The deals, which were made above the current uranium spot price, will see the company deliver nearly 2 million pounds of uranium from its Lance ISR projects starting in 2016.
Exciting news hit the uranium space on Wednesday when Peninsula Energy (ASX:PEN) announced that it has signed two uranium concentrate sale and purchase agreements with major US power utility companies. The agreements will see the company deliver up to 1,935,000 pounds of uranium from its Lance projects starting in 2016; they were made at prices “significantly above [the] current uranium spot price.”
“The current contracts are for quantities of nearly 2 million pounds with the deliveries starting next year. The contracts are all combined; the ones from 2011, from last year and this year put us with a significant margin above our all-in costs at Stage I and Stage II of production, which is a significant achievement and accounts for a significant portion of our production over the next few years to the point where we are very comfortable,” Peninsula’s CEO and managing director, Gus Simpson, said in an interview with Brr Media.
Simpson went on to explain that he sees further contracts in Peninsula’s future. “There will be more contracting out in the future, and we … see that occurring through 2016, 2017 and on an ongoing, rolling basis after that. It is a very key part of the uranium business … these contracts run for periods of five, seven to 10 years, but there is a constant need, as production expands, to continue to roll out these contracts. At this point in time we have been very, very happy with where we are,” Simpson said.
Peninsula’s Lance projects are on budget and on schedule for first production in the H2 2015. The company now has four agreements in place that together cover the majority of the U3O8 it’s been planning to contract over the next five years.
In a note released Wednesday, Dundee Capital Markets analyst David Talbot said those contracts are for a total of 3,997,500 pounds of U3O8. Average contract duration is estimated at about 7.5 years, suggesting that 533,000 pounds per year may be sold into contracts. “We estimate the weighted average price may come in close to US$53.54 per pound ignoring escalation. With Lance production of 2.3 million pounds per annum, it appears that 13.3 percent of annual production is covered by contracts,” he states.
One of the leading performers in the uranium sector
Talbot is pleased with Wednesday’s announcement for other reasons as well. “Two additional uranium sales contracts further de-risk the soon-to-be-operating Lance ISR project,” Talbot notes. “They increase revenue certainty, provide a stamp of approval from another two utilities, and demonstrate that utilities may be entering into term contracts again, which should be positive for the industry as a whole. Significant uncovered production remains available, either for contracts or for sale into the spot market, providing leverage to rising U3O8 prices.”
He also said that Peninsula is one of the leading performers in the uranium sector. The company is currently outperforming most of the others in the space, and has risen over 50 percent in the past three months.
“PEN is in that pre-production sweet spot. Its fully permitted Lance project is anticipated to begin production in Q4 2015,” Talbot said. “Furthermore, Peninsula has released a slew of positive PR’s this spring/summer, including good drilling results from both well field and development drilling, additions to its management team (with capital markets and M&A experience), Deep Disposal Well (DDW) completion, plus noted advancement at Karoo in South Africa.”
The company’s pending NYSE listing is also significant — Talbot explains in his note that it should help improve liquidity as well as give access to North American investors and boost valuation.
Looking to issue up to 1 billion shares
In his note, Talbot also discusses Peninsula’s announcement that at its extraordinary meeting in September, it will be asking shareholders for permission to issue up to 1 billion shares. He believes the news is interesting as the Lance projects are fully financed through construction and the company isn’t in need of the working capital.
“Additional sales contracts may help appease banks and improve financing rates if debt is so required. While the move is prudent and provides options, we speculate that this may suggest a potential future acquisition helped by PEN’s positive momentum,” Talbot said, pointing to the company’s closest geographical peer, Azarga Uranium (TSX:AZZ).
At end of day Wednesday, Peninsula’s share price was up 4 percent to close at AU$0.026. Year-to-date the company is up 30 percent.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Peninsula Energy is a client of the Investing News Network. This article is not paid-for content.
Uranium News: Peninsula Hits High-grade Uranium During Production Drilling
Peninsula Energy: Ready to Start Production in Q3 2015