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On December 19, 2024 Peninsula Energy (PENMD) announced that production operations at the flagship Lance project have officially commenced. As was communicated to the street for the past 12 months, production was re-started on time ahead of year-end. All is working at the expected parameters given that the flow rates and grades are matching the planned levels. Flow rates and grades are expected to continue increasing as preconditioning is completed in subsequent Header Houses and with the addition of chemical oxidant (hydrogen peroxide). The captured uranium will be stored on the ion exchange resin until the Phase 2 plant area is fully commissioned in Q1/2025. The announced news marks the first production at Lance following a five year hiatus. In the near term, managerial changes are expected - CEO Wayne Heili earlier indicated his intention to step down from his executive position. Having been instrumental with the design and construction of the Lost Creek CPP (Ur-Energy, URG) along with the Alta Mesa CPP (enCore Energy, EU), we are glad that he will remain involved in an advisory capacity. We note as well that a new COO with extensive ISR experience was appointed in November.
Though we had previously withdrawn our price objective and outlook for Peninsula Energy given the operational, managerial and corporate changes (a 20:1 share consolidation was completed in November), we feel that the company has now turned the corner and is primed for a sentiment change coupled with a re-rate. We feel that we are just on the cusp of big things to come at the Lance property. As such, using a $120/lb LT spot price while also factoring the LT delivery commitments, we establish a 1.15x NAV8% derived $2.05 price objective per share (rounded, 12-months). This equates to upside of +220% from the most recent close.
Following a five year production hiatus, the re-start of uranium production from Lance marks a historic milestone in Peninsula Energy's re-focused journey to become a fully self sufficient, independent uranium producer. Construction is continuing in the Phase 2 plant area, with the company focused on completing the resin elution and precipitation circuits by mid-January. this would allow for first elutions and yellowcake precipitation at that time. Additionally, the completed construction of the yellowcake filtration and drying circuits are currently scheduled for February, which would lead to production of the first dry yellowcake product by early March. Once Phase II construction is fully complete, the Lance Project will be home to a 5,000 GPM uranium recovery ion-exchange processing plant which would allow for the annual production of 2.0M lbs of dry yellowcake (U3O8). Below is a recent image from inside the Lance CPP:
A further operational update and corporate conference call will be scheduled for mid-January (details to come). We continue to see great potential for the broader Lance property - recall that 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 (on the map in green, above).
FY/2024 drilling was focused primarily on MU-3 and MU-4 wellfield development. The plan was 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. Our current production estimates are below:
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. Shares of Peninsula Energy currently trade at 0.36x NAV. We establish a 1.15x NAV8% target multiple for Lance, which company-wide, equates to share upside of +220% from the most recent close.
Our Peninsula Energy thesis remains pined to four fundamental pillars:
Re-rating due to significant near term ISR production growth
An undervalued resource based with plenty of exploration upside at Lance
Strong internal fundamentals underpinned by the current contract book
An eventual US listing following November's share consolidation