Peninsula Energy Ltd (ASX:PEN, OTCQB:PENMF) has retained its buy recommendation from Shaw and Partners following the release of the Definitive Feasibility Study (DFS) at its Lance Uranium Project in Wyoming during the September quarter.
The investment manager expects Peninsula to announce a Final Investment Decision this quarter and has set a price target of A$0.34 (current share price: A$0.18).
Shaw continues to like Peninsula for its operations being in the US, having an existing contract book, and its leverage to a uranium sector upcycle.
The following is an extract from the research report:
Event
Peninsula has released its September quarterly activities report. The highlight during the quarter was the release of the Definitive Feasibility Study (DFS) at the Lance Uranium Project in Wyoming. We expect Peninsula to announce a Final Investment Decision this quarter.
Key results from the DFS include a pre-tax NPV8 of US$125m and an IRR of 43% using an average sales price of US$62/lb. The company assumes steady-state production of 2Mlbs from year 4 (approx. FY28) to produce 14Mlbs across the life-of-mine and life-of-mine allin-costs of US$46/lb. This compares to the total current resource base of 54Mlbs and exploration upside previously assessed to be 50-150Mlbs (2015).
Highlights
- PEN’s flagship Lance Projects in Wyoming, USA, requires low upfront capital and can rapidly restart post a Final Investment Decision. PEN is the only ASX company with direct exposure to US Government initiatives which are pro-domestic mine development.
- PEN has an existing contract book and product inventory, with a binding purchase agreement netting a cash margin of US$7.8m in CY2021 (450klbs) and >US$9m in CY22 (450klbs). The company has long-term sales contracts extending to 2030, up to 4.8Mlbs at US$56-58/lb U3O8 with major utilities across Europe and the US.
- The company is looking to switch operations from high to low pH in order to increase product yields. The results of the 18-month field demonstration, which completed Dec21q (uranium average grades ~60-70ppm and peak grades ~150ppm) suggest that the targeted low-pH chemistry and field patterns are effective in dissolving and recovering uranium.
- The DFS details a simplified, two-stage, ramp-up to 2Mlbs/yr, with production sourced from the Ross and Kendrick areas of Lance Projects. The DFS concludes a pre-tax NPV8 of US$125m and an IRR of 43% using an average sales price of US$62/lb. Key features include:
- Total development/ upfront capex for the two stages of ~US$80m (~US$9m for Stage 1 and ~US$70m for Stage 2).
- The company assumes steady-state production of 2Mlbs from year 4 to produce 14Mlbs across the life-of-mine. This compares to the current resource base of 54Mlbs and exploration upside previously assessed to be 50-150Mlbs.
- Life-of-mine All-in Sustaining Costs of US$39/lb and All-in Costs of US$46/lb.
- Our post-tax NPV10 of US$128m is in line with the company’s DFS results.
- Strong balance sheet – the company is term debt free with an unrestricted net cash balance of US$8m (end Sep22q, + 310klbs uranium inventory with a market value ~US$15m).
- Peninsula generated sales revenue of US$10.8m in the quarter on the sale of 200klb of uranium at US$54.15/lb pursuant to a long-term contract.
- During the quarter the US Department of Energy (DOE) released a request for proposal for the purchase of uranium to satisfy the US$75m Uranium Reserve budget allocation. Peninsula has submitted a qualifying bid with the result expected in coming days.
Recommendation
We maintain our Buy recommendation. And price target of A$0.34ps, set at 1.3x our fully diluted valuation of A$0.26ps.
We continue to like PEN for its operations being in the US, having an existing contract book, and its leverage to a uranium sector upcycle.