lock in windfall profits for the next decade.

Paladin: $5bil market cap and nobody owns it

Paladin is a W.A development and exploration company focused on advanced stage uranium projects. It completed the construction and commissioning of its first mine, Langer Heinrich in Namibia, on time and on budget at the end of last year. PDN commenced production this year. In addition, PDN has the Kayelekera project in Malawi currently under review with the possibility of production by late 2008.Further PDN the potentially very large Valhalla project. Paladin also has several less advanced uranium projects such as Manyingee and Oobagooma projects in W.A.

Summit (SUM)

In July 2006 management initiated a $174m successful scrip bid for Valhalla Uranium Ltd (VUL).Valhalla’s main project is a 50% JV with Summit (SMM) in the Valhalla uranium deposit in Qld. Subsequently Paladin bid for SMM, and after a bitter battle, announced at the close of the offer on June 1, a relevant interest of 81.82%.

Langer Heinrich

The Langer Heinrich deposit is located 80km east of Walvis Bay, Namibia’s major sea port, and 40km south of RIO’s Rossing uranium mine. The original company forecast was for production of 1.2kt pa (3.2Mlbs) from a resource of 33kt U3 08. However, this been extended through drilling to 47kt.This has allowed PDN to consider a Stage 2 expansion, which is expected to start in 2009, enabling an increase production to 1,800kt pa. The big upside is the low cost option of increasing production by 50%.

Due to the mineralization of the deposit, the plant is using an alkaline leach process as opposed to the more common acid leach process. This is the first alkaline leach used in an open cut; however the majority of the In-situ Leach operations have been using alkaline leaching for 20 years.

In addition, the Langer Heinrich project is a low cost operation with cash costs estimated by the company at approx $US18lb.Considering the current uranium spot prices of $US138lb, and contract prices of $US95lb, this makes the 50% EBITDA margins of the iron-ore companies look very ordinary by comparison. It is important to note that uranium production is a bulk mining exercise but the uranium producers are receiving base metal price premiums.

The Langer Heinrich deposit remains highly prospective with the ore body open in some areas. Further, PDN has acquired an exploration licence immediately west of the current mining licence. Our current estimate of the mine life is 17 years which includes the Stage 2 project, and assumes a 76% conversion of current resources to reserves. Given the Heinrich mineralisation we think this is reasonably conservative.

The total capital requirement for the project has been estimated at $US230m over the life of the operation, with Stage 1 already complete. However the economies of scale for the Stage 2 expansion is expected to cost a fraction of Stage 1.

PDN has a strong balance sheet and remains well funded after the commissioning of Stage 1. At the latest quarterly, the company confirmed a cash position of $US257m.

 

[dj_420]

Re: PDN - Paladin Resources

Unhedged and fully leveraged.

PDN has already committed 50% of Stage I production to a long term contract at $US60lb with an escalator for price participation above $US80lb.This is well above the legacy contracts for the incumbent producers of $US25-30lb. However the other 50% of production is expected to be sold into the spot market where the current price has risen to $US138lb.In addition, PDN is totally unhedged and fully leveraged for 50% of production to the spot price. Considering PDN recently announced production delays due to operational issues, the subsequent rise in the spot price is big positive. As a result, PDN is in a very advantageous and highly profitable position compared to the global peer group.

Namibia

In addition the Namibian Govt has recently reduced its royalty on uranium mining from 5% to 2%. This highlights a very important issue for mining companies operating in foreign countries. The Namibia Govt clearly supports, and is keen to encourage, global mining companies to develop Namibia’s mineral wealth. By example, RIO has been operating its JV Rossing mine in Namibia, which is only 40km away from Langer Heinrich, for years with minimal Govt intervention.

FY production on target

Recently PDN has experienced some operational issues at Langer Heinrich that have subsequently been resolved, and the ramp up in production has resumed. As a result, on June 13 the company downgraded the initial June 30 production target of 400,000lb to 270,000lb.

Our forecasts already included a more conservative 326,000lbs in anticipation of initial plant teething problems. However, management confirmed “that the plant is now quickly reaching the end of the transitional phase and will move into full production forecast production”. Importantly PDN has confirmed the previous production target of 2.6mlbs or 1,179kt for FY 08 compared to our FY 08 forecast of 1,134kt.

Kayelekera

PDN also has the Kayelekera project in Malawi with the possibility of production by late 2008.Malawi while poor, is relatively stable with a democratic country. In fact a person on our trading desk has actually visited Malawi and has returned to confirm the story. Kayelekera has a mine life of approx 13 years and is expected to ramp up to full production of 1,500lbs pa by the end of 2010.The technical risk is viewed as low and considering the mineralisation the more conventional acid leach process is possible. Recently there have been reports that the start up date will be delayed due lack of energy availability and access to the local electricity grid. However PDN has reiterated the original proposal was based on on-site diesel power generation on figures submitted to the Malawi Government.

Valhalla

We believe Valhalla is the jewel in the crown. Valhalla is an advanced high grade exploration project, near Mt Isa with the promising Skal deposit 10km to the East. The current resource is estimated at 31kt, but we think this will prove very conservative considering the ore body is open on all sides. After an expected start up in 2012, Valhalla is expected to ramp up to full production of 3kt pa, however we think this will be significantly upgraded. In addition it gives PDN access to the Bigrlyi deposit in the NT where the resource has recently been upgraded by 26% to 14.3mlbs or 6400kts.

PDN originally acquired 50% of Valhalla for $A174m and subsequently bid and acquired SUM, which owned the other 50%.However, in the course of the takeover Areva the world’s largest marketer of uranium acquired 10.46% on market at $6.10.

This was after Areva failed in an attempt to take 9% of SUM at $6.20 in a placement, with an option to take a further 9% at $7.20.

However, Areva has really endorsed the value of the Valhalla deposit considering the cost of their 10.46% stake was $132m.I am a pretty simple guy but this values Valhalla at $A1.26b compared to PDN’s original purchase of $174m for 50%.This has created some serious shareholder value for PDN shareholders. It is worth noting that Areva is the world’s largest utility producer of nuclear powered electricity. I think they have a fair idea of the long term value of uranium.

Radioactive upside

After the Langer Heinrich Stage 2 expansion, full production is expected to be 1,800ktpa by FY 09 and rising to 3250kt with Kayelekera by the FY 2010.On 2006 global production levels, this would place PDN above RIO as the world’s 6th largest uranium producer.

Tradetech the uranium industry body has reported that the spot price recently reached $US138lb and the long term price, which is equivalent to the bottom of the contract price range, has risen by $US10lb to $US95lb.PDN is totally unhedged and has exposure of 50% of production at spot prices. At the current spot price based on the relationship between the share price and the uranium price that has existed for the last few years, PDN is worth between $13-14.

However the upside case for PDN is highlighted by the sxr Uranium One $US3.1b bid for UrAsia to form a $US5b company with a global footprint of uranium assets. The bid values UrAsia’s resources at $US31lb compared to $US16lb for PDN. Applying the same implied EV/lb multiple, PDN is worth $19 per share.

PDN is a serious company, with some very serious credentials, however it appears that institutional shareholders are viewing PDN with the same scepticism as FMG. We all know attitudes are changing towards FMG and clearly they are about to change towards PDN. There should be no doubt that PDN shares could easily “do a Fortescue”.

If you believe in the long-term growth of the nuclear power industry you should be buying PDN. We see PDN needing a “big brother” to accelerate its growth prospects, and we wouldn’t be surprised to see a larger corporate have a tilt at it. Xstrata could be that big brother.