Paladin Energy Ltd (ASX: PDN) shares had a week to forget.
The uranium producer's shares lost 25% of their value over the five days and ended at $7.29.
Paladin Energy shares sink
Investors were hitting the sell button in a panic last week after Paladin Energy became the latest uranium producer to reveal that its production ramp up wasn't going to plan.
Paladin Energy downgraded its FY 2025 production guidance from 4.0-4.5Mlbs to 3.0-3.6Mlbs. This represents a 22% reduction at the midpoint.
Putting further pressure on Paladin Energy's shares was management completely scrapping its sales guidance of 3.8-4.1Mlbs and C1 cost guidance of US$28-$31/lb.
Commenting on the news, Bell Potter said:
The reasons behind the revision stem from ongoing issues with the stockpile processing, with greater variability in ore grade on account of incorrect allocation of waste material from the pit being mixed in with medium and low-grade material.
Theoretically, these issues should not carry over into the mining phase, however it does bring into question the ability to rely on historical information going forward. We have adjusted our modelled assumptions and note that management have a significant reputational rebuild ahead.
Fission deal
The broker also notes that the company's agreement to acquire Fission Corp is looking like a bit of a disaster for the Canadian miner and its shareholders. It explains:
The acquisition of Fission on a scrip deal is now in the red, with FCU shareholders worse off by ~27% if the deal were to go through at current share prices. This equates to ~C$200m in destruction of value, which pales in comparison to the initial $40m break fee.
Whilst shareholder approval was narrowly obtained, and the legality of blocking the deal at this late junction remains unknown, one must hold faith that the FCU board see a path to PDN stock being >$10/sh to return the deal to a premium for shareholders. Absent completion of the transaction, PDN would be in a tough position to progress viable growth projects.
Still a buy
Despite the above, Bell Potter still sees value in Paladin Energy's shares and recommending them as a buy with a heavily reduced price target of $9.70 (from $14.40).
Based on its current share price, this implies potential upside of 33% for investors over the next 12 months.
We retain our Buy recommendation and lower our price target to $9.70/sh (previously $14.40), on the inclusion of a blended EV/EBITDA and DCF valuation to account for near-term earnings volatility. We make the following EPS adjustments: FY25 -62%, FY26 -24% and FY27 -22%. We reduce our production and sales outlook for FY25, (2.8Mlbs production and 2.6Mlbs sales vs guidance – production 3.0-3.6Mlbs and unit operating costs (C1 US $47/lb).
