Is Paladin Energy still good value?

Uranium prices have more than doubled over the past 12 months, sending the share prices of locally listed darlings like Paladin Energy (ASX: PDN) and Boss Energy (ASX: BOE) into the stratosphere. 

It's probably no surprise then that both of these stocks made Livewire readers' top-tipped picks for 2024. But is it too late to jump on the uranium train, and is there still value in the ASX's two largest pure-play companies? 

Luckily, Livewire has a resources specialist on hand in the form of Acorn Capital's Rick Squire - a former geologist who boasts over 25 years of experience in the resources industry, including nine years in mining finance and investment.

On the back of Paladin's latest quarterly result, Squire sat down with Livewire to digest the company's outlook, why he believes the stock is pretty close to being fully valued, as well as a micro-cap name that the team has been cycling capital into on the back of Paladin and Boss Energy's recent share price success. 

Key results (for the quarter ending Dec 31)

1. In one sentence, what was the key takeaway from this result?

The major takeaway is that Paladin is pretty much on schedule for getting into production - close to being on time and close to being on budget.

2. Were there any major surprises in this result that you think investors should be aware of?

Fortunately, there were no big surprises. There's a small delay - the commissioning will probably start in early April rather than late March, as was forecast, but that's only a small delay. And there's a small increase in the cost. The capital cost has increased from US$118 million to US$125 million, but in the context of the world today, that's a modest increase.

3. Would you buy, hold or sell this stock on the back of this result?

Rating: HOLD

I think it's a hold at the moment. There's been a strong rise in price in the last month and that's largely been driven by a continued rise in the uranium price. So prices are a really strong driver for its value at the moment and that's a tricky one to predict. That's why the recommendation is a hold.

4. What’s your outlook on this stock and the sector over the year ahead?

The medium to long-term outlook for uranium is very strong. I think it's a good commodity, but it's just come off a strong run in the last month. So it's always very difficult to predict something over the next few months when it's had a really good four or five months leading up to today. That said, the outlook remains strong. 

I am neutral on the outlook for the company. It is driving some of its future in terms of going through commissioning and getting into production. It's restarting an old mine. So generally speaking, the risks are lower around that. However, when you restart a mine after six years, there are a lot of parts you think will go right and they don't go as expected, so there is a risk around that commissioning and start-up. There's also risk around the price. But generally, I think it's positive for the stock because this is one of the very few quality uranium producers on the ASX. And that's why it's the go-to stock.

Given stocks like Boss Energy and Paladin have had a great run over the last few years, and we've certainly benefited from those, we're starting to cycle down some of that capital. We are looking at some of the explorers, even some of the tiny ones, like Argonaut (ASX: ARE) - which has some ground that is going to be renamed Orpheus Uranium. It's only a tiny stock. It has about a $20 million market cap. 

We think that's where the future is. Some other companies are sitting in the middle, in terms of market cap, but they're not great quality assets. They never were. But in a really strong price environment, they've performed very strongly. We think the future is probably in some of these new smaller stocks. So it's probably time to cycle down into the next wave of quality explorers. 

5. Are there any risks to this company and its sector that investors should be aware of?

I don't foresee any major risks other than the normal risk of a start-up. That's why I remain positive but just a little bit cautious given that uranium prices have moved so strongly in the last four or five weeks and over the last four or five months. There's a small element of caution there for me to be neutral.

6. From 1-5, where 1 is cheap and 5 is expensive, how much value are you seeing in the market right now? Are you excited or are you cautious about the market in general?

Overall rating: 2 

In terms of Paladin, I would rate it a four. There's still some room for it to improve, but it's getting on the high side in terms of its value. Again, given the run-up in price recently, I would call uranium in general a four. 

Then in terms of the market, there's been a correction. So we are starting to see really good value in the lithium stocks for the first time in a long time and some of the gold explorers are cheap too. So, there are large parts of the market where I would say it's a two, like lithium, the gold explorers, some of the copper companies and met coal - once the cyclone clears and we see what the damage is, there could be good value there.