The ramp-up at Peninsula Energy's (ASX:PEN) Lance in-situ recovery (ISR) uranium project in the U.S. is well on track with production well flow-rates slightly above expectation.
After starting production last month, flow rates have averaged in excess of the forecast level of 20 gallons per minute.
This supports Peninsula's expectation with regard to the affirmative permeability of the ore body, a fundamental factor in any ISR operation.
ISR is a cost-effective solution mining method characterised by extraction via boreholes drilled into the deposit.
Since the start of production uranium head grades are increasing daily in line with expectation and several production wells are already producing uranium concentrations in excess of the rates used in the life of mine (LOM) production forecasting.
The Central Processing Plant and well field systems are all operating better than expected during early production ramp up. Sampling to date is showing the capture rate of uranium on resin in the ion exchange columns is also well in excess of expectation.
Deep Disposal Well
Prior to operational use of the Deep Disposal Well (DDW), 168,000 gallons of buffer solution was injected into the DDW.
Flow rates during injection of the solution ranged between 80 and 120gpm – a phenomenal rate, much better than expected and significantly better than seen in other ISR DDWs in the state of Wyoming, where Lance is located.
The performance of this DDW is expected to enable the company to defer the timing of additional DDWs, potentially reduce the number of DDWs required and lower the forecast LOM capital expenditure.
DDWs are used at ISR projects to manage waste water.
Recent progress
Operational ramp-ups at Lance have followed quickly on the start of production at the site last month and the first U.S. deliver of uranium to a power utility earlier this month.
The delivery under the company's wholly owned subsidiary Strata Energy realised a sale and purchase agreement established in February 2011, which entailed the supply of 1.15 million pounds of U3O8 from Lance.
This contract will see Peninsula supply U3O8 over seven years at escalated fixed price, fixed quantity and term.
Peninsula has 1.9 million pounds of U3O8 contracted to utilities at a weighted average price approaching US$60 per pound, which is well above the current spot price (US$34.75 per pound).
This is estimated to represent about 40% of Lance’s stage-1 production per annum.
Analysis
Strong production performance metrics at Lance in its early stages of operation are beneficial in removing key risks associated with ISR project costs going forward.
Strong flow rates and steady uranium recoveries increasing in line with expectation are contributing to a picture of a project with potential to further enhance economics ahead of expected uranium price increases.
A smooth run so far for the CPP and associated systems also bodes well for this outlook.
Operating costs are expected to be curbed dramatically as Lance operations advance, with an initial all-in cost forecast of US$41 per pound scheduled to drop to $29 per pound by stage 3.
Toll treating, meanwhile, is expected to be brought in-house in later stages, resulting in even lower operating costs and greater economies of scale.
Also, the weighted average price for U3O8 in Peninsula’s utility contracts is already estimated to approach US$60 per pound.
The recent pull back in the Peninsula share price provides a buying opportunity for a producer that after ramp up will be profitable at long term uranium prices.
A pending NYSE MKT listing will add new path to re-rating of the stock.
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