Dundee 2015-08-10 - Buy Rating Target C$0.50

Quoted from the report:

We recommend Paladin Energy as BUY with a target price of C$0.50 per share.

Expect another strategic alliance. Rather than Borshoff trying to rationalize performance (PDN off 50% over 3 months), we believe the latest series of “out of character” releases are about valuing PDN for a deal: early operating results; uncharacteristic cash/cost disclosure; and 2016 guidance/cost reductions….all before FQ1/16 financial results are due in late August.

Read-through: streamlining, M&A activity. Major shareholders and the Board felt more can be done to optimize CF, with a goal of neutral at current prices. With bond roll-over necessary in 2017, balance sheet improvement is paramount. It's likely Mr. Borshoff recognized what was necessary, but as builder and founder, perhaps wasn't prepared to make hard decisions. There are few operational issues, but we speculate asset sales and corporate streamlining might be needed. Mr. Molyneaux arrives as an outsider with investment banking experience, to accelerate corporate cost reduction, and to spearhead further strategic alliances. This might even mean that PDN is a potential take-over target itself. Borshoff will help transition over the next 6 months and is reportedly supportive of the necessary steps. Expect an update on 28-Aug-15.

We expect Langer Heinrich to continue to profit, even at current low U3O8 prices, highlighting its excellent leverage to rising prices. Given further corporate streamlining and potential take-over, we believe that PDN suddenly may appeal to a wider range of investors.