DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.
Following a 66 drill hole campaign conducted last year at the Flagship Lance ISR property, Peninsula Energy (PENMF) released an updated Mineral Resource Estimate (MRE). The updated resource (effective December 31, 2023) now totals 58.0M lbs U3O8, representing a 7.8% increase from the previous 53.8M lb resource estimate. Of particular note is that drilling exclusively at the Ross and Kendrick areas (the two production areas included in the LOM economic study presented in the 2022 DFS) increased the resource by nearly 20%, going from 21.7M lbs to now reach 26.2M lbs. Incorporating the mineral resource increase to our estimates, we currently see many positives with Peninsula Energy. Now post-plant expansion financing, construction is well underway and the timeline to re-started production remains Q4/2024. Factoring in the resource update, we maintain our 1.2x NAV8% valuation. Our 12-month price objective equates to +131% upside from the most recent close.
Recall that Lance encompasses three main production areas – Ross, Kendrick and Barber. As mentioned, the current mining plan only encompasses ISR production from Ross and Kendrick. There was no drilling last year on Barber. The modest 66 drill hole campaign was conducted last year with the majority of the holes drilled on Kendrick. The average depth for each hole was ~1,000 feet. As a result of last year’s campaign, the M&I resource increased by nearly 20%, going from 21.7M lbs to now reach 26.2M lbs. The overall resource potential for Lance can’t be understated - the whole property encompasses an area measuring 8km x 37km.
Incorporating the Inferred resource from Barber, the global Lance resource now stands at 58.0M lbs. Apart from Coles Hill (owned by Iso Energy and under Virginia uranium mining moratorium) Lance is the single largest uranium hosting property located in the U.S. 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).
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. The current number of rigs currently working on Lance has tripled as they are now completing and installing wells.
Following an unexpected toll milling cancellation last July, it’s been a volatile road but the necessary financing (A$60M) was procured for the needed Ross Central Processing Plant modifications and extensions. We feel that at this point given that construction has begun, Peninsula has navigated and surpassed the numerous challenges from last year. That said, given the turbulent past year, shares of the company have underperformed its North American peer group.
On the operational front, the EPC contractor has been mobilized on site and earthworks have begun for the plant expansion. Once completed, Peninsula will be fully self-sufficient in all aspects of the uranium production value chain and thus be able to capture a larger portion of the sales economics. The existing plant has already been modified to enable the processing of low-PH ISR solutions. The expansion will enable for higher production rates and will house the needed facilities for dry yellowcake production. All remains on schedule as commissioning is expected in late 2024. Incorporating the M&I increase from Ross and Kendrick and using the same 65% recovery rate, our LOM increases by 2 years (extending until 2036) with total LOM production now totaling 16.9M lbs (from 14.6M lbs previously).
Recall that Peninsula currently has one of the most established LT contract books among all peers. Contracts totaling 5.25M lbs U3O8 are currently in place and extend until 2033. The contracts in place are with utilities located both in the U.S. and Europe. The pricing structure is a mix of base escalated (~$60/lb) and market based (floors down to $45/lb and ceiling up to $80/lb). Peninsula currently maintain 210,000 lbs of uranium concentrate in inventory.
Maintaining our LT uranium price target of $120 while also incorporating the current delivery contracts, we derive a NAV8% valuation and corresponding sensitivities as displayed below.
While updating for the corporate changes and the given resource update, we maintain our 1.20x NAV8% valuation, resulting in a 12-month price objective of $0.18 per fully diluted share, equating to +161% upside from the recent close. Peninsula shares currently trade at 0.52x discount to NAV.