If Langer Heinrich can’t cut it get out
The uranium price has been on a downward trend since it peaked in 2007 at US$136 per pound. Since that peak, the industry as a whole has battled falling prices and shifting social attitudes. Given the capital reconstruction completed under a Deed of Company Arrangement while the company was in voluntary liquidation and our subdued outlook for uranium we recommend exiting the stock.
Despite operating an efficient mine in Langer Heinrich, Paladin Energy was not able to survive the extended period of languishing uranium prices. The following chart shows the uranium price:
Source: Paladin Energy (ASX:PDN)
We believe the company was driving in the right direction in optimising its’ Langer Heinrich operations, to adjust to the weak pricing environment. It was this action that warranted our hold recommendations as the company battled the ongoing weak uranium price. We were disappointed when the company declared voluntary liquidation and delisted from the Australian Stock Exchange (ASX).
We believed at the time of the voluntary liquidation declaration that the Langer Heinrich mine did retain value, albeit very diminished, and eventually that allowed the company to relist on the ASX.
Given the significant capital reconstruction that the company underwent during its period of voluntary liquidation, we believe any top up or new entry to the stock is not warranted. Our view on the uranium sector remains very subdued and with that, we believe, the uranium price will also remain subdued. Our prognosis on the sector is not likely to change for the foreseeable future.
We will use the relisting of Paladin Energy (ASX:PDN) on the ASX as an opportunity to exit.
We recommend Members who hold Paladin Energy sell their holding at the current market price.
Fat Prophets will cease coverage of Paladin Energy (ASX:PDN) immediately.
