In the news: Peninsula Energy (ASX:PEN) & MYCELX Technologies (LON:MYXR)
METALS & MINING EQUITIES
Peninsula Energy†† — Intersection of High-grade Intercepts at Lance Project — The ASX-listed company advancing uranium projects in Wyoming and South Africa has announced high-grade results from mining development drilling at the Lance Project, Wyoming. A series of injection and production wells were drilled during July and early August, which will connect to the first header house in the Mine Unit 1 of the Ross Area, and which have continued to return high-grade intercepts. Highlights included:
- 2.5ft at 4,680ppm U3O8 from 448ft (grade thickness 1.17)
- 9.0ft at 1,000ppm U3O8 from 415ft (GT 0.90)
- 9.0ft at 750ppm U3O8 from 470ft (GT 0.68)
- 7.0ft at 890ppm U3O8 from 403ft (GT 0.68)
These results follow the pattern seen from earlier monitor well and delineation drilling in the same area, and the company has guided that overall drilling results from Mine Unit 1 have thus far either met or exceeded resource grade expectations for the orebody.
Since 13 July, 37 production and injection wells have been completed for the first header house within Mine Unit 1, of which 26 (70%) encountered significant mineralisation of >0.2 GT. An overall total of 104 monitor, injection and production wells have now been completed within Mine Unit 1, 99% of which have passed mechanical integrity testing on the first round.
RFC Ambrian Comment: It is clearly encouraging that intercepts remain in line with or above expectations in the immediate run-up to production. The high rate of mechanical well testing success is also evidence of the high development stage work quality controls. As previously outlined, according to the most recently provided project timeline, we understand that, following the completion of construction, wet commissioning should commence in September. We expect first uranium production in October, following the receipt of final NRC approvals, and the first sales of uranium in January 2016.
As detailed in the announcement of 23 July, the wellfield data package has been submitted for Mine Unit 1 to the NRC and the Wyoming Department of Environmental Quality (WDEQ), representing a key stepping stone in meeting the project’s pre-operation requirements.
We anticipate the shares should achieve a re-rating upon production start-up, bolstered by the additional catalyst of a US listing in the same month, and re-iterate our Buy rating and target price of A$0.040.
OIL & GAS EQUITIES
MYCELX TECHNOLOGIES*† — Progress Report on Trials and Cost Reduction Initiatives — The AIM-listed company offering patented water purification solutions targeted towards the global oil and gas and petrochemicals markets has announced an update on trials of the MYCELX system in key geographies, along with the implementation of cost cutting measures.
Progress has been made in its three core geographies: the US, the Middle East and India. There were successful trials in the onshore US leading to the installation of the MYCELX system for water recycling in a hydraulic fraccing application. The system was installed on a lease to purchase basis, to reduce opex for full water reuse and recycling in the West Texas Shale. In Saudi Arabia, a trial is now underway with a SABIC affiliate to treat wastewater from a petrochemical maintenance operation, further building on its solid base in the turnaround market in the region. The company has additionally continued to progress with paid-for trials on a major EOR application, having successfully completed a third trial at a major producer’s site in India.
In addition to ongoing operational progress, the company is implementing an updated cost reduction initiative, which will involve the Board of Directors and Key Management participating in a reduction in cash compensation until further notice. These measures should enable a reduction in the cost base to below US$9m for FY206, which the company guides should lead to a cash neutral position in 2H15 and support the target of being operationally cash generative in 2016. The cost reduction initiatives have been carefully targeted to preserve cash in the current environment, whilst not affecting the company’s ability to convert pipeline prospects successfully.
RFC Ambrian Comment: We are encouraged to see ongoing progress across the three major geographies, particularly the company’s first contract award for hydraulic fracturing in West Texas. While the shale industry has not historically represented an available market for the company, increasing competitive pressure on water and its rising value as a commodity have generated an appetite for new treatment technologies. MYCELX’ entry into the shale space is further supported by a strategic agreement with a major player that should enable accelerated capture of the fast-to-market opportunities offered by the sector.
It is clearly positive to see the company continue to cement its relationship within the SABIC umbrella, particularly given the relationship-driven nature of the Middle Eastern contracting environment, building on the four turnarounds the company has performed for SABIC and affiliates to date. The continuation of trials at the substantial EOR prospect in India demonstrates the client's continued engagement with optimising the MYCELX system for potential application at the project.
We expect that the cost cutting initiatives should enable an uplift in margins, and underline management’s commitment to balance sheet maintenance and conservatism amid the current market headwinds.