Peninsula Energy (ASX:PEN) has entered into an additional uranium concentrate sale and purchase agreement with a major U.S. power utility.
Shares in the company should trade higher on the news, as the additional sales contract could not have arrived at a better time with the improved uranium picture and bodes well for further sales for Peninsula at Lance.
Deliveries of uranium concentrate under the new agreement will commence in 2016 and continue through until 2024.
Up to 912,500 pounds of uranium will be delivered by Peninsula under the new agreement at a base price consistent with current uranium Term Contract Price.
This adds to the existing 2011 sale & purchase contract, which represents 34-50% of annual sales during the initial years of operation.
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.
The plan will reduce the initial funding required to start sustainable production, decrease the volume of uranium needed to be contracted in stage 1 and allows the company to defer most of the planned uranium sales contracts until such time as the uranium price is more attractive.
Remaining Capex for Stage 1 is US$33 million while Capex for Stage 2 and Stage 3 is US$35million and US$78 million.
Stages 1 and 2 are expected to have all-in sustaining costs US$30.76/lb while Stage 3 will reduce this to US$29.16/lb.
The existing term contract, with a weighted average delivery price of US$73-75/lb between 2015 and 2020, will now represent 34-50% of annual sales during the initial years of operation thereby resulting in an achieved higher average sale price.
Commencing production at the new initial rate will reduce the production risk considerably and should make the future debt funding of stages 2 and 3 both more achievable and less costly.
Lance has a current resource of 57 million pounds U3O8, which underpins a minimum mine life of at least 20 years.
This makes it the largest ISR uranium resource in North America.
In April 2014, the United States Nuclear Regulatory Commission issued the Source Material Licence to Peninsula’s wholly owned subsidiary Strata for the Central Processing Plant and Ross Permit Area, concluding the four year permitting process.
Analysis
Today's new term contract for the supply of uranium to a major U.S. power utility adds to the company's existing 2011 sales and purchase contract.
Peninsula is well funded with $7.8 million in cash, and considering the market cap. of circa $70 million for an Enterprise Value of about $62 million, the valuation of the company looks increasingly light considering an improving uranium price.
Uranium prices have been gaining recently after the Japanese decision to restart the first Sendai nuclear reactors and last traded at around US$40 a pound.
This reflects 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.
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