Peninsula Energy’s uranium project has key advantages as sector renaissance is underway: Shaw and Partners

Peninsula Energy Ltd’s (ASX:PEN) (OTCMKTS:PENMF) (FRA:P1M) flagship Lance Projects in Wyoming, US, requires low upfront capital and can rapidly restart post a Final Investment Decision, according to investment manager Shaw and Partners. Shaw and Partners has initiated research on Peninsula with a buy recommendation and A$0.13 per share price target, as part of a wider coverage on the uranium sector. The following is an extract from the research report: In our view the Uranium Miners are past the worst of the Fukushima-led downturn. Spot prices for uranium have increased over 60% since 2017, currently ~US$30/lb. In our view uranium prices are likely to continue to strengthen in 2021. Inventories are being drawn down due to production curtailments from key producers Kazatomprom and Cameco. The US Russian Suspension Agreement has been extended and the US election has passed. Utility companies are beginning to re-engage with producers on long-term contracts. Longer-term we believe Uranium Miners are well placed to capitalise on the trend of decarbonisation and electrification of energy systems. Mine re-investment is required. In our view sector risks are skewed to the upside due to a lack of industry investment since 2011. As the cycle turns, we would not be surprised if our coverage suite ultimately trades ahead of valuation support and U3O8 trades ahead of cost curve support (US$40-50/lb). Peninsula Energy – strategically located & long-term contracts in place In our view Peninsula Energy’s flagship Lance Projects in Wyoming, USA, requires low upfront capital and can rapidly restart post a Final Investment Decision. PEN is the only ASX company with direct exposure to US Government initiatives which are prodomestic mine development. We have a Buy rec. and A$0.13ps price target. Strong balance sheet – following the successful completion of a fully underwritten A$40m share entitlement offer in June, the company is term debt free and fully funded to meet all ongoing low pH ISR optimisation activities into CY22. PEN has an existing contract book and product inventory, with a binding purchase agreement netting a cash margin of US$6-8m in CY2021 (400klbs). The company has long-term sales contracts extending to 2030, up to 5.5Mlbs at US$51-53/lb U3O8 with utilities across Europe and the US. The company has released a Feasibility Study which details a Lance Projects NPV8 (pretax) of US$157m and 30% IRR (pre-tax) at an average U3O8 price of US$49/lb. Other components include a life of mine (LOM) of 17 years, upfront capital expenditure of US$6m (+US$113m for later stage developments), an estimated all-in sustaining cost (AISC) of US$32/lb U308 over LOM. The company believes production will be fasttracked, within 6-months from Final Investment Decision. Our post-tax NPV of US$90m is slightly lower than the DFS, mainly due to a higher WACC assumption of 10% and post-tax modelling basis. We believe PEN require US$25m (A$33m) to restart operations to 1.1Mlb/yr and US$115m (A$153m) to rampup operations to ~3Mlb/yr. In our view the company will need to raise a total of US$50m equity to recapitalise in two stages (US$10m in FY22 and US$40m in FY25), and US$90m in debt. In our view there are two key advantages to Peninsula’s project being located in Wyoming, USA: (1) The Powder River Basin in Wyoming is in an established uranium and mining jurisdiction (uranium mining for ~70 years and coal mining for ~150 years). (2) The company has direct exposure to the US Government uranium purchase programme and the US Nuclear Fuel Working Group. Energy Webinar Peninsula Energy managing director Wayne Heili discussed the positive trends in the uranium industry and the company's activities at the Proactive Energy Webinar held on Wednesday, December 16. Watch the webinar on our YouTube channel (Wayne's session starts at 16:55).