2 leg down to be devastating, page-63

cugs,

PDN have lived on hype for a long time. I bought in latish and now free-carry my holding by selling half recently at $8.30.

IMO given PDN are a producer ramping up production they have a lot more going for them than most other specs - the thing they now lack is "speculative value" though which largely supported the $10.00 SP.

SMM was a BIG mistake - paid far, far too much for an asset the can't even mine as it is in QLD. This seems to me to have been more an issue of trying to avoid legal action than anything else. PDN have been punished badly for this even before the downturn.

Working on cashflow/profit.

They say it is costing $28/lb to extract U so their profit is around $90/lb. This may go up as reserves of U are depleted.

Current production will soon be 3.5 million pounds per year and in a few years over six million pounds per year.

So we are looking at profit rising to about $300m shortly and to maybe $600m in a few years.

Current MC just over $3.3 Billion (blown out enormously by DUMB takeover of SMM). Also don't forget the value of bonds sold in Singapore which are guaranteed return (which is now a bargain given fall in SP).

Given they are in Africa with increased political risk (look at Nigeria at the moment) I would not apply a PE ratio about about 7-8.

Based on this I give a value of $2.5B on current producing activities and $2.5B based on activities in a few years time, which I would discount by 50% for time and risk.

So I think total real + spec value based on the next few years is $3.5Billion to $4Billion MC which works out to about $6.00-$6.50 - little above the current SP ($5.50).

I would be buying below $4.50 to give me a potential decent profit margin.

I can't see them fall to $2 given the shortage of U at the moment - it would be such a screaming buy at anything below $4 that institutions would mop it up.

This is allowing nothing for Aust asset's, which may be a little harsh seeing they just payed about a billion for SMM. If the potential extra value from future Australian operations, esp those in SA/NT which may be mined shorter term, are taken into account then I suppose you could add $1.50 to $2.00 to the above valuation.