Peninsula Energy (ASX:PEN) is the subject of a research review by Patersons Securities.
Here is an excerpt of the report:
PEN is on the cusp of uranium production from its Lance Projects in Wyoming, USA. The Company expects to commence first uranium production in October 2015.
This milestone event should be followed shortly thereafter by a listing on the NYSE MKT exchange, which has the potential to create a positive re-rating of the stock.
Furthermore, PEN’s Karoo project in South Africa has the potential to be positively impacted as South Africa continues to move towards a nuclear future to help solve the country’s electricity generation issues which continue to impact that economy.
Therefore, with a number of catalysts approaching, we rate PEN a Speculative Buy. We note PEN shareholders will vote for a 40 for 1 share consolidation on 24 September 2015.
Recommendation: Speculative Buy
Investment Highlights
Production Imminent:
The construction of the Lance Project infrastructure and process plant is on target for first production in October 2015 and remains within the budgeted US$33m.
In September 2015, the US Nuclear Regulatory Commission (NRC) will conduct a final pre-operational inspection of the project, which should allow PEN to receive all the necessary approvals to allow first uranium production to commence in October.
PEN is expected to increase production to the Stage 1 rate of 700,000lbpa of uranium. A successful ramp-up will allow PEN to commence Stage 2 of the Project, which requires an additional US$35m in capital and will essentially double the Stage 1 production rate.
Stage 3 requires US$78m, however, a large proportion is anticipated to be sourced from Stage 1 & 2 cashflows. We note that PEN has 1.9Mlb U3O8 contracted to utilities at a weighted average price approaching US$60/lb, which is well above the current spot price (US$37/lb). We estimate this represents about 40% of Stage 1 production per annum.
NYSE MKT Listing to Provide Potential Re-rating:
We see PEN's proposed secondary listing on the NYSE MKT exchange as a positive, which should allow for a re-rating of the stock. Based on our analysis, PEN is trading at a much lower multiple than the other uranium companies on the exchange when we compare production assets.
Furthermore, the US is the natural market for PEN given that its main project is in Wyoming, and it should assist in its direct negotiations with the US utilities.
South Africa to Commence Reactor Builds:
In May 2015, South Africa started the process to procure a nuclear fleet to generate 9,600MW (8 Nuclear Reactors). This news is particularly timely for PEN which is looking to develop its Karoo uranium project which has a sizable resource of 56.9Mlb U3O8 with excellent grades (1108ppm U3O8).
The procurement process is expected to be completed by April 2016, with construction as early as 2017.
Valuation:
We have determined a Net Asset Value (NAV) for PEN of $0.06/sh. The majority of our sum-of-the parts valuation is related to the Company’s Lance Projects in Wyoming, USA.
Our assumptions for the project are based on the three stage scalable production development plan as outlined in October 2014. In total, the Lance Projects have an estimated 20 year mine life with total production of 28Mlb U3O8 which assumes a 53% conversion from mineral resources (54Mlb) into recoverable material.
The All-in sustaining cash cost is estimated at sub-US$30/lb U3O8 (uninflated).
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