rbc on paladin summit

RBC EQUITY | RESEARCH Research Summary
February 27, 2007 6
includes the risked value of future expansions.
Paladin Resources Ltd.
(ASX: PDN; TSX: PDN)
Outperform/Above Average Price: $10.01 Target: $12.00
Chris Lancaster, Analyst (61 2) 9033 3060 All values in A$ unless otherwise noted.
Event
PDN has announced a scrip bid for Summit Resources Ltd (SMM), listed in both Australia and New Zealand.
Investment Opinion
Offer Terms. PDN’s offer of 1 share for every 2.04 SMM shares, implies a price of A$5.12/SMM share based on the volume weighted
average price of PDN on the ASX over the prior 5 trading days (SMM closed today at A$5.12). It values SMM at ~A$1,011m and
represents a premium of ~30% to the volume weighted average price of SMM shares on the ASX over the 5 prior trading days and a
28% premium to yesterday’s close. There is no minimum acceptance condition to the offer.
Summit Resources. SMM is a WA based company with interests in uranium and other projects in Queensland. Its most advanced is the
Valhalla uranium project situated near Mount Isa. Together with the Skal prospect, this forms part of the Isa Uranium JV, of which
SMM is manager and holder of a 50% interest. PDN holds the remaining 50%.
Queensland Politics. The Australian Federal Labor (Opposition) Party is currently opposed to removal of its “no new uranium mines”
policy. While we acknowledge that forecasting political outcomes can be problematic, we believe that the Federal Opposition is likely
to overturn its ban at its conference in April 2007. We note that the recently appointed leader is pro-uranium mining. Subsequently, we
believe it a matter of time before the various Labor State Governments fall into line with their Federal counterparts. The Queensland
State Government is also Labor and currently against uranium mining.
Earnings and Valuation. No change to our forecasts for F2007 and F2008 of A$0.00 and A$0.28 respectively. Our F2009 forecast has
decreased marginally from A$0.55 to A$0.54 due to an increase in the number of shares on issue. Our DCF derived valuation using an
8% real discount has decreased for the same reason from A$10.06 to A$9.96.
Recommendation. PDN already owns 50% of the Valhalla/Skal project. The fact that this bid contains has no minimum conditions
should ensure a rapid outcome. While it could be argued that PDN could have undertaken this transaction at a substantially lower price,
it is worth noting that 1). the offer is scrip, and 2). PDN’s price has also increased appreciably in the recent past. Compared with recent
uranium acquisitions, PDN is paying ~US$23/lb of SMM’s uranium resource. This compares with >US$30/lb that SXR paid recently
for UrAsia. We will await further developments but for the moment our Target price of A$12.00 is maintained and our recommendation
of Outperform with Above Average risk is unchanged.