Paladin Energy (ASX/TSX: PDN) remains the best emerging uranium play in the world today. It seems abundantly clear that demand for uranium as a feed source for nuclear power will underwrite the commodity’s demand, so the variable factor becomes securing resources and delivering profitable production. Paladin can achieve both.
Former ‘oil’ man, Peter Garrett has become a uranium convert it seems. In his capacity as Environment Minister, he has approved Alliance Resources’ Four Mile Deposit in South Australia, making it only the third uranium mine approved in Australia in 20 years.
Uranium continues to be a hot topic in the market with long-term demand fundamentals underwritten by the surge in nuclear power plants to be commissioned over the next decade.
Fat Prophets gained effective entry to Paladin Resources via Valhalla Uranium in July 2006. Our effective entry price was $1.26. Our last review of this stock was in February (FAT 414).
Since our last review in February, Paladin Resources has posted further gains, reaching a high of $5.52 in June. The break above the $3.80 to $4.05 resistance region is an encouraging sign, returning momentum to the upside.
Furthermore, previous resistance is now providing support. To date, the depth of the recent correction has been limited to $4.33. The upward sloping trend line further strengthens the $4.05 to $3.80 region as support.
From a broader perspective, while the gains over the past nine months are an encouraging sign, the pace of these gains is likely to be unsustainable. Combined with significant chart resistance overhead, we cannot rule out a period of consolidation, before higher levels are achievable.
We recently reviewed Paladin in our mining report (FAT-MIN-180) for those Members who have access to this. In that report, we looked at Paladin’s newly-commissioned Kayelekera uranium operation in northern Malawi and its existing Langer Heinrich operation in Namibia. Paladin has an 85% interest in the Kayelekera Uranium Project.
At Kayelekera, the news is all good, despite project work a little behind schedule and over budget. Construction work at the remote mine is now complete, with the acid treatment plant the only outstanding item. Other than raising the height of the tailings dam for US$10 million, there is nothing else to do except commence mining and treating the ore.
It’s a fairly small annual tonnage operation at around 1.5 million tpa with a low mining strip ratio of around 1.7:1. The plant can expand to handle 3 million tpa through the crusher giving the mill a capacity of 2.25 million tpa.
So far, the company has produced 5,500 lbs of uranium at Kayelekera and is targeting nameplate capacity of 3.3 million lbs per annum by January 2010. Production costs should be around US$30 per pound, which compares to current spot prices of US$55 per pound.
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