Production In-Line, Sales Light, Price Better
Better Quarter - Production report was in-line with our estimates at a record 1.44mlb. Sales were lower than production, but this was offset by a better-than-expected realized price. A new sales contract and Kayelekera reaching capacity continues the de-risking of Paladin, but sentiment in the uranium market remains poor with the spot price under pressure. PDN is Buy rated with a A$4.40/share target price and is our preferred uranium exposure. Production 1.44mlb - JQ10 production was in-line with our estimate at 1.44mlb, taking total FY10 production to 4.32mlb (Citi 4.32mlb). Langer Heinrich was steady at stage 2 capacity producing 927klb (3.7mlbpa). Kayelekera production was up 125% from the previous quarter to 515klb (2mlbpa v 3.3mlb capacity). June production was at a rate at ~2.5mlbpa and management is confident of achieving capacity in 2H10 as the improved operating rate has rolled into July. Sales Lower at 855klb - Sales were well below production at 855klb. This was offset by a better-than-expected realized price of US$55.5/lb (FY10 US$54.2/lb), up from US$50.5/lb in the prior quarter despite lower spot and contract prices. New 1.5mlb Contract - PDN continues to de-risk the sales profile by locking in a new 1.5mlbpa contract for 2011-2015. This lifts the contract coverage to >50% in FY11, but there is still a large amount of material uncontracted - company targeting contract coverage for 75-85% of sales in medium to longer term. Outlook - Installed capacity of 7mlb will increase to 8.5mlb when expansion of LH to 5.7mlb completed end-10. Ramp-up flagged to take 6months, but we already assume conservative production of only 7mlb in FY11, increasing to 8.3mlb in FY12. New resource estimates for LH expected in SQ10 (underpin Stage 4 expansion) and Kayelelkera in DQ10 (extend mine life beyond current 9 years).