In the news: Peninsula Energy (ASX:PEN)
Yes, we’re back and I hope that you all had a good break and are suitably refreshed for what I think could be a rather good year. First off, on a day that North Korea apparently detonated an H-bomb, it’s worth highlighting that not all nuclear stories are bad. While possibly not matching some of the more optimistic expectations, uranium was the second best performing mining commodity in 2015 (down a modest 2.8%). You have to take any positives where you can find them in our space right now, and sell-side consensus is expecting gains for uranium through 2016 and beyond as Japanese reactor restarts progress, China’s nuclear roll-out continues and the uncovered US utility position influences demand.
Gus Simpson and his team at Peninsula Energy†† have already started delivering this year. The ASX-listed uranium company was up 40% in A$ last year (making it a stand-out performer in the sector), and we were pleased to see its announcement that it has completed its first U3O8 delivery under a sale and purchase agreement with a US utility. It also announced that, having received the final necessary NRC authorisation approvals, in situ uranium recovery operations began from the Ross Permit Area of the Lance Project on 2 December 2015. Production well flow rates are reported to be very good, and the second header house is being commissioned. Phase 1 full production will see a total of seven header houses in operation through 1H16.
Peninsula has contracted 3.85Mlb of U3O8 for delivery between 2016 and 2024. Its weighted average price for delivery between 2016 and 2020 of US$59/lb compares to all-in cost guidance of US$41/lb, US$30/lb and US$29/lb for Phases 1, 2 & 3. Stage 2 will involve a stepped increase in production capacity from 2018 for a capex cost of US$35m; meanwhile, 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. We reiterate our BUY recommendation, with a target price of A$1.60.