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Peninsula Energy (PENMF, PEN) provided a progress report regarding the latest developments from the Ross Central Processing Plant (CPP) located at the Lance project in Wyoming. Ultimately, the CPP Phase II expansion is progressing on schedule and on budget. Once the additional ion-exchange circuits along with the elution, precipitation, filtration and drying circuits will be installed, 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. Plant commissioning remains on track for the end of 2024. Though FY/2025 production guidance was somewhat lowered to 700,000-900,000 lbs, post-2025 our production estimates remain unchanged. Given that we initially had 900,000 lbs of production for FY/2025, adjusting to the midpoint of revised guidance was immaterial to our long-term estimates. We continue to maintain production of ~15.0M lbs over a 9.5 year LOM. 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 +170% from the most recent close.
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), 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.
As per the construction/equipment update, it was announced that all major piping and tank modifications for the low-pH ISR operations have been completed inside the previously constructed Ross Satellite Plant. As per the Phase II expansion, it was estimated that 87% of the building foundations have been installed (191 cubic meters of concrete placed). The structural steel and additional materials for the processing plant building have been delivered to site. The building will be erected once the concrete foundations and slab have met design strength and the major equipment is placed. Equipment procurement activities remain on schedule with all of the major equipment on order. Expected delivery dates are meeting or exceeding the requirements of the construction schedule. The first piece of major equipment for the project was received six weeks ahead of anticipated delivery, and process tanks for the southern half of the building have all been received at site.
As per wellfield development, the previously developed wellfield areas of Mine Unit 1 and Mine Unit 2 (MU1, MU2) are available for resumption of uranium recovery operations. A new wellfield development production area, Mine Unit 3 (MU3) is currently being developed. The required installation for the monitoring well network was previously completed while the necessary documentation was submitted to the Wyoming regulatory authorities. The regulatory review process typically follows a 90-day timeline. A total of eleven drill rigs are currently active on MU3 installing the ISR pattern wells (both injection and recovery). Header House 11 will be the first of three modules placed into production on MU3. Pre-conditioning operations (when the host formation is flushed with low pH solutions) for Header House 11 are expected to commence in Q3/2024. Note that MU1 is currently being preconditioned so that the wellfield will be ready for production operations once the process plant becomes available.
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 MU3 and MU4 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 0.46x NAV. We maintain our 1.20x NAV8% target multiple for Lance, which equates to share upside of +170% 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
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