Peninsula Energy Ltd (ASX:PEN) is undertaking a A$40.3 million equity raising through a renounceable entitlement offer while will support the transformation of its flagship Lance Uranium Project in Wyoming, USA.
The company will emerge debt-free from the pro-rata fully underwritten offer with net cash of over US$10 million after repaying its existing term debt.
Debt repayment will remove the need to pursue uranium contract partial monetisation transaction and the funds will put PEN in a strong position to continue low pH transformation activities and to prepare for restart of the Lance project.
"Strongest position" for years
Peninsula managing director and CEO Wayne Heili said: “This equity raising will put us in the strongest position we have been in for years – debt-free, cash in the bank, cash flow from our uranium contract book and holding a developed uranium production project, which we are optimising, ready to hit the ‘go’ button when the market fundamentals are right.”
Under the entitlement offer, eligible shareholders will be offered the first right to acquire fully paid ordinary shares in the capital of Peninsula on the basis of nine new shares for every five shares held by the shareholders registered at 7pm (AEST) on June 10, 2020, at an issue price of A7.1 cents per share.
The offer is fully underwritten by Canaccord Genuity (Australia) Limited, which Heili said gave the company security of funding and timing.
He said: “Heavy demand for the underwriting from existing and new investors is a gratifying endorsement of our company.”
Use of funds
The funds raised under the entitlement offer, together with proceeds from the sale of uranium and existing cash reserves will be used for the following purposes through to early 2022:
- Repayment in full of the existing term debt that has a current face value of US$16.821 million, with the payment to be made promptly upon completion of the Entitlement Offer,
- Payment of interest accrued under the term debt facility from the period of 1 April 2020 through to the date of debt repayment,
- General working capital purposes including progression of the low pH de-risking and optimisation activities, which include additional column leach testing and operation of the new low pH field demonstration, and
- Early preparation activities for the planned transition to low pH operations, including deep disposal well modifications, process plant modifications and wellfield conversion.
This equity raising will allow Peninsula to fully repay its US$16.82 million (around A$26.3 million) corporate debt balance and leave the company in a strong financial position to pursue its uranium production strategy of transforming the Lance Project using the industry-leading low pH extraction method.
As well as emerging debt-free, completing the full debt repayment will save about US$2 million a year in interest payments.
Uranium sales contract book
The equity raising and subsequent debt repayment will mean Peninsula no longer needs to pursue the intended monetisation of part of its uranium sales contract book.
Peninsula has five sales agreements in place with major US and European utilities for up to 5.5 million pounds U308 at a weighted average sales price of between US$51 and US$53 per pound U308 through to 2030.
The company is contracted to deliver 450,000 pounds U3O8 per year in 2021 and 2022 to customers.
Instead of having to fast-track production to meet those deliveries, Peninsula may opt to purchase uranium from the market which, at current spot prices, would deliver cash margins of around US$7 million a year.
Lance project location in Wyoming, USA
Re-starting Lance project
The Lance project is the largest defined US ISR uranium resource of 53.6 million pounds triuranium octoxide (U308) and has established processing and wellfield production facilities which can be brought back into production within six months of a restart decision.
Heili said: “We will be in an excellent position to not only capitalise on continued improvements in the global uranium market but specifically in the US.
“Recent policy framework recommendations by the US Nuclear Fuel Working Group are expected to materially benefit US uranium mines, including our Lance project, which has the biggest resource of any recently-producing US project and is the only one authorised to use low pH in-situ recovery (ISR).”
Peninsula continues to work through a de-risking and optimisation program including a new low pH field demonstration that is planned to run through mid-2021 and is progressing modifications to its existing low pH approvals to use preferred methods when commercial operations resume.
Finance director, chief financial officer and joint company secretary David Coyne has advised the company that he intends to resign in mid-July following completion of the entitlement offer and repayment of the debt.
Peninsula chairman John Harrison said: “We are indebted to David for his invaluable contribution to the evolution of our company and I am sure that shareholders will join me in wishing him every success in the future.
“It is apposite that this career move should take place at a time when, under his stewardship of Peninsula’s finances, we will see the balance sheet in robust condition.
“It is particularly pleasing that David will continue as a director of Peninsula and that his practical skills will be available to us, on a consultancy basis.”