Peninsula Energy Ltd (ASX:PEN) has clinched its fifth sale of uranium concentrate for the Lance uranium project in Powder River Basin, Wyoming to a utility company.
The fifth long term sale and purchase contract signed by Peninsula, believed to be with a major European utility is for delivery of 4.0 million pounds of U3O8 over a 10-year period commencing at the end of 2020.
Peninsula has a Total of 7.9 million pounds of U3O8 under contract for delivery to major utilities located in the United States and Europe. Total revenue over the life of these contacts is US$440,000,000.
Today's agreement also contemplates increasing the quantity to 50% of annual Lance production from 2026 onwards.
Peninsula's managing director Gus Simpson has left open terms relating to the increased quantities to be negotiated in 2022, when prevailing market conditions should be more favourable for producers.
The contracts do provide a substantial earnings stream to Peninsula, underpinning short term Lance project development.
This enables Peninsula to retain significant quantities of planned U3O8 production for future periods of anticipated improvement in uranium prices.
Significantly, the weighted average delivery price for the five contracts over the next 10 years is US$56 per pound of U3O8.
This compares very favourably to the US$45 per pound of U3O8 weighted average delivered price achieved over the past decade by the four largest publicly traded uranium mining companies: Cameco Corporation, Energy Resources Australia, Paladin Energy and Uranium One.
It takes Peninsula further down the road as a global, sustainable, low-cost uranium concentrate producer at Lance.
Stage 1 production - 75% committed
During the period 2016 - 2021, 75% of Stage 1 production from Lance is committed to long term contracts.
Under the existing sale agreements, 54% of annual Stage 2 production is committed during the next 10 years. This de-risks the expansion at the Lance Projects, while allowing for additional sales contracts to be struck when prices are higher in future years.
Managing director and CEO Gus Simpson said: “Over the past five years Peninsula has been focussed on demonstrating to United States and European utilities its capacity to become a reliable long term supplier of uranium.
"The establishment of good relations with end-users with end-users has provided a significant long term revenue stream that underpins the Company’s development in the short term and provides a solid basis for its long term growth”.
Streaming agreements
Peninsula is look toward Income Streaming as a means of financing future expansion plans.
The company has received proposals and executed one non-binding term sheet for an Income Streaming facility to fund expansion at Lance.
Income Streaming is a non-dilutive mechanism that sees a proportion of future sales revenue, over a finite time period, being exchanged for a one-off upfront cash payment that is to be used for additional capital expenditure.
Typically this would involve less than 5% of the produced material over the specific time period, structured to afford a commercial return to the provider but also to minimise the cashflow impact to the company.
Uranium prices
Improvement in uranium prices is expected by most analysts to be driven by the increased use of nuclear power as a means of cost effective carbon free baseload power generation.
Currently, there are 440 operable nuclear power reactors globally, capable of generating 384 GWe of carbon free electricity per annum.
A further 65 reactors are currently under construction and an additional 510 reactors are planned or proposed in the future.
Operating reactors will consume approximately 170 million pounds of U3O8 in 2016 with a forecast growth rate of 4% p.a.
This growth is led by China, India and Russia, and supported by countries such as the United Arab Emirates, South Africa and Saudi Arabia. All of these countries are seeking increased quantities of reliable carbon-free baseload power generation.
Analysis
The fifth sales contract should provide additional security to future revenue and potentially de-risks expansion plans.
It also enables future uncontracted Stage 2 and Stage 3 production capacity to capitalise on higher future uranium prices.
Its substantial portfolio of long term contracts at prices that provide a significant margin over all-in sustaining costs of production and at average prices higher than Cameco Corporation, Energy Resources Australia, Paladin Energy and Uranium One should drive the market valuation of Peninsula higher.
Finalization of the pending NYSE listing should improve liquidity and access to capital, as well as a potential re-rating as Lance proceeds.
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