the great paladin half price sale, page-6

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RBC turns colder on uranium, downgrades Paladin

Darcy Keith |
Published Wednesday, Jun. 08, 2011 2:31PM EDT

RBC Dominion Securities Inc. is turning more bearish in its outlook for uranium as the hit to demand from the Japanese nuclear crisis becomes more clear. But it continues to believe that investors in the sector with a long-term view - and a lot of patience - will be rewarded. The spot price for the commodity has dropped to about $56 (U.S.) per pound from its February, 2011, high of $73, just before the Japanese earthquake.

RBC, which had stayed relatively upbeat on the uranium sector after the crisis, this week lowered its average price forecast for 2011 to $60 from $69. And it didn't stop there. In 2012, it sees an average price of $65, down from $77.50, and for 2013 it slashed its forecast by $10 to $70.

Notably, RBC left its forecasts untouched for 2014 and 2015, still expecting an average price of $80 in both years.

"Based on our forecasts of available uranium supplies, we do not think that there is sufficient uranium to cover the needs of 2014 to 2020," RBC said in a research note. It expects the market to start showing some initial signs of a recovery some time in the next 12 to 18 months, when utilities are likely to begin to see increasingly tight supplies for long-term contracts.

RBC analyst Adam Schatzker sees there being at least one supply-side casualty of the lower uranium prices: Paladin Energy Ltd.'s (PDN-T2.86-0.19-6.23%) stage four expansion at its Langer Heinrich project in Namibia.

He said the project's economics are "questionable" at prevailing prices. Eliminating the expansion from his model shaved off 40 cents per share from his estimated net asset value for the company.

Downside: Mr. Schatzker downgraded Paladin to "sector perform" from "outperform" and reduced his price target to $3.25 from $4.50.

"In our view, Paladin remains a quality company with unparalleled uranium mine development expertise. It is the only large-scale producer that does not have a dominant shareholder or restrictive ownership policy," and could therefore could be subject to a takeover, he wrote.

"However, Paladin continues to struggle to attain positive earnings per share and we think that shareholders will need to see sustainable production and cash costs at both Langer Heinrich and Kayelekera (in Malawi) before they are willing to ascribe higher multiples to Paladin's shares."

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/eye-on-equities/rbc-turns-colder-on-uranium-downgrades-paladin/article2051899/