PDN buys time, sells part of troubled mine

The good news out of Paladin keeps coming with the news PDN will sell 25% of its troubled Langer Heinrich mine in Namibia.

This comes after PDN announced on Friday it had managed to re-finance the same asset to reduce interest repayments by $59 million in FY14 and FY15 and will reduce capital pressure by $5 million a quarter.

The $190 million sale to China Uranium (a wholly owned subsidiary of the state-run China National Nuclear Corporation) buys PDN additional time to stabilise its balance sheet, having seen PDN fall almost 70% in 2013 on mounting funding issues and falling output.

What has also seen PDN falling is uranium prices have been severely depressed since the Fukushima disaster and remain under pressure as demand also remains depressed as key markets in Japan, China and South-east Asia fail to return to the physical market.

It is for these reasons PDN needs all the time it can get to offset the price squeeze in its underlying commodity.

The news over the past two trading days is good news; it shows PDN is looking at consolidating is operations and moderating the capital bleeding of the past year. However, from a production and earnings perspective PDN has never managed to deliver on its forecast and its continued underperformance from a fundamental level cannot be ignored.

The trade

The stock has bounced some 45% in the past two days; the strength is understandable as explained above, however on a short term view I feel this can unwind.

The strength looks to be overdone and I would expect profit taking coupled with investors that will want to unload the struggling share for their portfolios.

I would sell on strength look for a 50% downward retracement with a limit at 49 cents with a stop loss at 64 cents which is the very top of the rally. 

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