Paladin Energy Limited

Decent Cash Balance Position: Paladin Energy Limited (ASX: PDN) has an engagement in the development and operation of uranium mines in Africa, together with the global exploration and evaluation activities in Africa, Australia and Canada. The company recently responded to the market speculation of considering an equity raising in order to fund a buy back or early redemption of its 2023 Secured Notes. It made it clear that it currently has no intention as of now to raise capital to fund a partial or full buyback or early redemption of these Notes. There are no repayment obligations in respect of the Notes. In quarterly activities report, PDN highlighted operational details of its mines i.e. Langer Heinrich Mine (LHM) and Kayelekera Mine (KM).

At Langer Heinrich Mine, concept studies are being done to optimise LHM in preparation for a restart decision which has returned positive results, identifying multiple options to lower costs. The first stage of Prefeasibility Study to refine rapid restart plan, is expected to be completed by September 2019, whereas the second stage of PFS for process optimisation expected to be completed by March 2020.

It is targeting aspirational average LHM life of mine all-in-costs of US$30/lb. At Kayelekera Mine, no water treatment was undertaken during the quarter due to below average rainfall, however, the target levels were achieved for all water storage ponds. There were no uranium sales in the quarter ended March.


H1FY19 Financial Metrics (Source: Company Reports)

What To Expect: Uranium usage is expected to increase globally which is supported by the fact that, as per IPCC report, Global Warming may increase by 1.5 degree Celsius by 2030. As a retaliatory measure, various countries are focusing on renewable and alternate source of energy. China plans to have 56 reactors operating by 2020 and 180 reactors, or 220% increase, by 2030 to reduce its reliance on coal.

India is expected to have 21 reactors into operation by 2031. Saudi Arabia announced 17 new reactors to be built in the coming years. There is further growth opportunity to produce Vanadium at LHM, and estimated production has been kept at ~ 1.3Mlbs pa. The future demand of Vanadium is expected to rise due to supply constraints.

Stock Recommendation: The stock has fallen 35.14% in the past three months as at May 08, 2019 and is trading close to a 52-week lower level of $0.105 with PE multiple of 0.38x.

Its current ratio for H1FY19 stands at 12.85x, better than the industry median of 1.66x, which implies that the company is in a better position to address its short-term obligations. On the valuation front, its EV/Sales for TTM stands at 7.2x, lower than the industry median (Energy) of 31.8x, indicating the undervalued position at the current juncture. Hence, considering the aforesaid facts and current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.125 per share (up 4.167% on May 9, 2019).
 

Berkeley Energia Limited

BKY Announced Quarterly Reports: Berkeley Energia Limited (ASX: BKY) has an engagement in mineral exploration and development. The company recently announced quarterly report for March 2019, where it highlighted a number of favourable assessments from various regulatory bodies including two from the Nuclear Safety Council relating to the pre-operational Surveillance Plan for Radiological and Environmental Affections and the pre-operational Surveillance Plan for the Control of the Underground Water. The company awaits the recommendations report from the Nuclear SafetyCouncil. Moreover, the company continues to progress the approvals for the Salamanca mine, which is being developed to the highest international standards. The Company has invested more than €70 Mn developing the Salamanca mine over the past decade and plans to invest an additional €250 Mn over the life of the project. It holds certificates in Sustainable Mining and Environmental Excellence which were awarded by AENOR, an independent Spanish government agency. The Company has been re-awarded both certificates following a consultation process with the agency.

H1FY19 Financial Performance: Its interest revenue increased by 700.7% pcp to $1.12 Mn, due to larger cash position held by the company.  The net profit of the Consolidated Entity for the half year ended December 31, 2018 was $61,330,000 as compared to a loss of $40,714,000 in December 31, 2017. It was mainly due to non-cash share based payment gain of $2,183,000 and non-cash fair value movement gain of $59,560,000.


H1FY19 P&L Statement (Source: Company Reports)

What To Expect: It is expected that China will double its nuclear capacity by 2020, and then double again by 2035. In total, 58 reactors are currently under construction globally, a 25 year high in nuclear growth. US utilities urgently need to start buying as high priced 2005-2007 contracts run off.  EU utilities also need to recontract, at the same time as Japanese utilities come back on line after the disruption to the Japanese nuclear industry from Fukushima. BKY has 2.75 million pounds of U3O8 under contract for the first six years, with a further 1.25 million pounds of optional volume, at an average price above US$42.

Stock Recommendation: Berkeley Energia’s share generated a positive 6-months return of 32.61%. Its current ratio for H1FY19 stands at 6.04x which is better than the industry median of 1.66x, indicating a better liquidity position to address its short-term obligations than its peer group. Its ROE for H1FY19 stands at 80.1% which is better than the industry median of 1.6%, showing that the company generated a better return for its equity holders than its peer group. Based on the foregoing and looking at the current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.30 per share (down 1.639% on May 9, 2019).
 

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