Peninsula Energy (ASX:PEN) has secured US$15 million in financing from Investec Bank to assist in covering inventory and other general costs over the next two years as production and revenues increase at the company’s Lance uranium project in the US.
The news follows immediately on a game-changing approval from U.S. authorities clearing Lance to be the world's next global uranium producer, with cashflow expected by next year.
Peninsula has entered into an agreement with the bank for the finance facility following discussions with a number of other similar financial service providers, with the Investec terms and interest rates deemed much more attractive than any other proposal presented to the company.
Given the contractual norms within the uranium industry of quarterly and bi-annual uranium delivery schedules under term contracts, the new finance facility provides Peninsula with additional funding flexibility should it be required.
Key terms of the deal include a 2-year secured facility comprised of a US$7.5 million inventory finance facility drawable against uranium inventory delivered to conversion facilities and a US$7.5 million revolving loan facility which is re-drawable and repayable at Peninsula’s discretion.
At current US-dollar LIBOR interest rates, the facility’s all-in interest rate is less than 6% per annum over the 24 month term.
The funds will underpin accelerating development of Lance, which hosts 305 line kilometres of identified roll fronts on the northeast flank of the Powder River Basin in the state of Wyoming.
Lance properties cover more than 46 square miles but more than 90% of drilling has been concentrated on the project’s Ross permit area, 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.
Project momentum
Peninsula’s move to secure this financing for the next two years of Lance development work adds confidence to a project delivery rollout that has marked some important milestones in recent weeks.
Most recently, Peninsula became was cleared by the U.S. Nuclear Regulatory Commission (NRC) last week to begin in-situ recovery (ISR) operations at Ross, including 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.
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.
Expanded investment drive
Renewed momentum in bringing Ross into production has also 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
This finance facility provides Peninsula with short-term funding flexibility as production at Lance ramps up following a landmark approval from the NRC.
This financing is important since it will smooth out the company’s operating cash balance despite the often lumpy nature of uranium deliveries and associated cash receipts.
It is encouraging that the company was able to secure the most attractive terms from a prestigious international specialist banking and asset management group such as Investec, which provides a diverse range of financial products and services to a niche client base in three principal markets, the UK, South Africa and Australia.
Peninsula has delivered steady development process at Lance this year, culminating last week in confirmation that the project was government-authorised and operationally ready to generate revenues for the company via the efficient non-mining ISR uranium extraction method.
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.
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