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Peninsula Energy advances U.S. listing as uranium production nears

Last updated: 16:49 16 Nov 2015 AEDT, First published: 15:49 16 Nov 2015 AEDT

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Peninsula Energy (ASX:PEN) has achieved major progress in advancing plans to list its American Depositary Shares (ADR's) on the New York Stock Exchange - MKT as the countdown to Q4 2015 Lance production approaches.

The move is expected to provide further impetus to a near-term valuation re-rating for Peninsula as well as direct access and much greater visibility of the company’s uranium business in the world’s largest debt and equity markets.

The company has filed a registration statement to register its ordinary shares with the U.S. Securities and Exchange Commission (SEC).

Once this form is declared effective by the SEC, it allows foreign issuers to register securities with the SEC for trading on a U.S. stock exchange pursuant to applicable U.S. securities laws.

Peninsula is seeking a secondary listing of American Depositary Shares on the NYSE -MKT.

Peninsula’s registration filing with the SEC and forthcoming U.S. stock exchange listing is expected to provide a number of benefits to the company.

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.

In conjunction with its U.S. broking advisors, Peninsula has initiated a systematic and worldwide institutional awareness program that will run over the next four weeks.

In keeping with this plan and to establish a significant shareholder base and liquidity in North America, it will be followed in the new year by an extensive U.S. regional high-net-worth and retail roadshow program that will become a quarterly feature of the company’s ongoing business plan.


Production ready

Lance is set to produce at a stage-1 rate of 600,000 to 800,000 pounds of U3O8 per annum, with one well already fully operational and six more planned to sequentially ramp up, establishing a seven-well operation.

Operating costs will be curbed dramatically as this rollout takes shape, with an initial all-in cost forecast of US$41 per pound scheduled to drop to $29 per pound by stage 3.

Stage-1 capital costs are planned to be minimised to $33 million with toll treatment.

Toll treating, however, is expected to be brought in-house in later stages, resulting in lower operating costs and greater economies of scale. 

A deep disposal well has been commissioned and is operational, with performance tracking better than forecast.

Resin stripping, drying and packaging will be done at the Irigarary plant to reduce initial capex and commissioning risk.

Also, a pre-production inspection by the U.S. Nuclear Regulatory Commission was successfully conducted earlier this month.

Lance is expected to be cashflow positive in 2016 with its production ramp-up coinciding with a tightening uranium market.


Uranium market


Confidence in the uranium markets that will drive Lance is not only rooted in the significant U.S. domestic nuclear market.

Price increases for uranium in a tighter global supply-demand scenario are expected to unfold over 2016 with the restart of Japanese reactors and massive reactor construction efforts in China.

Also, India has indicated a strategic interest in expanding its nuclear market as sector M&A activity increases and global utility contracting appears to be rebounding.

More long-term drivers of the sector are expected to result in a price range of US$60-70 per pound by 2017-18 with strong global demand growth.

This demand will be compounded by insufficient new mine development and declining secondary supply sources, generating a significant deficit by the end of the decade.


Analysis

Peninsula’s steps toward a North American listing are important as they assert the company’s potential to integrate its business strategy into the massive U.S. nuclear market as macro factors improve the economics of the global uranium sector.

A NYSE MKT listing of its ADR's should see a re-rating of the company relative to its North American peers at a time when it is transitioning Lance into an operational mine with no debt obligations.

Peninsula is ready to begin production this year at Lance with a clear, low-risk path to expansion.

The project benefits from significant production volumes in term contracts and enviable operational metrics that will further streamline with project ramp-up.

This is expected to result in significant operating margins even at the current uranium price.  Weighted average prices for deliveries made under signed term contracts between 2016 and 2020 is US$59/lb U3O8 – well above current prices.

A tightening supply situation and new demand is expected to lift the whole uranium sector and further enhance the economics of Lance. 

Peninsula shares have been performing well on this outlook, with the stock last trading at A$1.14, or 34% higher than a low reached in September and 50% higher than the beginning of the calendar year.

Yet this is significantly below intrinsic value of Peninsula's producing Lance projects.


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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