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Peninsula Energy (PENMF, PEN) announced on October 16 that plant construction and wellfield development at Lance remain on course for a production restart sometime in December 2024. As part of the development update, it was specified that some of the recent milestones achieved onsite include the completion of all concrete work and the installation of the building’s structural steel and roofing. Moreover, the new ion-exchange vessels, elution tanks, and precipitation tanks have been placed on the plant slab and progress is being made on the installation of key systems, such as HVAC, structural steel for pipe racks and equipment support, cable trays and interior lighting. As per wellfield development, Mine Unit (MU-1) continues to undergo underground groundwater preconditioning while at Mine unite 3 (MU-3), 12 rigs are currently in operation preparing the pattern wells for Header Houses 12 & 13. Given the pace of developments, we are glad to hear that initial ISR production remains on track for December, as has been communicated for nearly a year already. Incorporating our $120 per lb LT uranium price deck, we maintain our NAV8% valuation methodology for the currently expected operations at Lance. Our 1.20x NAV8% multiple remains, equating to upside of +156% from the most recent close.
On the development front, preconditioning in MU-1 has progressed in tandem with the broader project objectives. Meanwhile, new development areas such as MU-3 Header House 11 (HH-11) have been fully constructed and prepared for commencement of preconditioning operations. Final regulatory approval for the MU-3 wellfield was received on October 11. This approval authorizes the full operational activities within the MU-3 area. As mentioned, 12 rigs are currently operating on site in MU-3, drilling to prepare additional production pattern wells in HH-12 and HH-13. Well installation within MU-3 is estimated to be 76% complete, as of the latest update. Drill rigs are also completing ore delineation and monitoring well installation in Mine Unit 4.
Once in full operation, the Lance project will be home to an all-in-one 5,000 GPM uranium ion-exchange plant with the capacity to independently produce up to 2.0M lbs of dry yellowcake per year. Though FY/2025 production guidance was previously benchmarked to 700,000-900,000 lbs, post-2025, our production estimates remain 1.0M+ lbs annually. We continue to maintain production of approximately 15.0M lbs over 9.5 years, based on the current resource estimate and mine unit development.
Following a turbulent 2H/2023 when a long standing toll processing agreement was abruptly cancelled, Peninsula had to scramble to raise capital (A$106M) in order to fully in-source production and become truly independent. With the capital raise now comfortably well in the rear view mirror, the story now transitions to one of execution. As such, the well publicized plant commissioning and start of production by year-end has been maintained as per the latest update. At present, the set-up works nicely given a refined story highlighted by fully self reliant production (the stage II ramp called for additional ion exchange circuits, along with the needed elution, drying and precipitation functionality). Though never an easy feat to design, break ground and build the physical infrastructure needed for ISR recovery and packaging (let alone on time and on budget), we are rest assured that the team at Peninsula has a plethora of experience, with much of the team having had previous experience with the design and development of other ISR projects such as Inkai, Smith Ranch, Crow Butte (Cameco) and Nichols Ranch (Energy Fuels). Note as well that Peninsula CEO Wayne Heili was instrumental with the design and construction of the Lost Creek CPP (Ur-Energy) along with the Alta Mesa CPP (enCore Energy) as well. Both Lost Creek and Alta Mesa are currently in ISR production.
Recall that earlier this year, an updated Mineral Reserve Estimate (MRE) was announced for the Lance property, increasing the the global resource by nearly 8% to the current 58.0M lbs. The M&I resource increased by nearly 20%, going from 21.7M lbs to the current 26.2M lbs. Drilling only encompassed the Ross and Kendrick areas while the largest property component, the Barber production area (illustrated on the map in green) did not have any drilling last year.
The overall resource potential for Lance can’t be understated - the whole property encompasses an area measuring 8km x 37km. A total of ~7,360 drill holes have to date been used to estimate the current resource estimate. Spread over that large a surface area, the drilling number remains relatively light as plenty of empty, untested space remains. Recall that the current exploration target for Lance is between 104M-163M lbs (or a mid-point of 133.5M lbs). Ignoring IsoEnergy's (ISO) Coles Hill property which is currently under a mining moratorium in Virginia, Lance already amounts to the largest single asset uranium resource located in the US. As evidenced by the current resource target mid-point of 133.5M lbs, plenty of resource upside remains, specifically from the Barber resource area.
FY/2024 drilling will focus primarily on MU-3 and MU-4 wellfield development. The plan is to continue with upgrading and increasing the Indicated and Inferred resources within the Ross area. In terms of production, our estimates remains largely unchanged. Highlighted by a small-scale production start in late 2024, we see the overall production profile extending until 2035 with a peak of just under ~1.8M lbs produced per year between 2031-2033. We also stress that the current production plan comprises the Kendrick and Ross production areas exclusively. The much larger Barber area, which currently hosts ~30.0M+ Inferred lbs has been completely excluded from the current production plan.
Note as well that the company's contract book currently encompasses six existing offtake contracts covering ~40% of production over LOM. The company has committed to delivering 6.0M lbs between 2025-2033. The market-linked offtakes provide for a minimum floor price well above the average AISC.
Recall that the Ross CPP has a licensed capacity for 3.0M lbs per year, giving it one of the highest annual licensed capacities for any domestic ISR facility. When factoring the current resource at Lance, we note the steeply discounted valuations on EV/resource metrics in relation to all US based, ISR peers.
Shares of Peninsula currently trade at 0.47x NAV. We maintain our 1.20x NAV8% target multiple for Lance, which equates to share upside of +156% from the most recent close. Our Peninsula Energy thesis remains pined to four fundamental pillars:
Re-rating due to significant near term ISR production
An undervalued resource based with plenty of exploration upside at Lance
Strong internal fundamentals underpinned by the current contract book
An eventual US listing & share consolidation
