COMPANIES Peninsula Energy†† ASXEN | A$0.92 | US$114m | Buy
Quarterly Activities Report Peninsula Energy has released its quarterly report for period ending 31 December 2015. Progress during the period at the Lance Project included the award of final permits and the commencement of ISR operations in December. Having made its first contracted uranium sale in January with borrowed material, owing to the timing of the project’s start-up, the company expects that future sales will be of U3O8 sourced from Lance. Cash at the end of the quarter was A$6.3m, with a further A$4.9m from the January yellowcake sale due in February. Operating cash outflows for the quarter were A$13.0m, and the company drew down US$2m from the US$15m Investec facility.
COMMENT: Progress at the project since commissioning continues to be positive, and we await further updates regarding production and cost guidance. With ISR operations having been underway at Lance for eight weeks, we estimate the US$33m Phase 1 capex spend should be largely complete. However, we anticipate additional capital may be required to cover working capital and inventory movements during ramp-up, which is available to the company through the US$13m undrawn portion of the Investec facility. We reiterate our Buy recommendation, with a target price of A$1.60.
Flow rates above expectation — The announcement reiterates that production flow rates at the project have exceeded expectations to date, in addition to ion exchange column uranium capture rates, and deep disposal well performance.
Whilst the company has indicated that these above-expected production flow rates and DDW performance could lead to opex and capex reductions respectively, we look to these levels being sustained at steady-state before the potential improvements to project economics might be quantified. Production start-up had been scheduled for October, and while positive results during ramp-up have continued to de-risk the project on an operating basis, we await updated guidance in terms of production and cost schedules.
Cash of A$6m and debt of A$3m at the end of the year (plus February receivables of A$5m) — Cash at the end of the quarter stood at A$6.3m, with receivables of A$4.9m due in February relating to proceeds from the first yellowcake sale. This follows operating cash outflows for the quarter of A$13.0m and a US$2m draw-down on the US$15m Investec facility.
With ISR operations having been underway at Lance for eight weeks, we estimate the US$33m Phase 1 capex spend should be largely complete. However, given the A$6.3m cash position as at end-December (along with A$4.9m being due in February), we anticipate further draw-downs of the Investec facility will be required to cover working capital and inventory movements during ramp-up.
Three-phase ramp-up to 2.3Mlb pa U3O8 — The company has now commenced production from the Phase 1 Ross Permit Area, which is planned to deliver a production rate of 600,000-800,000lb pa U3O8 through 2016 and 2017. Phase 2 will involve a stepped increase in production capacity from 2018 for a capital commitment of US$35m. Stage 3, commencing in 2020, will see the production rate brought to a steady-state of ~2.3Mlb pa for US$78m capex over the remaining >10-year life-of-mine.
Declining LoM all-in-costs to US$29/lb by 2020 — The company guides that all-in-costs for Phases 1, 2 & 3 will be US$41/lb, US$30/lb and US$29/lb, while the current long-term uranium benchmark price stands at US$44/lb U3O8. The company has thus far been successful in securing term contracts materially above this price, with 1Mlb contracted at a WAP of US$73-75/lb U3O8 for 2016-20 delivery, and a further 2.85Mlb contracted at fixed term prices for 2016-24 delivery.
The company has indicated that the WAP for delivery under term contracts between 2016 and 2020 is US$59/lb U3O8, above the current long-term price and some 70% above the current spot price of US$35/lb. A term sheet is also in place for a 4Mlb contract for delivery over ten years, commencing late this decade.
PEN Price at posting:
91.5¢ Sentiment: Buy Disclosure: Held
EN | A$0.92 | US$114m | Buy
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