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Peninsula Energy (PENMF) provided an operational update for its flagship ISR Lance Project, located in Wyoming. As the company ramps up the pre-production wellfield conditioning flow rates, final site construction has been rapidly advancing as delivery of several long lead-time items was received in April. That said, management remains confident for a production restart in mid-2023. Given out LT uranium price forecast of $70/lb, we maintain our 1.3x Premium to NAV8% valuation equating to +147% upside from the current level. We continue to see Peninsula Energy as the most compelling risk/reward story in the entire US ISR uranium sector.
Following a tough winter season, the construction milestones have started to add up this spring. At the existing production plant, the installation of the concrete foundations and pedestals for the high-capacity sulfuric acid and hydrogen peroxide storage and delivery systems is progressing well. A second acid tank has been received and will be installed shortly. Though the delivery of a high-capacity peroxide storage tank has been delayed (due to inclement weather), the plant possesses a smaller capacity peroxide addition system which will be able to support production in the interim. The overall plant upgrade work (in order to be low-pH compatible) is expected to be completed in June 2023. Just as importantly, the capex thus far has been tracking the projections ($8.4M) from the August 2022 Definitive Feasibility Study (DFS).
In terms of wellfield preconditioning at Mine Unit 1 (MU1), well patterns are being acidified and ahead of the production operations. Currently, flow rates of 500 gallons per minute (GPM) have been established and are expected to increase in the months ahead. Wellfield transformation activities have also advanced to Mine Unit 2 along with several drilling rigs preparing Mine Unit 3.
There are currently three US focused ISR developers in the process of re-launching commercial production activities: Both Peninsula Energy and Ur-Energy (URG) have set sights on mid-2023 production while enCore Energy (EU) looks to re-start Rosita before the end of the year, followed by re-starting Alta Mesa production sometime in 2024. Our current projections are as follow:
Though Energy Fuels (UUUU) has a portfolio of conventional uranium and ISR assets (Nichols Ranch), its current focus is on the production of Rare Earth Elements and not on uranium. Meanwhile, with Uranium Energy Corp. (UEC), a concerted commitment to restart or develop operations (whether at Hobson or Irigaray) has yet to be made. Peninsula Energy is singularly focused on its flagship Lance Project – strictly speaking, we see the most upside with Lance owing to the fact that the DFS restart plan was derived from a mere 21.8M lbs (with ~14.3M lbs produced, given an estimated 65.8% recovery) encompassing only the Ross and Kendrick production areas. If one were to expand the resource acreage to encompass the entire 8km x 37km area (now including Barber, highlighted in green in the map below), an additional 31.8M estimated lbs can more than double the project LOM. That said, additional delineation drilling to upgrade the Barber resource from Inferred to Indicated will be needed, but the point is that resource expansion risk is well on the upside. Both the LOM and corresponding LOM economics can potentially improve greatly.
In addition to the fact that the company is still perceived to be an Australian company with some historic assets located in South Africa (luckily since divested), the valuation disconnect (underperformance) to North American peers has been pronounced over the years, and still is to this day. A secondary listing following a much needed share consolidation in North America would go a long way towards pushing for a new investor base outside of Australia and into North America and Europe instead. A certain level of re-branding, marketing and investor engagement in order to create awareness and to pivot from a perceived Australian company to an American one instead would be beneficial in more ways than one.
That said, since an investment into a near-term uranium producer is an investment into that specific asset which will next provide for sustainable cash flow, strictly on a per flagship uranium asset basis, Peninsula’s Lance project exhibits a profound discount to peers. We see this discount when looking at Lance in its entirety (global resource of 53.6M lbs) or even when looking at the very same DFS project metrics (21.8M lbs without Barber - exclusively from Kendrick and Ross). As a caveat to the comp tables below, recall that Uranium Energy Corp. has not committed to any re-start timeframe while Energy Fuels is currently a play on Rare Earth Elements, making its uranium portfolio less of a priority. Lance at an EV/lb of $1.9 (or $4.7/lb using the lower DFS resource figures) is trading at a much lower EV/lb multiple to the Ur-Energy's Lost Creek Project ($12.3/lb) and enCore Energy's Alta Mesa ($9.9/lb) or Dewey Burdock ($13.9/lb).
Given the significant potential for further resource expansion, note that the Ross Processing Facility (refurbished in 2015) has one of the highest presently licensed capacities among peers at 3.0M lbs U3O8 per year (ranking only below Smith Ranch-Highland's 5.5M lb capacity and Hobson's 4.0M lb capacity). Moreover, the introduction of a low pH ISR method used for extraction will generate a higher overall resource recovery factor accomplished at a faster pace (more uranium extracted over less time). Note that Peninsula Energy is the only fully licensed company for low pH ISR production. We feel that these are key points which are more often than not ignored when presenting any form of economic analysis. This is what leads us to our conclusion that Peninsula offers the highest risk/reward ratio per current valuation among domestic ISR peers. Recall as well that that the LT committed sales portfolio is one of the largest among peers - it currently includes 5.25M lbs of firm U3O8 extending until 2033.
Valuation: We continue to target a 1.30x NAV8% multiple based on a LT uranium price of $70/lb. This results in a 12 month target which would imply +146% upside from the most recent close. Shares of Peninsula Energy currently trade at a 0.53x discount to our calculated NAV8% estimate. Our calculated price sensitivities are presented below. Keep in mind that the company discloses financials as per Australian regulations. We continue to forecast a 10 year LOM extending until 2034 (inclusive of production from Ross and Kendrick only) averaging ~1.3M lbs per annum at a cash cost of $19.70 per lb (or AISC of $42.71 per lb).
Peninsula Energy's current 0.53x P/NAV discount is by far the largest discount within the US ISR peer group. This includes enCore Energy (currently trading at a P/NAV of 0.68x) and Ur-Energy (P/NAV of 0.70x). We feel that a 1.30x NAV multiple is justified on 2 fronts: Management has a successful track record (multiple decades) of developing ISR assets into production. Peninsula Energy’s current CEO was brought on board after having successfully de-risked, developed and put into production the ISR resource at Ur-Energy’s Lost Creek operation. Secondly, the upside from the large resource at Barber is essentially carried for free, but will very likely extend the Lance LOM and annual production rate to the licensed 3.0M lbs per year. If licensed capacity production is achieved, Lance would thus become one of the largest uranium producing properties located in the US.