Paladin Energy (ASX:PDN, TSX:PDN) reported its H1 FY13 financial results with a net attributable loss of US$193.5m. The underlying loss was US$87.1m (removing US$106.4m in asset and inventory impairments). Cash at the end of December 2012 was US$104.7m v Argonaut F ~US$130m.

Operationally, the Company is performing well having strung together three strong production quarters. Cost reduction was the highlight of the results. PDN does not disclose total cash costs, however the reported group C1 cost was US$30.50/lb. KM C1 costs were down 11% to US$43.50/lb and LHM C1 costs were down 7% to US$29.60/lb.

The two factors with the capability of re-rating the stock are a recovery in the uranium price and/or securing significant capital from the previously forecasted strategic initiative.

The Company has not encumbered its sales book with legacy long-term contracts post-Fukushima making it highly leveraged to a recovery the uranium price. However, PDN is still a high cost producer that is servicing a large debt portfolio costing ~US$97mpa. The Company will need raise significant capital from the strategic initiative to safeguard the balance sheet in the event that uranium prices remain low for an extended period.

Argonaut is forecasting a recovery in the uranium price within 2013. The following events are lead indicators for an impending supply deficit:

65 reactors under construction, 167 planned and an additional 317 proposed (Source: WNA)
The cessation of the Russian “Megatonnes for Megawatts” program at the end of 2013 removing 24Mlbpa or ~14% of global supply
The acquisition of large uranium deposits by state owned entities (SOEs) to secure fuel for expanding national nuclear programs; namely, the acquisitions of Husab (Namibia) by China Guangdong Nuclear Power Hold Co. (CGNPC) and Mkuju River by Russian AtomRedMetZoloto (ARMZ)
EdF, the largest global operator of nuclear reactors, US$200m prepayment to incentivise a long-term contract with PDN commencing 2019
Deferral of the Olympic Dam expansion, the world’s largest uranium project
Suspension of major uranium projects including Kintyre, LHM stage 4, Yeelirrie and Trekkopje pending higher uranium prices

Argonaut has SPECULATIVE BUY recommendation on PDN with a price target of $1.70.