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Peninsula Energy executes two more uranium sale contracts

Published: 08:00 26 Aug 2015 AEST

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Peninsula Energy (ASX:PEN) has executed two forward uranium concentrate sale and purchase contracts with major U.S. power utilities for supply from its soon to be producing Lance Projects in Wyoming.

Peninsula is on the cusp of uranium production from Lance Projects and expects to commence first uranium production in October 2015.

These committed sales contracts will substantially increase revenue certainty whilst allowing an appropriate level of planned production free for future contracting in an increasing price environment.

Under the agreement Peninsula will deliver 1,935,000 pounds of U3O8 with deliveries commencing in 2016 to the utilities.

While the contract price was not disclosed the utilities will pay term contract prices reported by uranium industry commentators during the first half of 2015.

This would be well above the current spot price for U3O8.

This takes to four the number of significant agreements in place for a major portion of the U3O8 that Peninsula wants contracted over the next five years.

Peninsulas’ managing director/CEO Gus Simpson commented:

“We are very pleased to add two more contracts to Peninsula’s forward sale position, guaranteeing a significant proportion of the Company’s revenue stream at better than market when production commences at the Lance Projects.”


Ramp up to production at Lance Projects


In September 2015, the US Nuclear Regulatory Commission will conduct a final pre-operational inspection of the project which will allow Peninsula to receive all the necessary approvals to allow first uranium production to commence in October.

Stage 1 production is expected to be in the order of 700,000 pounds per annum.

Stage 2 of the Project would require an additional capital expenditure and would largely double the Stage 1 production rate.


NYSE MKT listing


Peninsula is deftly timing the listing with first production from Lance Projects in 2H 2015.

Given that Peninsula is trading at a much lower multiple than the other uranium companies and listed peers on the exchange on production assets, this event is likely to trigger a re-rating for Peninsula well above current market cap.


Analysis


These sale agreements further de-risk the cashflow profile for Stage 1.This follows earlier sales contracts struck in previous years believed to be at prices ranging from US$50 - $73/lb U3O8.

U.S, power utilities will also need to find additional feed sources for their nuclear reactors and are likely to prefer domestic material such as Lance for security of supply.

While attention is understandably on Lance Projects and Peninsula as the next uranium producer, we would not discount value adding progress at its Karoo project in South Africa.

South Africa will require a significant amount of nuclear power to offset chronic electricity supply issues.

We remain confident of our price target of $0.06.

 

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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