PENINSULA MINERALS LTD Ticking the Boxes Peninsula Minerals Limited (�Peninsula�, �PEN�, �Company�) has continued its strong track-record of delivery with a recent resource upgrade from 15.1mlb U3O8 to 25.2mlb U3O8 as well as significant progress on permitting related activity at the Company�s 100% owned Lance Project in the USA. The Company�s management team has extensive experience in delivering exploration projects into production. The next significant milestones for the Company include submission of key permitting applications as well as a resource upgrade in December 2010, then completion of its Definitive Feasibility Study (�DFS�) in January 2011, with a decision to mine likely in February 2011. We would also not be surprised if the Company attracted a strategic investor towards the end of the year. Peninsula is targeting first production by March 2012. Permitting � How Peninsula is Setting the Standard PEN has employed consultants WWC Engineering to manage the majority of the permitting work and documentation is almost complete, with submission on track for December 2010. We recently visited Peninsula�s operations and gained insight into the proactive process undertaken by PEN and WWC. Permitting is a key risk to uranium projects and the visit was essential for us to have a view on the likelihood of PEN achieving approvals in a timely manner, especially considering that several other companies in the region have been back and forthing with the regulatory bodies for over two years. We believe that Peninsula has taken the necessary steps in order to maximise its chances of obtaining the approvals required in order to achieve first production by mid 2012. These steps include quarterly meetings with the regulatory bodies to review the status of application documents and pre-emptively addressing all Requests for Additional Information that have been made to other companies. Peninsula should also benefit from most of its leases being privately owned, as opposed to being State or Federal leases. A greater amount of work has been required to secure the surface and mineral rights; however, less red tape is expected when it comes to securing permission to construct the plant, drill wells and build roads from the landowners, who will benefit from royalties associated with any production. Resource Definition on Track The Company continues to achieve above expectations in relation to definition of its resource, with improvements in both size and category on a regular basis. The Company is targeting 17mlb U3O8 in the indicated or better category (currently it has 9.2mlb indicated or better) by December 2010, which will enable completion of the DFS with 15mlb of saleable product. Continued expansion of the resource is also likely, as indicated by recent drill results. Potential for Significant Scale Peninsula�s initial start-up at Lance is targeting 1.5mlb pa of production; however, additional scale is possible in the region as indicated by the large resource potential of up to 145mlb identified at the Company�s Wyoming projects. Drilling at the Karoo Project in South Africa is scheduled to begin shortly where a similar sized potential resource has been identified. Production is possible from South Africa by 2017. The Company could have 4-5mlb pa production before 2020, making it a significant producer at a time when the outlook for the commodity is bullish. ANALYSIS AND VALUATION CORPORATE FINANCE Peninsula currently has 1,633m shares on issue and 663m options outstanding (including 50.5m performance options and 400m options to be issued as part of a recent entitlement issue). We assume fully diluted shares of 2,896m, assuming all options are exercised and ~500m shares are issued in order to fund the Company�s share of the start-up capital at the Lance Project. The Company has ~$7m in cash with no debt (as at 22nd July 2010). The Company secured a $50m line of equity facility with YA Global Master SPV Ltd (a fund managed by Yorkville Advisers LLC) in September 2009. A$15m is immediately available, upon activation, for drawdown at Peninsula�s discretion. An additional A$15m will become available once JORC compliant resources of 10mlb are defined, and the final A$20m will be available upon completion of a Bankable Feasibility Study. We do not anticipate that this facility will be utilised. CONCLUSION Peninsula has achieved significant milestones recently with a large upgrade to its maiden JORC compliant resource and completion of its PFS, showing robust project economics. We expect continued strong newsflow over the next 6 months in relation to additional resource definition, permitting submissions, definitive feasibility and a potential strategic investment. We believe that this activity is likely to result in a re-rating of the Company as visibility improves towards achieving the targeted first production in mid 2012. Uranium spot prices are starting to increase and the macro picture for the commodity is beginning to strengthen, in our view. Peninsula is also expected to commence resource definition drilling soon at its 74% owned Karoo Project, in South Africa. We rate Peninsula Minerals as a Buy with a 6 month price target of 9cps. Valuation of 11cps based on discounted cash flow and risked exploration potential. Upside exploration valuation exceeds A$1.2b or 50cps. Production from first year of full ramp-up expected to deliver A$47m in after tax cash flow.
PEN Price at posting:
3.6¢ Sentiment: LT Buy Disclosure: Held
