No Brainer

IT’S A NO BRAINER: PENINSULA IS THE URANIUM STOCK TO HOLD​

The uranium market moves up or down as a direct result of the purchasing patterns of the big electricity companies and how they see a need to purchase fuel for future use. Due to large inventories acquired prior to 2012, long dated supply contracts, unforeseen underfeeding and low grade tails reprocessing by enrichment companies with excess capacity, uranium has been in a state of oversupply since Fukushima. This has resulted in a decline in uranium price to below the cost of production.
Finally this looks like it is changing as production is scaled back and long dated residual contracts run-out, hwever the utilities are not yet contracting to fill the gap on stated material requirements and material contracted that is apparent in 2018 and is very pronounced in 2020. It is likely that the expected filling of this gap (which should have started in 2015) is being delayed by margin pressures and competing financial demands within the large electricity companies. This has been brought about by the slower than expected economic recovery in the developed economies and greater competition and cost increases in the electricity markets. However when the utilities do return to longer Term Contracting history shows it happens with a bang and we get massive spikes in demand and prices virtually overnight.
Peninsula is in good shape to address the current uranium market and then to expand quickly when the price moves back to levels attractive enough to enter into further contracts.
In the current uranium environment of sub-production cost prices being paid for uranium the Company has

1. Commenced production at Lance,
2. Been delivering uranium to investment grade customers at multiples of the uranium price,
3. Contracts with leading utilities in the US and Europe,
4. Contracts signed for over 8 million pound and extend for periods from 5 years - longer than 10 years,
5. An average delivery price across all contracts is reported at $54 per pound,
6. Deliveries over the next 5 years are estimated at approx. 3 million pounds, generating revenue in excess of $32 million per year,
7. Production costs at 500 – 700,000 pounds per annum that are expected to be around the low-mid $40 per pound range but higher during the current ramp-up period with lower volumes,
8. However in late 2016, due to good planning and good luck, the Company purchase 50% of its contracted deliveries over the next 5 years at an average price in the low $20’s per pound. This is well below any producers cost of production and much lower than the Peninsula sales price. The net result is a major reduction in the cost of all pounds the Company delivers over the next 5 years,
9. Production quantities now need to be accurately matched to the other 50% of contracted delivery volumes and all costs need to be tightly controlled,
10. Significant operating cost reduction measures have been implemented and more are in the process of being put in place. A new US based CEO has also been employed with the aim of getting the Company cash flow positive whilst it rides out this period of contract-only-deliveries.

Sometime in the not too distant future the oversupply situation will correct fully and the utilities will all start to term contract much more uranium. This will quickly see the price move upwards and recent history has shown us that the uranium equities will move up sharply sometime before this.
HOLDING QUALITY URANIUM STOCKS IS A SMART POSITION TO TAKE BUT MAKE SURE THEY ARE QUALITY URANIUM STOCKS YOU ARE HOLDING.
When uranium prices have normalised and term contracting has increased Peninsula can expand production to meet the rapid demand this will generate because

1. It has plant, production team and infrastructure in place to produce 500 -700,000 pounds per annum and it has low cost purchases of 300,000 per annum locked in,
2. It has a licenced plant and operation that can be expanded up to 3 million pounds per annum,
3. It has uranium resources in access of 50 million pounds JORC-2012 compliant,
4. It has established a strong marketing and sales division with contractual relationships in place with major European and US utility end-users and it has and is developing strong relationships with other end-users,

It has a very low level of debt which should be even lower by the beginning of next year giving it the capacity to take on further debt when demand returns, further long term contracts are secured and production expansion is undertaken.