Peninsula Energy's (ASX:PEN) first U.S. delivery of the nuclear fuel to a power utility would be the envy of many a global uranium production company.
The delivery under the company's wholly owned subsidiary Strata Energy realises a sale and purchase agreement established in February 2011, which entailed the supply of 1.15 million pounds of U3O8 from the Lance project in the western state of Wyoming.
This contract will see Peninsula supply U3O8 over seven years at escalated fixed price, fixed quantity and term.
Peninsula has 1.9 million pounds of U3O8 contracted to utilities at a weighted average price approaching US$60 per pound, which is well above the current spot price (US$34.50 per pound).
This is estimated to represent about 40% of Lance’s stage-1 production per annum.
The latest sales milestone follows the start of in-situ uranium recovery (ISR) operations at Lance's Ross permit area last month, where production well flowrates continue to be good.
Ross constitutes the largest JORC-compliant ISR resource in the U.S. at 54 million pounds of U3O8.
The initial phase of full production will include a total of seven header houses in operation.
Peninsula has four significant uranium concentrate sale and purchase agreements in place for a major portion of production over the first five years of operations.
These committed sales contracts substantially increase revenue certainty whilst allowing a significant amount of planned production to be free for future contracting in what is expected to be in an environment of increasing prices.
Peninsula’s first U3O8 deliver also follows quickly on a US$15 million investment form Investec Bank to assist in covering inventory and other general costs over the next two years as production and revenues increase.
Peninsula has entered into an agreement with the bank for the finance facility following discussions with a number of other similar financial service providers, with the Investec terms and interest rates deemed much more attractive than any other proposal presented to the company.
Given the contractual norms within the uranium industry of quarterly and bi-annual uranium delivery schedules under term contracts, the new finance facility provides Peninsula with additional funding flexibility should it be required.
Key terms of the deal include a 2-year secured facility comprised of a US$7.5 million inventory finance facility drawable against uranium inventory delivered to conversion facilities and a US$7.5 million revolving loan facility which is re-drawable and repayable at Peninsula’s discretion.
This investment and renewed momentum at Lance has also coincided with advances in Peninsula’s efforts to list its American Depositary Shares on the New York Stock Exchange – MKT.
The listing will provide access to an active market well versed in the benefits of nuclear power generation.
Average daily turnover of uranium peer companies dual listed on a U.S. stock exchange consistently exceeds the liquidity levels achieved on their non-U.S. exchange by a factor of 4 to 7 times.
The milestone is a tremendous achievement and represents Peninsula’s entry into a uranium market expected to drive increasing revenues in the medium term on the back of price hikes related to growing demand from Asia’s expanding nuclear reactor fleets.
Importantly, Lance’s status as an efficient ISR operation as well as Peninsula’s costing optimisations and sales contract terms have positioned the company to be profitable at the long term contract uranium prices.
Operating costs will be curbed dramatically as Lance operations advance, with an initial all-in cost forecast of US$41 per pound scheduled to drop to $29 per pound by stage 3.
Toll treating, meanwhile, is expected to be brought in-house in later stages, resulting in even lower operating costs and greater economies of scale.
Also, the weighted average price for U3O8 in Peninsula’s utility contracts is already estimated to approach US$60 per pound.
We see the upcoming NYSE MKT listing as "the" catalyst for a re-rating of Peninsula stock, as U.S. funds and U.S. investors twig to the newest uranium producer with a North American uranium producing asset listed in their own backyard.
Uranium companies with a listing on a U.S. stock exchange benefit from a higher relative valuation than companies that do not have a U.S. listing.
Comparable ISR companies with a U.S. listing outperform companies that do not have a U.S. listing by a factor of 2 to 3 times enterprise value per pound of measured and indicated resource.
Home to the world’s largest nuclear power generation fleet, the U.S. also provides access to the largest pool of capital globally and access to an active and sophisticated investment market well versed in the benefits of nuclear power generation and the contribution that uranium makes to the nuclear fuel cycle.
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