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Peninsula Energy Ltd continues to accelerate uranium production at Lance Projects

Published: 13:00 12 Jul 2016 AEST

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Peninsula Energy Ltd (ASX:PEN) continues with the ramp up of uranium production from its Lance Projects located in the U.S. state of Wyoming.

During the June quarter, 29,000 pounds of uranium was produced.

The rate of production continues to accelerate with 7,000 pounds of uranium produced in the first 10 days of July alone.

The current rate of ramp up at the Lance Projects supports the targeted Stage 1 production level of 600,000 to 700,000 pounds per annum in the first half of 2017.

Gus Simpson, managing director, commented: “The last 5 weeks have seen the rate of uranium production increase dramatically and augurs well for the Lance Projects to meet the expectations of the company going forward”.


June quarter


During the June quarter, 28,858 pounds of uranium were extracted from the Lance Projects, an increase of almost 20,000 pounds over the March quarter.

A 7-day plant outage adversely impacted June production by an estimated 3,000 pounds.

June production was primarily from header houses 1 and 2.

Header houses 3 and 4 were commissioned during the June quarter - meaningful quantities of uranium from both header houses commenced during July.

Header houses 1 and 2 are now producing uranium at 105% of steady state target rates.

55,000 pounds of uranium was delivered during the June quarter under existing long term uranium concentrate sale and purchase agreements at an average realised price of US$62.80 per pound.

Uranium for these deliveries was purchased on-market.


Lance Projects

Effective production at the Lance Projects commenced in March 2016 with construction completed on-schedule and on-budget.

The Lance Projects have a 3 stage production profile building to 2.3 million pounds of uranium per annum by 2020, which is when Stage 3 plans to begin.

Stage 1 is on track and aims to produce 700,000 pounds of uranium by H1 2017 through 7 header houses.

The current JORC-2012 compliant resource is 53.7 million pounds of uranium with expansion potential to create over 70 years of mine life.

The project has strong economics with an internal rate of return (IRR) of 36% and average cash cost of US$29.16 per pound.

The Lance Projects’ all-in sustaining cash cost (AISC) will reduce from $41 to $31-32 per pound as the project enters Stage 2 during the second half of 2017.


Analysis

A strong June quarter and evidence of a stronger September quarter shows that Peninsula is well placed to deliver on its production expansion strategy at the Lance Projects.

The company has a low risk, clear path to production expansion with an estimated US$17.50 per pound margin over all-in costs at the project’s Stage 2 steady state.

Projected revenue under existing long term contracts at Lance is an estimated US$445 million

Peninsula is leveraged to further upside at Lance through production growth, exploration and the uranium price.

Peninsula maintains strong financial support from the strong institutional shareholder base, which includes Resource Capital Funds, Pala Investments and BlackRock Funds.

Tightening supply and increasing demand is expected to support a growing uranium sector.

Peninsula has drawn research coverage from five investment banks and research houses, with recently published reports including:

Rodman & Renshaw Research: Buy rating – A$2.25 price target
BMO Capital Markets: Outperform rating – A$1.00 price target
Dundee Capital Markets: Buy rating - $1.80 price target

These price targets represent significant upside from the current share price of A$0.65.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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