Paladin Energy Ltd (ASX: PDN) has been heavily sold in 2024 alongside the basket of ASX uranium shares as the market digests several macroeconomic factors.
Shares are down nearly 20% this year to date, having slipped nearly 37% in the past month of trade alone.
They closed at $7.90 apiece on Tuesday.
Whilst the downsides are apparent, for those forming a long-term view of the uranium sector, it is part of owning stocks – more so in the energy sector.
One fund reckons Paladin is at the top of the ASX uranium basket. Let's take a look.
Image source: Getty Images
Blackwattle likes ASX uranium shares
Small cap manager Blackwattle highlights Paladin Energy as being uniquely positioned to capitalise on the "chronic undersupply" of uranium.
It is the fund's "primary exposure to the structural tailwinds" behind ASX uranium shares, including the need to meet demand for "intermittent renewable generators".
Unlike developers, Paladin is already producing uranium from its Langer Heinrich mine. Blackwattle says this gives it a distinct advantage in meeting the needs of various nuclear projects.
In the fund's October commentary, Blackwattle stated:
The uranium commodity price has seen a strong recovery in recent weeks following a series of announcements from large energy users such as Amazon and Google, that intend to invest in nuclear capacity to power their data centres.
While speculators might drive short-term moves in U308 pricing, there is a chronic undersupply of the material needed to support projects that have already been announced.
As Paladin is a uranium producer (not developer), it is best placed to capitalise on this near-term shortfall and the high 'incentive pricing' needed to encourage further supply investment.
Despite this, Blackwattle acknowledged the company's September quarterly results. These revealed lower-than-expected production. Not surprising, given "teething issues" at its Langer Heinrich mine.
Still, Blackwattle is looking long-term, as any good equity manager would.
The fund believes the structural demand for nuclear energy will support uranium prices and ASX uranium shares over the long term.
What do analysts think?
Analysts are also bullish on the ASX uranium share. Bell Potter maintains a buy recommendation for Paladin with a price target of $9.70.
Although this is down from the miner's 52-week high of $17.98, it still implies a 23% upside from Paladin's closing price on Tuesday.
The broker acknowledges the near-term volatility but believes the challenges are teething issues as Langer Heinrich transitions back to full-scale production.
Bell Potter also highlights that Paladin's acquisition of Canadian miner Fission Uranium Corp adds complexity, with current market conditions rendering the deal value destructive in the short term.
If the uranium market is facing a structural undersupply, Paladin may be well-positioned to exploit this, given its status as a producer. Time will tell.
Update on Fission Uranium transaction
This morning, the company posted an update on its proposed acquisition of Fission Uranium. Although the update isn't price-sensitive, it is relevant to the ASX uranium share's overall narrative.
In July, it was announced that the Canadian Minister of Innovation, Science and Industry might extend the review of the proposed deal.
Paladin received correspondence on this:
Paladin advises that it has received a notice from the Minister extending the national security review
period in relation to the Arrangement under section 25.3 of the ICA until 30 December 2024.Paladin is continuing to engage with the Minister as part of the section 25.3 process under the ICA.
In light of the national security review of the Arrangement, there can be no certainty that Paladin will
be able to obtain ICA clearance in a timely manner or at all.Failure to obtain ICA clearance would prevent the Arrangement from being successfully completed.
Investors might want to keep an eye on the next moves here.
Foolish takeout
Paladin Energy's current situation reflects a mix of potential and uncertainty about the next steps for uranium.
There are long-term drivers, sure. But these are yet to be reflected in the market values of underlying businesses.
Part of this may be that stocks are priced on those cash flows to equity holders. If uranium prices are down, this compresses cash flows. Similarly, if prices are high, this may coincide with high operating costs, also reducing cash flow. Tough gig, mining.
The Paladin share price is down 24% in the past year.
