Hi Tutes, Counter intuitively, a higher spot price for U is...

Hi Tutes,

Counter intuitively, a higher spot price for U is actually BAD for PEN as it currently stands.

By sourcing U to meet contractual obligations on the spot market, higher spot prices effectively increase the cost of sales until they can ramp up Lance using a "low pH" process which looks like late 2019 or early 2020.

If I was management, I would use as much of the US$19m as possible (without running into liquidity issues) to buy U on the spot market as soon as possible to meet the contractual obligations prior to the planned transition at Lance, before prices rise.

Everybody knows that the spot price for U is unsustainable and analysts have been forecasting a deficit to emerge c. 2020-2021.

However some analysts (e.g. Leigh Goering) have been bringing their forecast deficit timeline forward.

Now that producers such as Cameco are sourcing large volumes of U on the spot market and there is a risk that PDN ceases supply of spot U to the market within 4 months (likely IMO) I think we are already starting to see the market respond in anticipation of less available spot U.

Thus for PEN, there is a risk that their currently fat margins will shrink very quickly. A totally ironic situation to be in.

Cheers
John