Peninsula Energy Ltd (ASX:PEN, OTCQB:PENMF) has been maintained at a ‘Buy’ rating with a target price of A$0.27 per share by Shaw and Partners Financial Services research, after the company established the Dagger Uranium Project just 20 kilometres northeast of the flagship Lance Uranium Project.
Shaw and Partners say the new project, coupled with the Barber Resource Area within the Lance Project area, offers potential expansion opportunities at Lance.
“We retain our BUY recommendation and price target of A$0.27ps which is set at a 30% premium to our DCF, in line with our uranium sector coverage,” the research report read.
The following are excerpts from the Shaw and Partners research report:
Project placement
The Dagger Project is located in Crook County, Wyoming within the North Black Hills district in the Northeast corner of the State, approximately 20 kilometres northeast of the company’s Ross Processing Plant at Lance. The project is directly accessible from Lance via existing public roadways.
At Dagger, Peninsula has accumulated 4,140 acres of prospective uranium exploration with a current Resource of 3 million tonnes at 1,037 parts per million (ppm) for 6.9 million pounds of contained U3O8. Peninsula is planning a drilling campaign in 2024 with the objective of upgrading the Resource.
In situ recovery
Lance is an In-Situ Recovery (ISR) uranium project whereby uranium is leached from the orebody in an acid solution before being recovered in an ion-exchange resin.
Stage 1 of the Lance Uranium Project was about to enter first commercial production in July when UEC cancelled its contract to process the uranium bearing resin from Lance.
Peninsula has had to adjust its plans to accelerate its stage 2 expansion and incorporate its own resin processing into the processing plant.
Peninsula recently released details of a revised processing plan which includes:
- First production in Dec-24 and ramping up to 1.8 million pounds steady state by 2029.
- Remaining capex to first production of US$53.4 million, with a further US$17.4 million required to reach full production rates. The peak funding requirement to get to breakeven cash flow is US$95 million.
- C1 operating costs of US$21.69/pound and all-in sustaining costs (AISC) of US$42.46/pound.
The delay to first production at Lance was a set-back for company which has seen Peninsula shares significantly under-perform its uranium peer group.
While the delay was frustrating and disappointing, it has not significantly affected the valuation of the Lance Project and in our view Peninsula is now trading significantly below fair value.
Comparison to peers
When we compare Peninsula with Boss Energy (BOE, Sell, PT $3.60), there are a lot of similarities and yet Peninsula has an enterprise valuation around 1/10th that of Boss (US$75 million v US$861 million).
Both companies have in-situ leach uranium operations in first world jurisdictions, both will produce around 2 million pounds/year, both will be in production within two years and both have a similar sized resource with substantial exploration upside.
The main difference is that Boss is fully funded, is closer to first production and is lower cost (Boss AISC of US$26/pound). Boss deserves to trade at a premium, but in our view the valuation gap is now too wide.
Another interesting valuation comparison is with Uranium Energy (NYSE:UEC) Corporation (UEC, not rated). UEC has a market capitalisation of US$2.05 billion, cash of US$124 million and a uranium inventory worth US$53 million.
It has two ISR processing hubs in the USA – Irigaray with capacity of 2.5 million pounds/year (the plant that Lance was using), and Hobson with capacity of 4 million pounds/year.
UEC is at a similar stage to Peninsula with plans to ramp up production over coming years. UEC is trading at an enterprise valuation of US$288/thousand pounds of installed capacity whereas Peninsula is trading at just US$42/thousand pounds of capacity.