Paladin Energy Ltd soars 6.5%: Here's why

Uranium miner's shares soar

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Shares in uranium miner Paladin Energy Ltd (ASX: PDN) soared 6.5% today, most likely on news that the Queensland government was lifting a 32-year ban on uranium mining.

Other uranium miners, Deep Yellow Limited (ASX: DYL) as well as resource majors BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) also rose today, with Deep Yellow adding more than 5%.

The question one has to ask though, is why the state government is looking to open more uranium mines when there is a massive oversupply and the price of uranium has crashed from a 2007 high of US$70 a pound to just US$28 per pound?

At current prices, many uranium mines are unprofitable, and several have been forced to close, including Paladin's Kayelekera mine in Malawi, Africa, Heathgate Resources Beverley mine in South Australia, and the Honeymoon mine, also in South Australia, owned by Canadian company Uranium one.

The prices are so low, The Australian reports that the Four Mile uranium mine, which only opened on June 25, is already losing money. Costs are estimated at around US$40/lb at the mine, well below current prices. Alliance Resources Limited (ASX: AGS), which owns 25% of the Four Mile mine, sank 8.8% today, and is down 14% over the past five days.

Paladin has been forced to farm out a portion of its Langer Heinrich mine in Namibia, with China Uranium Corporation taking a 25% stake last week for US$190 million – another potential reason for the share price rising. But it's unlikely that this mine is cashflow positive either, with C1 cash costs in the last half at US$27.5/lb. Once you add on all the other operational costs, Langer Heinrich, the company's only operating mine, is probably losing money.

Investors may have misplaced their faith in a sustained recovery for Paladin and uranium.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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