Wyoming

Peninsula Energy Ltd approaching final investment decision at Lance Uranium: Shaw and Partners

Peninsula Energy Ltd (ASX:PEN, OTCQB:PENMF) maintained its buy rating from Shaw and Partners following the release of the Definitive Feasibility Study (DFS) for its Lance uranium project in Wyoming in the September quarter.

The Investment Manager expects Peninsula to announce a final investment decision this quarter and has set a target price of A$0.34 (current share price: A$0.18).

Shaw continues to like Peninsula because it operates in the US, has an existing contract book, and is leveraging a uranium sector upswing.

Below is an excerpt from the research report:

incident

Peninsula has released its quarterly activity report for September. The highlight of the quarter was the release of the Definitive Feasibility Study (DFS) at the Lance Uranium Project in Wyoming. We expect Peninsula to announce a final investment decision this quarter.

DFS’s notable results include a pre-tax NPV8 of $125 million and an IRR of 43% at an average selling price of $62 per pound. The Company anticipates steady state production of 2 million pounds from Year Four (circa FY28) to produce 14 million pounds over the life of mine at a total cost of US$46 per pound. This compares to the total current resource base of 54mlbs and an exploration potential previously estimated at 50-150mlbs (2015).

highlights

  • PEN’s flagship Lance projects in Wyoming, USA require little initial capital and can be quickly resumed following a final investment decision. PEN is the only ASX company directly involved in US government initiatives promoting domestic mine development.
  • PEN has an existing contract book and product inventory with a binding purchase agreement that has a cash margin of $7.8m in fiscal 2021 (450 klbs) and >9m .8 million pounds at a price of US$56 to US$58/lb U3O8 with major utilities across Europe and the US.
  • The Company intends to switch operations from high to low pH to increase product yield. Results from the 18 month field demonstration completed in December 21q (uranium average grades ~60-70ppm and peak grades ~150ppm) indicate that the targeted low pH chemistry and field patterns in dissolution and recovery of uranium are effective.
  • The DFS describes a simplified two-stage increase to 2mlbs/yr with production coming from Lance Projects’ Ross and Kendrick areas. DFS arrives at a pre-tax NPV8 of $125 million and an IRR of 43% using an average selling price of $62 per pound. Key features include:

    • Total development/upfront capital for the two phases of ~$80M (~$9M for Stage 1 and ~$70M for Stage 2).
    • The Company anticipates steady production of 2 Mlbs from Year 4 to produce 14 Mlbs over the life of the mine. This compares to the current resource base of 54 Mlbs and an exploration potential previously estimated at 50-150 Mlbs.
    • All-in life of mine maintenance cost of $39/lb and all-in cost of $46/lb.
    • Our after-tax NPV10 of $128 million is consistent with the company’s DFS results.

  • Strong Balance Sheet – Company is debt free with an unconstrained net cash balance of US$8 million (ended September 22, +310 klbs of uranium inventory with a market value of ~$15 million).
  • Peninsula had sales proceeds of US$10.8 million for the quarter from the sale of 200 klb of uranium at US$54.15/lb under a long-term contract.
  • During the quarter, the US Department of Energy (DOE) issued a request for proposal to purchase uranium to meet the US$75 million uranium reserve budget. Peninsula has submitted a qualifying bid, the outcome of which is expected in the coming days.

recommendation

We stick to our buy recommendation. And the target price is A$0.34, which is set at 1.3 times our fully diluted valuation of A$0.26.

We continue to like PEN for its US operations, existing contract book and leverage for a uranium sector upswing.

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