The uranium sector has been a great place to invest over the last 12 months.
During this time, a number of ASX 200 uranium stocks have delivered stunning returns for their lucky shareholders.
However, one uranium stock that may have peaked now is Paladin Energy Ltd (ASX: PDN).
That's the view of analysts at Bell Potter, which have just downgraded the uranium miner's shares.
Why has this ASX 200 uranium stock been downgraded?
According to a note, the broker has downgraded its shares to a hold rating (from buy) with a trimmed price target of $15.70 (from $16.50). This is largely in line with the current Paladin Energy share price of $15.74.
Bell Potter recently visited the company's Langer Heinrich Mine (LHM) in Namibia and was impressed with what it saw. In fact, it sees scope for Paladin Energy to surprise to the upside with its earnings. It said:
In summation, we were surprised at the quality of the site/ regional infrastructure and competency of the local workforce. The restart & ramp up appears to be running smoothly, which could provide upside risks to our earnings.
However, there are risks for investors to consider. One of these comes from its operating costs. It adds:
On the flip-side, we are cautious on operating costs which seem to be the biggest downside risk at this point. Based on the assumptions in the restart plan (2021) PDN anticipated a US$15.74/t milled ore mining cost. In our mind, there is no doubt that this figure has increased, however the Namibian Rand has depreciated 10% against the US$ since that period. Overall, we have factored in a 5% increase to US$ mining costs going forward.
In addition, Bell Potter highlights that there is an election coming up in Namibia, which could throw a spanner into the works. It explains:
In the upcoming election (Nov), key risks remain with the potential for an introduction of a Government free-carry interest and/or an increase in mining taxes being discussed. At this stage, the likelihood is unknown however the impact should these measures be introduced could be substantial.
Shares downgraded
In light of the above and with the ASX 200 uranium stock rallying hard over the last 12 months, the broker has decided to downgrade its shares to a hold rating. It summarised its decision:
Our target price for PDN decreases slightly to $15.70/sh (previously $16.50/sh) and we downgrade to a Hold. We walked away from the site tour with a positive outlook on LHM, however note that the stock has appreciated 140% over the past twelve months and at current levels looks fully valued, on our estimates. Further appreciation from here will be driven by 1) improving uranium pricing (PDN has ~80% market exposure through to 2030, our near-term price assumes a near-term price of US$115/lb vs spot of $92/lb), 2) expansion and exploration to the west of the current mining lease at LHM, and 3) potential M&A activity as LHM reaches a steady state of production.
