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Peninsula Energy snares $69.4M funding, uranium production in 2015

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Peninsula Energy (ASX:PEN) has secured $69.4 million in fully underwritten institutional funding, highlighting that significant amounts of funding can still be secured for quality projects, even in difficult capital markets.

The funding allows Peninsula to complete construction of Stage 1 of the Lance Uranium Projects in Wyoming, commence uranium production and achieve positive cashflow in the second year.

The company has already received $16.8 million of this funding through a placement priced at $0.02 to Resource Capital Fund VI and has completed the $23.9 million accelerated institutional component of its renounceable entitlement offer.

A further $28.7 million will be raised through the retail entitlement offer.

$10.9 million of the retail offer is underwritten by RFC Ambrian and sub-underwritten by RCF VI and Pala. RCF VI and Pala Investments have also provided a $17.8 million standby debt facility guaranteeing the Retail Entitlement Offer.

Earlier this month, Peninsula entered into an additional uranium concentrate sale and purchase agreement with a major U.S. power utility from 2016 to 2024.

Together with the existing 2011 sale & purchase contract, the company will deliver up to almost 2 million pounds of U3O8 to be delivered through to 2024.

“Securing this funding is a defining achievement for the company as it enables us to transition to a uranium producer in 2015,” executive chairman Gus Simpson said.

“The company is pleased to offer all shareholders the opportunity to participate in the Entitlement Issue at attractive pricing, given the projected NPV and improving outlook for the uranium market.

“Also, the Peninsula Board would like to acknowledge the combined support of our existing Institutional shareholders, Pala, BlackRock funds, J P Morgan, and our new strategic investor Resource Capital Fund VI L.P. who have been instrumental in delivering this funding solution.”


Funding Arrangements

The $69.4 million fully underwritten institutional funding includes:

- A $16.8 million placement to Resource Capital Fund VI at $0.02 per share with one free attached option (expiring on 31 December 2018 at $0.05 strike) for every two shares subscribed; and
- An Entitlement Offer to all shareholders of $52.6 million at $0.02 per share with one free option for every two shares subscribed. This is underwritten to $34.8 million.

The underwriting consists of $23.9 million of the Accelerated Entitlement Offer to Resource Capital Fund VI L.P., Pala Investments, BlackRock funds and JP Morgan AM UK Ltd and $10.9 million sub-underwriting of the Entitlement Offer by Resource Capital Fund VI and Pala Investments.

In addition, Resource Capital Fund VI and Pala Investments have provided a further $17.8 million Stand-By Debt Facility guaranteeing the non-institutional shareholder entitlement offer.

Both RCF VI and Pala will have the ability to each nominate a suitably qualified person to join Peninsula’s board as non-executive directors.


Lance Uranium Projects

In October, the company approved a lower cost three stage scalable production development plan for its Lance Projects in Wyoming.

This comprises:

- Stage 1 production rate of between 500,000 and 700,000 pounds U3O8 per annum;
- Stage 2 production rate of 1,200,000 pounds U3O8 per annum; and
- Stage 3 production rate of 2,300,000 pounds U3O8 per annum.

Capital expenditure for stage 1 (including contingency) is US$33 million and working capital during construction and ramp-up is US$5 million.

Peninsula already has in place two uranium concentrate sale and purchase agreements for up to approximately 2 million pounds of U3O8 to be delivered through to 2024.

The first of these agreements was entered into in February 2011 for approximately 1 million pounds to be delivered through to 2020.

This has a weighted average delivery price between 2015 and 2020 of US$73 to US$75 per pound – a price that is substantially higher than the current Term Contract and Spot prices. 

An additional contract was announced on 3 December 2014 for up to 912,500 pounds with a price consistent with the current Term Contract price escalated on a quarterly basis.

Peninsula is currently in negotiations with several utilities regarding additional sale agreements and intends to enter at least one more sale agreement in the next 2 to 3 months to further de-risk the cashflow profile for Stage 1.

The Lance Projects have a minimum mine life of at least 20 years, underpinned by 53.7 million pounds of uranium, the largest uranium ISR JORC-Code compliant resource in North America.


Analysis

The fully underwritten $69.4 million funding demonstrates the confidence investors have in Peninsula Energy’s Lance Uranium Projects and sets the stage for the company to become a uranium producer in 2015.

The funding allows the company to complete construction of Stage 1 of the Lance Uranium Projects. Positive cashflow is expected to be achieved in the second year.

Peninsula’s transition towards becoming a uranium producer comes amidst an improving outlook for uranium following the Japanese decision to restart the first Sendai nuclear reactors.

There is also a shift away from coal toward cleaner energy as global opinion towards the use of fossil fuels becomes increasingly negative.

Recently, China and the U.S. reached a climate change agreement to cut emissions.

Proactive Investors believes some of the long term contracts could be around $60 a pound, which could provide operating margins of around $30 a pound.

Peninsula has now ticked two major boxes: Major Funding and Offtake.

This positions the company to be re-rated in coming months.

Given the U.S. location it doesn't get much better in terms of risk.

We expect North American institutions would begin to evaluate Peninsula and commence investment into the company in 2015.



Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

Quick facts: Peninsula Energy Ltd

Price: 0.105 AUD

ASX:PEN
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Market Cap: $96.04 m
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