Peninsula Energy: Lance Project Exceeding Expectations

At a time when industry heavyweight Cameco( TSX:CCO,NYSE:CCJ) continues to disappoint with lower earnings, uranium success stories are seemingly too few. But for newly minted uranium producer Peninsula Energy (ASX:PEN), the current uranium market isn’t such a tough place to be.
Peninsula started ISR mining at the Wyoming-based Lance project in December 2015. Lance has a JORC-compliant resource of 54 million pounds, and a licensed mining rate of 3 million pounds per year. The company is looking to ramp up to 3 million pounds over a three-phase process.
“We’ve got everything running to our expectations,” Peninsula Managing Director John “Gus” Simpson told the Investing News Network, adding that to date, Lance has exceeded by multiples what was initially forecast.
More specifically, Simpson noted that “the waterflow rates are exceptional,” and said that the project’s best-performing production well is delivering 96 milligrams per liter, which is “about three times the average number that was used in financial models.”

Peninsula has also just completed construction on his header house, and, as Simpson noted, the central processing plant has been operating to specifications without a hitch.
“The capture rate of uranium has risen twice what we forecast,” Simpson said, noting that the project’s deep disposal wells are also operating exceptionally — so much so that the company has been able to pare down the expected number of disposal wells required for the Lance project from four to two.
When it comes to costs, Lance greatly benefits from its ISR capabilities. The project has life-of-mine all-in sustaining cash costs of $29, and that partially explains why, despite lower prices, the company has been seeing success. However, Simpson said that what’s more important is the company’s contracted revenue, which comes in at $59.
“The reality is that production has come about for us because we had contracted this material prior to getting into production,” he said, adding “that’s certainly been a significant contribution to our ability to attract the financing to get the development underway.”

Geographic diversity

While Lance may be Peninsula’s only producing asset currently, the company’s Karoo project in Africa is expected to be a significant production center in the future.
Karoo has a JORC-compliant resource of 57 million pounds and an official target size of 350 million pounds. However, that target size could be a little conservative considering that the project was explored in the 1970s by Esso Minerals, which estimated a target size of 450 to 600 million pounds.
Currently Karoo is in the prefeasibility stage, and Simpson noted that Peninsula is hoping to have a definitive feasibility study completed by the end of 2017. “The Karoo project in Africa provides geographical diversity,” he said, noting that the project provides the company with closer access to the supply chain in Western Europe, and in the United Arab Emirates.
“They are really near to South Africa,” Simpson said, “They would be a natural supplier to those locations.”

Nuclear power potential

In the US, about 55 million pounds of uranium are consumed per year by the nuclear sector. Surprisingly, about 51 million pounds of that is imported.
Simpson believes that now that Lance is producing, the company may be able to take advantage of US utilities’ uranium requirements. “I think American utilities will have a preference for US-sourced material,” he said.
Whether or not that prediction comes true, Simpson was clear that with Lance and Karoo, Peninsula is strategically positioned to make the best of the nuclear market. Overall, the company is currently looking at “contracting to North America and Western Europe,” the two biggest nuclear markets.

His optimism stems in large part from the possibilities he sees in the nuclear sector. Simpson said that 430 nuclear power stations are currently in operation worldwide, with 70 new ones being built and a 160 in various phases of financing or development. That means the potential of the nuclear future is promising. He expects to see a lot more nuclear reactors come from China, India, the Middle East and Eastern Europe in particular.
He’s also positive about the outlook for uranium, and while he doesn’t see utilities spurring a bidding war, he does believe that as uranium demand grows, prices will move higher. “When we get into 2017, 2018 we will see an increase in demand that will increase prices,” he said, adding, “new supply that was marginal before will be economic.”
All in all, Simpson believes that investors can expect to see “uranium pricing strengthen over the next four to five years.” With Karoo in the in the works and Lance in operation, it will be interesting to see what Peninsula can accomplish in that time.
 
Securities Disclosure: I, Vivien Diniz, hold no direct investment interest in any company mentioned in this article. 
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Peninsula Energy is a client of the Investing News Network. This article is not paid-for content