The company is debt-free and well-funded with over US$10 million in cash and has identified a low-capital pathway to restart the project following the final investment decision (FID).
The Lance Project is one of the largest uranium projects in the US in size and scale with a JORC resource base of 53.6 million pounds and a licence to produce up to 3 million pounds per annum.
However, the project is currently paused as it transitions to a low pH extraction process which will allow it to become a low-cost, long-life uranium operation.
Low pH process
Historically US uranium ISR projects utilised the alkaline extraction method, which Lance was originally licensed for, but laboratory testing in 2017 proved operational costs and production rates at the project would significantly benefit from a low pH process.
The lowest quartile cast cosh uranium mines are all low pH ISR and Lance is the only US-based uranium project authorised to use this method.
PEN's expected transition capex is around US$6 million and a further US$15 million to construct mine unit 3 and ramp-up to stage one (plant capacity of the project is 1.15 million pounds at an AISC of US$41/pound).
Stage two of the project consists of 2.3 million pounds per annum at a capex of US$43 million and AISC of US$31/pound.
For the near term, the company is focused on demonstrating process improvements and delivering long-term value at the low pH ISR Lance Project.
A drill rig is currently on-site to complete remaining wellfield activity required for new field demonstration and a further round of column leach tests are planned to further optimise the transition process.
The company estimates a six-month lead time to return to production, post a final investment decision.
Peninsula believes that, if the markets warrant, the restart FID decision can be made in parallel to optimisation activities.
The project has a well-defined pathway to production.
Established uranium relationships
The company has an established uranium contract book expected to generate a CY21 net cash margin of US$6-8 million, backed with binding purchase agreement to procure 400,000 pounds.
This positions Peninsula as the only junior uranium producer with long-term sales contracts extending to 2030, representing around 20% of the projected Lance FS LOM production.
In addition, there are current contracts in place for up to 5.5 million pounds at US$51-$53/pound with major utilities across both the US and Europe including:
- 75,000 pounds of remaining deliveries in CY2020 to be met from contracted purchases at fixed purchase price of less than US$27/pound to generate net cash margin of $US1.3 million; and
- 450,000 pounds to be delivered in each of CY2021 and CY2022.
The company’s strong existing relationships with preferred customers will act as a base for new business.
Uranium market outlook
The COVID-19 pandemic has resulted in an unprecedented upheaval in the global uranium market and while demand has been quite resilient, production disruptions have been significant.
Looking forwards, there is a renewed emphasis on supply diversity and security of supply developing and uranium spot prices have risen around 30% to US$32.00/pound since mid-March.
US NFWG report findings
The US Department of Energy (DOE) ‘Strategy to Restore American Nuclear Energy Leadership’ outlined potential actions designed to revive the capabilities of the US uranium mining, milling and conversion industries.
Notably, key Nuclear Fuel Working Group (NFWG) policy recommendations include:
- Establish US Uranium Reserve with budget appropriation required of US$150 million per year, for 10 years to purchase US produced uranium; and
- Propose purchasing 17 to 19 million pounds over a 10 year period of US-produced uranium.
Peninsula is perfectly placed to benefit from this strong DOE support for a long-term buying program from US uranium mines and is the only ASX-listed uranium company that has the immediate ability to take advantage of this US government buying program.