fosters morning buy report blr - pdn

Morning Report Tuesday 19th June 2012
Japan restart nuclear reactors, demand, prices and equity valuations to increase. Preferred producer and Developers/Explorers (PDN and BLR)


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Paladin Energy Ltd - (PDN.ASX, $1.29/sh, Mkt Cap $1.1B) – TRADING BUY PT $1.60/sh

PDN provides the greatest leverage to the expected increase in the uranium price. It’s growth profile remains one of the most attractive in the uranium industry which through its Langer Heinrich and Kayelekera operations in Namibia is seeking to increase production from ~5.7Mlbs in FY11 to ~7mlbs in FY12.
Despite some teething issues as processes and operations are bedded down from its recent expansion, production has continued to increase with 1.8Mlbs produced last quarter and guidance of 7Mlbs for FY12. We also view the recent $200m (redeemable 2017) convertible note issue as a positive for PDN given it removes concerns regarding the looming maturity of the 2013 bonds and the company’s ability to fund its short term debt position from operating cash flows and should serve to improve investor confidence in the company.
We have previously highlighted PDN as a potential M&A target given its production status and exciting growth profile. The most obvious suitor would be uranium giant Cameco who recently filed a prospectus to raise $1B (despite a healthy balance sheet of $1.3b) signalling it could be on the acquisition path. TRADING BUY PT $1.60/sh

Black range Minerals Ltd - (BLR.ASX, $0.021/sh, Mkt Cap $18m) – SPEC BUY PT 0.07/sh.

BLR is progressing towards production its flagship Hansen/Taylor project located in Colorado USA. The total portfolio contains JORC Resource of 90.9Mlbs U3O8 at a high grade of 600ppm, making it the third largest uranium resource in the USA. The advanced Hansen deposit is the focus of studies and development with a 19.8Mlbs JORC resource at an exceptionally high grade of 1,270ppm (750ppm cut off).
Recent Scoping Study confirms Underground Bore Hole Mining (“UBHM”), ablation and off site milling as the preferred development approach given it is the most cost effective (capex ~US$80m, opex US$29/lb) and more environmentally acceptable solution. Removal of on-site milling of uranium may shorten the permitting timeline and create a significant advantage in the permitting process and timetable to production.
Indicative economics are highly compelling, based on a 2Mlb/pa production profile using UBHM/Ablation and off-site milling, highlights potential annualised EBITDA of $67m and a short payback period of <2 years. We have assumed C1 cash costs of $29/lb and a L/T realised price for the concentrate of $63/lb.
The recent appointment of managing director Tony Simpson is also another positive development given he was formerly Chief Operations Officer at Peninsula Energy (PEN.ASX) and directly responsible for the successful exploration and permitting activities at Peninsula’s Lance Uranium Project in Wyoming, USA.
BLR is trading at $0.29/lb, a significant discount well below the ASX and TSX peer group for uranium explorers/developers average of $1.14/lb. We believe this discount is unwarranted given size and grade of the deposit, location in a pro-uranium jurisdiction and highly experienced management team. SPEC BUY PT $0.07/share




Stars are aligning


Cheers from G64


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