Paladin’s $69M equity raise prompts price target slash

Paladin Energy Ltd.’s move to raise $69.2-million through a private placement, possibly to help ward off hostile bidders, has at least one market-watcher scratching his head.

The Perth, Australia-based uranium producer said Wednesday it had completed the financing through the issue of 56.9 million shares at $1.22 each.

“We are surprised Paladin would issue equity at such dilutive levels,” said Bart Jaworski, an analyst with Raymond James Ltd., on Wednesday.

He wondered why the TSX-listed company would need the funds given what’s known about its financial situation.

Paladin recently drew down US$127-million from its Kayelekera facility in Malawi, he said. Plus, the company had US$117-million cash on hand as of June 30, 2011 and no expected funding shortfalls or debt covenants in the near future.

“We understand Paladin does not want to use the funds to pay down existing debt and wants to provide additional protection in the event of any hostile bids,” the analyst said.

However, he said the move sends a negative signal about its internal cash flow generation.

Mr. Jaworski said the changes dropped his net asset value per share 8% to $2.91 from $2.97.

He also compressed his price to net asset value multiple to 0.7x from 1.1x reflecting his view that the equity financing signaled increased operational risk.

The changes prompted a downward revision of his share price target to $2.40 from $3.40, but he maintained his Outperform rating on the stock.

Paladin’s shares closed at $1.17 on the TSX on Wednesday, a drop of 11.4% on the day.