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Valuing Uranium Lbs in the Ground: What-if Analysis for Added Context

DISCLAIMER: Any written content contained herein should be viewed strictly as observation, analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.

Despite Peninsula Energy (PENMF) at one point in June being the top performing uranium developer on a YTD basis, the surprise toll-milling contract termination brought upon by a third party has since reversed the company's fortunes. Though the company has since worked diligently to in-house the full uranium production value chain, until a financing is announced (or at least a partial tranche of the required ~$95.0M) we continue to see the pending financing as a massive overhang which will continue to weigh on the shares (full details here).

Though we are confident that a debt/equity deal will be struck and announced in the near term, we provide some what-if analysis if the company were valued solely as a uranium exploreCo. By this we mean to look solely at the most basic asset - global uranium lbs in the ground. For sake of this analysis, in Peninsula's case we ignore the aggressive production plans expected to commence in late 2024 and the nearly 5.0M lbs in long term contracts. Moreover, we completely ignore the Ross CPP (a relatively modern processing plant which was refurbished in 2015 and has a highest-among-peers licensed capacity for 3.0M lbs per year). We look exclusively through the lens of an exploreCo and note the company's 53.7M lb global uranium resource, entirely contained on the Lance property.

For sake of peer analysis, we look exclusively at uranium companies with a mcap below $1.0B and have one single uranium asset. We include a combination of Wyoming and Athabasca Basin based companies. Meeting this criteria, the uranium peer list includes:

Peninsula Energy (PENMF): Lance

Ur-Energy (URG): Lost Creek

Fission Uranium (FCU): Triple R

IsoEnergy (ISO): Larocque East

We also include Strathmore Plus (SUU) and F3 Uranium (FUU) however note that both companies have yet to deliver a maiden resource at their respective flagship properties. As can be seen below, on a lbs in the ground basis alone, Peninsula trades at a much lower mcap ($74M) relative to IsoEnergy ($305M) and F3 Uranium ($112M) despite having a larger global resource to each. Though we do acknowledge a premium valuation for Athabasca Basin lbs, Peninsula's 53.7M lb global resource is worth highlighting as highest in class for deposits located in Wyoming.

For added context, we included Ur-Energy's Lost Creek project (Wyoming) which currently hosts a global resource of 18.5M lbs. Once again, for purpose of this analysis we ignore the fact that Lost Creek is a current producer. Including NexGen Energy (NXE)'s Arrow (Athabasca Basin), once we rank the individual company's valuation per global resource the results become that much more telling:

Apart from the overwhelming value we currently see with Peninsula Energy, we see two main takeaways from the above graphs:

1) at $20.76/lb, Ur-Energy is very much so lacking in the resource department. Though exploration programs are on-going at Lost Creek and elsewhere on the Shirley Basin, the resource inventory is an area of needed expansion. This is something that management is already well aware of, recall that on April 3, a Confidentiality and Non-Disclosure Agreement was signed with Strathmore Plus Uranium. Despite not yet having a maiden resource, the agreement came through following the commencement of mine permitting activities for the nearby Night Owl uranium project. The agreement allows for Ur-Energy to further evaluate the potential of the asset portfolio (encompassing Night Owl, Agate and Beaver Rim - all located relatively near to the Lost Creek Facility in Wyoming). Note as well that following a bought deal offering which closed on February 21, the Ur-Energy currently maintains a war chest amounting to ~$61.0M in cash.

2) given the assembled peer group, we note that there are very few pure-play exploration companies advancing projects in the uranium hotbed of Wyoming. Though the Athabasca Basin has more than its fair share of junior uranium explorers and developers (too many to note), the uranium hotbed of Wyoming currently only hosts Strathmore Plus as a pure-play, publicly listed junior exploreCo. The soon-to-be listed Premier American Uranium will be the only other notable junior with exposure to Wyoming.

For added context, we include a timeline of the more notable M&A transactions since 2007 and encompassing a period before and after Fukushima:

Though transactions must be viewed on a specific case by case basis, as can be seen from the graph above, the pre-Fukushima (2007-2010) transaction average was for $7.85/lb while the post-Fukushima average amounted to an average of $3.69/lb. With the spot uranium price now well above $60/lb, we can only expect the numbers of transactions to increase, and with it, the transaction multiples as well.


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