Below is an extract from a Hartley broker report.
Target price: $0.18 in three months
Last traded: $0.15
Not Just Riding the Uranium Wave – Sales Secured:
Peninsula Energy (ASX: PEN) has announced a significant sales agreement to supply 1.15mlb U3O8 to a large (unnamed US utility).
The agreement is for supply over 7 years (~165klb per annum).
This does several important things for PEN:
- Firstly, it cements a base price for its product (which is consistent with the average PFS price of US$74 per lb); and
- Secondly, it indicates a high level of industry certainty regarding the development of the Company’s Lance Projects (production slated for 2012, decision to mine expected in H1 2011).
The transaction leaves room for additional contracts, including a majority supply agreement with an offtake partner that may also participate in future funding requirements.
The company remains well funded for all activities in the near term.
Peninsula is not just riding the wave from the recent uplift in uranium price (although it is perfectly positioned to benefit from it) but is continuing to make significant progress towards first production from its 100% owned Lance Projects, onshore USA.
The company has recently submitted key permitting applications, upgraded its resource and obtained cornerstone investment from Pala Investments Ltd.
Significant Future Newsflow Likely to Maintain Momentum Peninsula has many catalysts over the coming months, including; completion of definitive feasibility (April), decision to mine, initial drilling results from the Karoo, acceptance of key permitting documents, continued resource upgrades and potential growth driven by acquisitions or new permits.
This strong newsflow, combined with strength in the sector, should result in continued re-rating to both our valuation and price target.
Price Target Increased to $0.16:
We have tweaked our model based on the sales price achieved and decreased the dilution effect of any future financing due to the increased share price.
The result is an increase in our valuation from $0.17 to $0.18, and we have increased our price target from $0.14 to $0.16.
As previously mentioned, continued delivery on milestones will result in reratings to our valuation as we remove risk discounts associated with the significant upside potential in the company’s asset portfolio.
This upside potential already makes up more than half of our valuation; however, historical drilling and mineralisation gives a relatively high degree of confidence for proving up of substantially increased JORC resources.
Hartleys rate Peninsula Energy as a BUY.