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Sounds like your PDF converter is leaving in the breaks between the "lines" of the PDF instead of joining them up.
This can be fixed by unpacking the converted mobi file to html, then editing the html in a plain text editor and doing a simple search/replace to get rid of redundant spaces/linebreaks (just keep replacing double with single until only single are left), then finally converting the html back into mobi.
Unfortunately, this will happen with just about anything you convert your PDFs to (short of an image format which kind of defeats the purpose). It's just one of those drawbacks of that format.
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