Peninsula Energy (ASX:PEN) has achieved a major milestone in becoming a uranium producer after being cleared by local authorities to begin in-situ recovery (ISR) operations on its Lance property in the U.S.
The authorisation from the U.S. Nuclear Regulatory Commission (NRC) allows Lance’s Ross permit area to pursue wellfield injection and production circuits as well as works related to ion exchange columns, water disposal pathways and transportation of resins for further offsite processing.
Ross constitutes the largest JORC-compliant ISR resource in the U.S. at 54 million pounds of U3O8.
The approval to begin production activities at this site followed a comprehensive inspection process by the NRC last month, which determined Peninsula’s U.S. operating subsidiary Strata Energy had satisfied required conditions related to safety and environmental standards.
In preparation for production activities at Ross, Strata has completed significant infrastructure construction at the site, trained qualified staff and established operational processes and protocols.
Based on the results of the preoperational inspection, the NRC staff has determined that Ross is physically ready for ISR operations up to the ion exchange columns.
At the time of the preoperational inspection, the NRC noted that Strata plans to ship uranium-loaded resins to a nearby mill, an NRC-licensed site, for further processing.
Peninsula is expected to produce at a stage-1 rate of 600,000 to 800,000 pounds of U3O8 per annum, with one well already fully operational and six more planned to sequentially ramp up, establishing a seven-well operation.
Operating costs will be curbed dramatically as this rollout takes shape, with an initial all-in cost forecast of US$41 per pound scheduled to drop to $29 per pound by stage 3.
Stage-1 capital costs are planned to be minimised to $33 million with toll treatment.
Toll treating, however, is expected to be brought in-house in later stages, resulting in lower operating costs and greater economies of scale.
Lance is expected to be cashflow positive in 2016 with its production ramp-up coinciding with a tightening uranium market.
About Lance
Lance hosts 305 line kilometres of identified roll fronts on the northeast flank of the Powder River Basin in the state of Wyoming.
A proprietary database of historic drilling and pilot plant data in this region was acquired by Peninsula in 2007, defining a then relatively unknown uranium district of which Peninsula is now the dominant mineral rights holder.
Unlike most ISR projects, Peninsula’s mineral resources are located on contiguous landholdings that the company controls. This allows Peninsula to develop Lance in a cost-effective manner, without having to incur infrastructure and facility development costs that would otherwise be required if the landholdings were not contiguous.
Lance properties cover more than 46 square miles but more than 90% of drilling has been concentrated on the Ross permit, suggesting enormous upside in further regional development.
Based on the historic conversion rate from roll front length to a drill-defined resource, the mineralised potential of Lance, in addition to the established resource, is assessed at between 104 and 163 million pounds of U3O8.
U.S. listing
Renewed momentum in bringing Ross into production has coincided with advances in Peninsula’s efforts to list its American Depositary Shares on the New York Stock Exchange – MKT.
The move is expected to provide further impetus to a near-term valuation re-rating for Peninsula as well as direct access and much greater visibility of the company’s uranium business in the world’s largest debt and equity markets.
The company has filed a registration statement to register its ordinary shares with the U.S. Securities and Exchange Commission (SEC).
Once this form is declared effective by the SEC, it allows foreign issuers to register securities with the SEC for trading on a U.S. stock exchange pursuant to applicable U.S. securities laws.
Peninsula’s registration filing with the SEC and forthcoming U.S. stock exchange listing is expected to provide a number of benefits to the company.
Home to the world’s largest nuclear power generation fleet, the U.S. also provides access to the largest pool of capital globally and access to an active and sophisticated investment market well versed in the benefits of nuclear power generation and the contribution that uranium makes to the nuclear fuel cycle.
Analysis
Government approvals are always a major milestone in the uranium space, but official clearance for production at Lance is especially positive for Peninsula since initial cashflows could underpin continued development of the project’s massive potential for low-risk expansion.
As the next global uranium producer, this approval is a game changer, propelling Peninsula as a very near term cashflow producer next year.
Operationally, the NRC inspection also confirms and validates the operation-ready status of Lance’s Ross property, which is now primed for ISR output up to the ion exchange columns.
The fact that Ross is an ISR operation an important factor in project economics since this non-mining method of uranium extraction is universally regarded as the most efficient operating model.
Given the underexplored nature of much of the Lance property holdings, the current resource could be tripled as uranium markets heat up and a U.S. stock market listing for Peninsula takes shape.
A North American listing is important for Peninsula since it improves potential to integrate the company’s business strategy into the massive U.S. nuclear market as macro factors improve the sector’s economics.
A tightening supply situation and new demand is expected to lift the whole uranium sector and further enhance the economics of Lance.
Peninsula shares have been performing well on this outlook, with the stock last trading 10.1% up at A$1.30, or 62% higher than a low reached in September and 81% higher than the beginning of the calendar year. This is just the start as the North American investor market gets on board the stock in 2016.
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