Research Captital 39 cent Target

From a few weeks back. Worth another look given the current trading environment.

Peninsula Energy Limited – BUY

Initiating Coverage of Peninsula Energy Limited – Switching to Acid ACTION: Initiating Coverage with a BUY and A$0.39/sh Target

We are initiating coverage of Peninsula Energy Limited (Peninsula, ASX: PEN) with a BUY rating and A$0.39 target price. With Peninsula restarting its 100%-owned Lance Uranium project (Lance) in Wyoming with low-pH (acid) based in-situ recovery technology (ISR), we believe that Peninsula will be the next US-based producer with relatively low operating risk given that the mine is a past producer and the detailed test work that Peninsula has carried out to help ensure the switch from alkaline to acid chemistry is successful.Lance is a past producing mine with more than 400,000 pounds of uranium extracted between FY2016 and FY2019. It appears that due to a combination of low uranium prices coupled with operational challenges, the company chose to suspended production activities in May 2018 and the mine was idled in July 2019 to allow the company to focus on a transition to acid-based ISR chemistry.Peninsula has carried out extensive testing for 16 months on the use of acidic solution pumped into the wellfields to extract uranium. The low-pH test program, completed in December 2021, has provided the information that the company requires to update its 2018 feasibility study and move toward a production decision.As Lance is a previously producing mine that has also been the subject of a very thorough study to ensure its transition to low-pH chemistry is successful, we believe its risk profile is much lower than a greenfield development project; therefore, we do not think the SPECULATIVE qualifier is required for our BUY recommendation

DETAILS: Likely the Next US-Based Uranium ProducerWith the completion of the low-pH test work, Peninsula expects to have a revised feasibility in the first half of 2022 and an investment decision in the second half of 2022. We are forecasting a start of production in H2/2023. Given that there is a significant amount of existing infrastructure (wellfields, pump houses, processing plant, etc.), we estimate the initial capital to begin production will be $5.3 million for the processing plant and $15 million in accelerated wellfield development, to support higher production volumes, spent in FY2023-FY2024. We believe this will be sufficient to develop Stage 1 of the three-stage plan, Stage 1 is forecast to have peak production of 1.15 million pounds in FY2026.We believe that Peninsula will follow the initial ramp-up plan as laid out in the 2018 feasibility study with Stages 2 and 3 will commencing in FY2027 and FY2030, respectively. Production is anticipated to peak at 2.16 million pounds and 3 million pounds for Stage 2 and 3, respectively.

VALUATION: Capturing the Upside in Uranium Through EV/EBITDAOur $0.39 target price is calculated by applying a 15x EV/EBITDA multiple to Peninsula’s FY2026 EBITDA. This equates to a 1.2x NAV multiple which we believe is reasonable given that we are forecasting a higher uranium price in FY2026.