Ann: Company Presentation - Low pH Feasibility Study, page-25

Hi Guys,

It does look like a sell-the-news event for PEN and perhaps some were anticipating much lower AISC and higher NPV.

I am out of the office and haven't looked through everything yet. I also have to say that I am not a technical expert so can't provide any insights re the robustness of the flowsheet, etc but I can make some general initial comments:


- Using NPV₈ as the discount rate provides credibility
- Lance is hugely sensitive to U prices as can be seen in the NPV uplift from $49 lb --> $57 lb
- Every $1 increase in U price adds US$10m to NPV₈
- FS used conservative U price as base case ($49 lb) vs. FCU ($65) and NXE ($50)
- IRR of 30% solid, especially looking at the inputs uses (discount rate and U prices)
- I think we can rely on cost inputs based on their previous operational experience
- Seems a conservative % of resource extracted (62%) allowing some upside (every +1% extracted = US$60m in NPV₈)
- Only US$5.3m capex for Stage 1

It seems to me that management are very mindful of past failures and are trying to present a FS that is realistic and will not disappoint investors if/ when production commences.

There are also risks/ unknowns:

- I have no idea if "low pH" will be more effective and achieve the FS production numbers stated, which is critical to the above
- There is regulatory risk that Wyoming will not allow the change from high to low pH
- Just as there is upside from increasing U prices and increasing extraction %, the reverse is also true

Given that the AISC for Stage 1 is $40.58 lb, there is IMO, no hurry to start production whilst the spot price of U is lower.

If we remove G&A from this cost ($3.66 lb) as this will be incurred regardless of whether production or spot U is provided, and assuming PEN can negotiate the "alternative source" with their utility customers, then to me I think that:

PEN should buy Spot U on the market to fulfil its contractual obligations up until Spot U reaches $36.92 lb after which production from Lance Stage 1 will be more cost efficient. Surplus production, over and above contracted U, should certainly not be contemplated until Spot prices rise above US $40.58 lb.

On balance, I will maintain my investment due to:

- My view that both spot and LT contracted U is in the process of rising well above the base case of US$49 lb which, if Lance can be progressed provides a solid NPV₈ of US$157m (AUD$218m) with leveraged upside to higher U prices (which I anticipate) ... i.e. US$10m (AUD$13.8m) for every US$1 > $49 lb.

- PEN is a possible beneficiary to any positive S232 outcome

- PEN management seem genuine in presenting to stakeholders a conservative FS that is achievable

- PEN capex is modest (Stage 1 = US$5.3m) and the potential to get into production (Stage 1) within a short time frame (relative to other developers) should allow for opportunities if U prices outperform expectations.

I will watch progress here, however, I anticipate that based on when they expect their regulatory approval to be achieved (July 2019), first production may be optimistic ...

Cheers
John