Uranium Upstart Paladin Resources: Takeover Target?

In these days of multi-billion dollar M&A largesse, $4.5 billion Cdn Australian uranium upstart Paladin Resources (PALAF.PK) just might be a potential takeover candidate, if the rumors swirling around are true. Potential suitors being bandied around include Canadian uranium behemoth Cameco Corporation (NYSE:CCJ), French counterpart AREVA, and always lurking in the background, BHP Billiton. Another name tossed in is Uranium One [TSE:SXR], itself a $5.1 billion product of recent mergers.

Paladin has been busy the last several months. At the beginning of June, the company closed its bid for Summit Resources Limited, acquiring 81.8% of shares and taking full control of the Valhalla exploration project for all intents and purposes.

On a more sobering note, however, Paladin spent the rest of the month defending its Kayelekera Project in Malawi. First, both the company and government were sued by NGOs to delay the project until issues with Malawi's Environmental Management Act [EMA], as well as protective measures for the local community were addressed; the government has said that it has fully complied with the EMA. Secondly, Paladin reiterated its stated goal of commissioning Kayelekera in September 2008 and dismissed contentions that there may not be sufficient power for the project as the company is placing an order for a 10MW power generation facility.

Rarely seen on the defensive through its meteoric rise as a uranium upstart, Paladin also had to announce a 130,000lbs shortfall of uranium from a projected 400,000lbs to the end of June due to initial start-up issues at the Langer Heinrich project in Namibia. The company is still confidant that Langer Heinrich will ramp up to fulfill its 2.6 million lbs of yellowcake a year production target.

A look at the 2-year chart of the company exemplifies the current weakness that Paladin is experiencing, probably exacerbated in recent weeks by the pessimism in the uranium sector as a whole. Naturally, takeover speculation arises as other companies evaluate the intrinsic value of Paladin and compares it to the marketès current valuation. Astute uranium investors looking to buy this stock must ask themselves whether they believe that Paladin's is just having some growing pains transitioning from an upstart uranium explorer to a bonafied uranium producer, or is there something more fundamentally wrong?

Disclosure: Author owns shares in stocks mentioned