Proactiveinvestors Australia

Wraps: Angie’s broker round-up

Proactive Investors’ Finance Writer/Analyst Angie Kean brings you a wrap of companies in the small to mid cap. space that have made it onto the broker radar. All the information you need in one tight round-up of recent broker coverage. 

Peninsula Energy, Black Range Minerals, Greenland Minerals and Energy attract broker support

Thursday, July 19, 2012 by Angela Kean

Uranium has a current spot price of around US$50 a pound, but highlighting a potential upside, JPMorgan is forecasting that it could rise to US$80 per pound by 2014 - which would be a major benefit for ASX listed companies with uranium exposure.

Uranium has a current spot price of around US$50 a pound, but highlighting a potential upside, JPMorgan is forecasting that it could rise to US$80 per pound by 2014 - which would be a major benefit for ASX listed companies with uranium exposure.

Peninsula Energy (ASX: PEN), Black Range Minerals (ASX: BLR) and Greenland Minerals and Energy (ASX: GGG) are three companies that have received analysts reports by brokers in recent times.

Uranium has a current spot price of around US$50 a pound, but banks such as JPMorgan are forecasting that it could rise to US$80 per pound by 2014 as supply deficits catch up with demand.

Uranium producer Energy Resources of Australia (ASX: ERA) has said the long-term outlook for uranium prices remains positive.

Over 80 new nuclear power reactors are expected to be commissioned globally over the next five years, with 61 currently under construction. The current total of new reactors planned or proposed is 491, nine more than pre-Fukushima.

Also a positive, the restarting of two of the reactors idled since Japan’s earthquake, as well as the issue of new reactor licences by China could also be a catalyst for uranium prices.

The investment climate should improve as the value of underlying uranium deposits gradually returns to a more reasonable level to reflect longer-term supply and demand dynamics. In the next couple of years spot prices will snap back closer to a long-term contract price.

Peninsula Energy

Peninsula Energy is rapidly advancing its Lance ISR Uranium Projects in the Powder River Basin, north-eastern Wyoming in the U.S., towards production, which is targeted for the second half of 2013.

Importantly, the means the company is well placed to take advantage of the forecast increase in uranium prices.

As a result it has recently earned itself a buy recommendation and a six-month share price target of $0.085, more than double its last traded share price, from Hartleys.

Peninsula previously upgraded the economics of the Lance Projects in a Feasibility Study, which excluded the vanadium credits, estimating a project cash flow of $905 million on revenue of $2.2 billion.

The recently completed Feasibility Study was based on the March 2012 JORC Resource of 51.5 million pounds of uranium, across the Ross, Kendrick and Barber Production Units.

Initial production of 750,000 pounds per annum will come from the Ross production unit, ramping up to steady state production of 2.2 million pounds per annum over three years with the inclusion of Kendrick and Barber.
Production is expected to feed into a central processing plant with an expandable capacity of up to 3 million pounds per annum. Vanadium will not be produced in the early stages of production from Lance.

Black Range Minerals

Black Range Minerals is developing the advanced stage Hansen/Taylor Ranch Uranium Project, which hosts the largest uranium resource in Colorado and the third largest uranium deposit in the U.S.

This has attracted the attention of Foster Stockbroking, which has placed a buy recommendation and a $0.07 share price target, more than three times its last traded share price, on the company.

The Hansen/Taylor Ranch Uranium Project contains an Indicated and Inferred JORC Resource of 90.9 million pounds of uranium, at a grade of 600 parts per million, found within five separate deposits along a 10 kilometre strike.

Black Range is targeting production in 2016. The company has completed a positive Scoping Study at Hansen that utilises low cost borehole and ablation technologies to extract 5.28 million tonnes of ore, and produce 14.05 million pounds of uranium.

Underground borehole mining, ablation and off site milling results in an operating expenditure of around $30 per pound of uranium.

The capital expenditure of around $70 million is among the lowest in the industry removing a significant impediment to development decision and, ultimately, production and cash flows.

Greenland Minerals and Energy

Although Greenland Minerals and Energy is not primarily a uranium explorer, strong potential exists at its Kvanefjeld multi-element project in Greenland, with the project capable of generating four main products, one of them being uranium.

Based on the overall potential of the Kvanefjeld Project, Greenland Minerals has found itself the subject of a broker report by Shaw Stockbroking that places a buy recommendation and $2.25 share price target on the company.

Demonstrating the confidence Shaw Stockbroking places in Greenland Minerals and its operations the share price target is well over five times the last traded share price.

A recent Pre-Feasibility Study identified the clear potential for Kvanefjeld to be developed as a long-life, cost effective producer of heavy, light and mixed rare earth concentrates, uranium oxide and zinc.

Further, the production profile is of global significance in terms of output capacity, and low production costs.
The development scenario from an annual 7.2 million tonne throughput would provide uranium oxide of 2.6 million pounds, heavy rare earth hydroxide of 4,200 tonnes, mixed rare earth carbonate of 10,400 tonnes and light rare earth carbonate of 26,200 tonnes.

The defining factor though for the development of Kvanefjeld is the low production costs, with unit costs under US$31 per pound of uranium and less than US$8 per kilogram of total rare earth oxides (TREO), as contained in the three combined rare earth products.

Putting these costs into perspective, Kvanefjeld will be in the bottom half of the cost curve for uranium producers, while also being one of the lowest cost rare earth elements producers worldwide.

The economics of the project are also robust – with a forecast pre-tax, ungeared internal rate of return of 32%, and a cash payback period of less than four years, based on long term prices of US$70 per pound of uranium and US$41.60 per kilogram of TREO. The pre-tax net present value is US$4.6 billion.

Capital costs of an open cut mine, a mineral concentrator and a refining plant, capable of treating 7.2 million tonnes per annum, is estimated to cost US$1.53 billion, which includes a contingency of US$247 million.

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