Paladin Energy (ASX:PDN) shares have had a volatile 2024 as investors have focused on large movements in an illiquid uranium spot price. Despite this, a recent announcement of a major acquisition, as well as positive Company updates on the Langer Heinrich uranium project led us to revisit PDN down at these levels. Do investors now have a second chance to purchase PDN at cheaper levels?
About Paladin Energy
Paladin Energy is a globally significant uranium developer and exploration company with a 75% stake in the Langer Heinrich (‘LH’) project in central western Namibia. The remaining 25% interest is held by CNNC Overseas Uranium Holding (CNNC), one of China’s largest nuclear operators.
The LH project is significant in the context of global production, estimated to account for ~3% of global production in calendar year 2025.
Beyond Langer Heinrich, PDN also owns a large global portfolio of uranium exploration and development assets located in Canada and Australia which show strong uranium potential. In June 2024, Paladin announced the acquisition of the Patterson Lake South (PLS) underground uranium project in Canada. Following the acquisition, PDN becomes the 3rd largest listed uranium resource owner globally.
Key Fundamental Drivers
Realistic Production Guidance for LH
First commercial production at LH was achieved on 30 March 2024 and on schedule. The Company’s principal focus now shifts to sustainably ramping up production and building finished product inventory, ahead of shipments to customers. LH will be in operational ramp up during FY25, with ore feed to the plant sourced from previously mined stockpiled ore. Production levels are expected to be higher in the second half of the year.
The ramp up at LH remains on track with operating metrics (throughput, recoveries, processed grade etc). However, sales and revenue in FY25 will remain lumpy on a quarter-on- quarter basis, making it difficult to estimate heading into results periods. Over FY25, these results should balance out. Mining activities are expected to re-commence in FY26 ahead of achieving nameplate production of 6Mlb per annum. by the end of calendar year 2026.
Industry Fundamentals Remain Supportive
The key supply-side factors supporting uranium producers are Russia/Ukraine geopolitical tensions and supportive government policy from the US, China and India. Uranium is increasingly being seen as an important (and reliable) energy source to meet the world’s decarbonisation targets.
The spot uranium price surged through US$100/lb at the start of the year on the back of strong global support for nuclear energy to decarbonise power grids. In addition, supply constraints from major producers such as Kazatomprom and Cameco have supported the uranium price. There is upside risk to the uranium price given that US and European utilities are not covered for the fuel requirements from 2026-2028 and there is limited new supply in that timeframe.
Pricing & Commercial Arrangements
PDN do not intend to sell any uranium pounds into the spot market; only into offtake contracts, where PDN currently has ~80% uncapped upside exposure to the uranium spot price through to the end of calendar year 2030. The Company has strong leverage to improving uranium prices, which is a key differentiator to its largest peer Cameco, which has a contract book locked in at lower prices.
The offtake book is geographically diverse, with seven offtake agreements executed with top-tier counterparties in the US, Europe and China. These contracts range in type and duration and provide base-escalated, fixed-price and market-related pricing mechanisms.
However, it is worth noting that counter-party risk is elevated given that PDN’s 25% JV partner CNNC underpins 29% of its total sales, or ~60% of is contracted sales. Having said that, the contract with CNNC distinctively has a price floor but no price ceiling. This allows for the contract price to move upwards with the spot price, as well as advanced payment negotiated, and flexibility on contract volumes dependant on LH’s production ramp-up.
PLS Acquisition Improves Cost
It is estimated that the combination of Langer Heinrich with PLS has the potential to increases PDN’s uranium production from 4.6Mlbpa to 15Mlbpa. Aside from the uplift in production, the inclusion of PLS will also likely result in lower overall operating costs. LH is expected to operate at an all-in sustaining cost in the mid-US$30s/lb, which places the operation at the low end of the 2nd quartile of uranium producers. The combination of low capital intensity to restart with low operating costs means that LH is well positioned relative to other assets. When the PLS operation is included and assuming it operates at ~9Mlbpa in FY31, the total cost is likely to fall to ~US$28/lb.
Fundamental View
Notwithstanding the volatility in PDN’s share price this calendar year to date, we consider that, at current levels, there are several catalysts:
i. Valuation support, with PDN’s valuation (including the Fission acquisition) on an Enterprise Value/Resource basis significantly below its peers;
ii. Increased investor appetite for resource stocks (i.e. prospects for a weaker US$ on the back of expected US rate cuts);
iii. The sharp and progressive increase in short interest in the shares since August; and
iv. PDN’s acquisition of the PLS project to increase PDN’s exposure to the upside in the uranium price in terms of both size and commercial arrangements.
Charting View
We last looked at the PDN chart on 27 August in The Dynamic Investor and noted that it was a buying opportunity at those levels, or a break above $11 would be the buy trigger for more conservative investors. PDN has now clearly broken the downtrend and is on the way back up to retest the old high near $18. Current levels remain a buying opportunity.
Michael Gable is managing director of Fairmont Equities.
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