Peninsula Energy: Starting Uranium Production in the US in Q3 2015

Jim Taylor has over 30 years of experience in the mining sector, and prior to joining RFC Ambrian in 2014 worked at Renaissance Capital and Canaccord Adams. During his time at those firms he covered precious, base metals and bulk commodities companies located across the globe. He’s also worked at gold projects in South Africa and at a Chile-based copper mine.

In the interview below, Taylor discusses Peninsula Energy (ASX:PEN), an emerging uranium producer that’s currently in the construction phase at its Wyoming-based Lance projects. The company is set to begin production there in the third quarter of 2015, and Taylor believes that despite the current uranium price environment, the company will enjoy success.

INN: Peninsula Energy’s Lance projects are fully funded through to production, which is set for Q3 2015. That’s largely due to some big-name backers, including JPMorgan Chase (NYSE:JPM), BlackRock (NYSE:BLK), Resource Capital Funds and Pala Investments. How did Peninsula get those firms behind it?

JT: It’s a great list of institutions. As you noted, JPMorgan, BlackRock, Resource Capital and Pala are some of the key backers in the placement. We think that securing $69 million in funding for a uranium development project in this market is a great endorsement of the project, and the attraction of the company.

This is particularly the case given that the investing parties undertook a large amount of due diligence prior to making their investment decisions. RFC Ambrian, my company, acted as lead manager in the placement, and the process took over six months — a considerable amount of time and a considerable achievement by the company.

INN: Another plus for Peninsula is that it has two sales contracts set up with utilities. How much of Peninsula’s output will those account for?

JT: The two contracts cover roughly 2 million pounds of uranium that we expect to be sold in the five years up to the end of 2020. That is out of roughly 6.6 million pounds of production that we have modeled. So that represents just less than a third of production for the next five years.

We understand that the company remains active in that long-term market and is looking to secure additional long-term contracts, and we expect further news on that front. But obviously we have no idea of the exact timing.

INN: Has the fact that Peninsula will be producing uranium in the US given it an advantage in terms of sales? In other words, are American uranium buyers biased towards homegrown material?

JT: I know it’s certainly something that the company feels exists, but it’s difficult to judge without access to the buyer, and that’s not something we have. But I would guess that given security issues and geopolitics over the last few years, having access to domestic sources of such a strategic energy metal would be an advantage that’s possibly worth paying a premium for.

INN: Given all those positive attributes, why is Peninsula’s share price not higher?

JT: We think that the fact that the company’s so close to production has been overlooked by the market. We also believe that maybe the market has overlooked the fact that the project is fully funded. We expect a rerating of the company once it enters production, which should happen later this year in the third quarter, with first sales in the first quarter of 2016. It will be difficult to ignore it at that point in time.

INN: Peninsula’s Lance projects are located in Wyoming’s Powder River Basin, which is also home to Cameco (TSX:CCO,NYSE:CCJ) and other key uranium miners. Once it enters production, will Peninsula be a takeover target?

JT: I think it could be. I certainly think it will be involved in some corporate activity, but I’m not sure which side of the equation it will be on. I know that Peninsula definitely has ambitions to develop into a significant producer, and possibly build from its current portfolio into a company capable of producing 8 million pounds a year over the next six or seven years. If that were to be the case, that would almost by definition involve acquiring additional properties.

INN: What about undertaking further exploration at the Lance projects? They underwent exploration in the 1970s, and to date Peninsula has not explored all of the areas covered during that time. Is that something that’s in the works?

JT: It’s already a considerable resource — 54 million pounds in the total resource, that’s under the JORC code. But there’s a lot more ground to be explored, and an independent consultant estimated that the exploration target on the project area is an additional 104 to 163 million pounds of uranium.

But given that Peninsula’s current plan for production is three-stage development of the project, up to 2.3 million pounds a year by 2020, there’s enough resources already to support the operation well into the future. In due course, and when there’s more capital available, we’d certainly expect the company to continue to drill out the resources on the project area. And some of those exploration target resources would be converted into JORC resources.

INN: You mentioned the resource is JORC compliant — how do US buyers feel about that?

JT: We certainly think of JORC resources as being equivalent or of a similar stature to Canadian Institute of Mining resources. I think North American markets are very familiar with that code — there are slight technical differences, but I think they’re basically of a similar stature and shouldn’t be an issue for US buyers.

INN: It’s exciting that Peninsula will be starting production, but it will be doing so in a uranium price environment that’s not the best. How much of a challenge do you see that being for the company?

JT: It is a problem, and I’m sure it’s not far from the forefront of most uranium companies’ minds. But I think the company has done what it can to mitigate the issue. Obviously it’s helping to mitigate the impact by selling into long-term contracts that are currently $10 a pound higher than the current spot price.

Also, Peninsula is using a staged development plan, which in addition to minimizing the upfront capital required for the development of the project also means that the majority of production should be delivered into higher prices at some stage in the future.

INN: On a similar note, what’s your outlook for the uranium price? What catalyst(s) do you see moving the price higher?

JT: I think the mining industry is definitely going through a period of underinvestment now. Combined with growth in demand from countries around the world, particularly China, that should lead to an imbalance in the future. Many commodity price forecasters are looking for that imbalance to materialize within the next three or four years. And utilities’ requirements will push them to buy well ahead of that forecast imbalance. So we do see some short-term reasons for an imbalance in the uranium price.

Securities Disclosure: I, Charlotte McLeod, 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 interview was conducted as part of the company’s paid advertising campaign and is paid-for content.

Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. 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.

Jim Taylor does not own stock in Peninsula Energy. RFC Ambrian acts as agency broker to the company and was lead manager in its December placement.