INTRODUCTION
In the news: Mines and Money, Atlas Resources & Peninsula Energy
Yes, it’s that time of year again — Mines and Money in London. Our Senior Executive Procurement Officer, Catherine Pigg, was busy yesterday setting up our stand in the usual place. The important news is that our never-ending bowl of M&Ms has already secured its position on our table, so if you need a pep-up please drop by. The full RFC Ambrian team will be around and about, and despite the somewhat negative sector sentiment we have a packed schedule.
A lot of our corporate clients are available and we are busy setting up meetings for Alan Martin of Atlas Resources. Atlas has a new zinc-lead-copper-gold-silver project in Alaska. We look forward to seeing you all over the next three days and I’ll provide updates on the events as the week progresses.
METALS & MINING EQUITIES
Peninsula Energy†† (ASX:PEN) — US NRC Authorisation to Begin Production at Lance — The ASX-listed company advancing uranium projects in Wyoming and South Africa has announced that it has received Nuclear Regulatory Commission (NRC) approval to begin ISR operations from the Ross permit area of the Lance Project, Wyoming. The NRC conducted pre-operational inspections at the site over 2-5 November and 22-24 November to confirm that written operating procedures and approved radiation safety and environmental monitoring programmes were in all in place. These also verified the completion of pre-operational testing.
The NRC inspection team concluded that Peninsula, through US subsidiary Strata, had established programmes that are protective to site workers, the public and the environment within the permit area. Specifically, Strata has:
- constructed the plant and associated site systems to be physically capable of conducting in situ uranium recovery operations;
- filled management-level and plant support positions with trained and qualified staff;
- established an appropriate quality control programme;
- established operational procedures for plant and wellfield, routine and non-routine reporting and incident investigation;
- completed construction of the first wellfield and associated header house in accordance with the approved licence application;
- established and implemented radiation protection, environmental monitoring, transportation, radioactive waste handling and emergency preparedness programmes that comply with regulatory and licence requirements; and
- established and implemented a training programme that includes radiation protection and operational and industrial safety.
Hence, the NRC has deemed the Ross permit area to be physically ready to commence ISR operations, comprising wellfield injection and disposal, ion exchange, water disposal and transportation of loaded resin for further offsite processing.
RFC Ambrian Comment: NRC approval had been a critical path item leading towards achievement of first production, and we expect that the receipt of this should allow production start-up within weeks. The Stage 1 Ross unit is expected to deliver a production rate of 600,000-800,000lb U308 pa, with construction for Phase 1 complete, seven header houses fully operational and six more to be rolled out sequentially during ramp-up.
We understand that approximately US$13m of the Phase 1 investment capex was yet to be spent as of end-September 2015. Stage 2 will involve a stepped increase in production capacity from 2018 for a capital commitment of US$35m, while Stage 3, commencing in 2020, will see the production rate brought to a steady-state of ~2.3Mlb pa for US$78m capex over the remaining >10-year life-of-mine. The company guides that all-in costs for Phases 1, 2 & 3 will be US$41/lb, US$30/lb and US$29/lb, while the current long-term uranium benchmark price stands at US$44/lb U308.
In terms of margin realisation, we would highlight that company has been active and successful in securing term contracts at prices materially above spot, with 1Mlb contracted at a WAP of US$73-75/lb U308 for 2016-20 delivery, and a further 2.85Mlb contracted at fixed-term prices for 2016-24 delivery. A term sheet is also in place for a 4Mlb contract for delivery over ten years, commencing late this decade. The company has indicated that the WAP for delivery under term contracts between 2016 and 2020 is US$59/lb U308, significantly above both the spot price of US$36/lb and the current long-term price.
As of 30 September, the company had cash of A$18.5m. We reiterate our Buy recommendation, with a target price of A$1.60.