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Peninsula Energy Lowers Costs, Increases Cashflow In Lance Uranium Study

Peninsula Energy (ASX: PEN) has further enhanced the economics for its Lance Uranium Projects in Wyoming in an extensive optimisation study of the May 2012 TREC Feasibility Study.

The outcome of the study is a substantial reduction in capital and operating costs and an increase in the net present value and steady state free cash flow.

Initial capital costs have reduced by 11.5% to $69 million, the steady state C1 cash cost has dropped by 10% to $11.70 per pound U3O8 and the total steady state operating cost is 5% lower at $34.80 per pound U3O8.

In turn, the NPV(8%) has increased by 15% to $305 million and the steady state free cash flow is 18% higher at $86 million per annum.

Gus Simpson, executive chairman, commented: "We are extremely pleased with the optimisation and progress achieved since the appointment of the production team; it has delivered substantial cost savings and added significant value to the Lance Projects."

Optimisation study specifics

The optimisation study was conducted over a period of six months by the senior development and production team at Strata Energy in conjunction with TREC.

The study includes adjustments for the January 2013 JORC Resource upgrade to 53.7 million pounds U3O8 at the Ross, Kendrick and Barber Production Units.

The operating parameters modelled in the study are the same as those applied to the Feasibility Study - the Ross, Kendrick and Barber Production Units feeding a central processing plant with a permitted capacity of up to 3 million pounds per annum.

The first production unit will be at Ross with a capacity of 750,000 pounds per annum with the sequential inclusion of the Kendrick and Barber Production Units ramping up over several years to 2.2 million pounds per annum steady-state production.

The optimisation study supplements the TREC May 2012 Feasibility Study and together will form the basis for the ongoing evaluation of the Lance Projects.

Project development funding

In December 2012 Peninsula executed agreements with funds managed by BlackRock Financial Management providing for the issuance of up to US$22 million in senior secured notes and raising a further $11.72 million through a placement of shares and attaching options.

In addition Peninsula raised a further $2.87 million through a placement of shares and attaching options to its major shareholder Pala Investments.

The drawdown of the notes is conditional upon the grant of the Permit to Mine and Peninsula entering into a U3O8 sales agreement on terms satisfactory to BlackRock including a NPV equal to the principal amount of the notes.

BlackRock also has a first right of refusal on a second debt financing planned around the grant of the Source and 11(e).2 Byproduct Material License (SML) for an amount up to US$80 million.

The proceeds from the issue of the notes and shares will be used to complete pre-SML construction, including deep disposal wells, monitoring wells, central processing plant site works, civil works, ancillary roads, plant long lead items and working capital.

Peninsula has also begun the application process with the Wyoming Business Council for up to US$70 million in Industrial Development Bonds.

Crook County, the issuer of the bonds, has voted to unanimously support the application.

The successful grant of a combination of these notes and bonds would be used for the completion of the central processing plant, central processing plant expansion, satellite ion exchange plant and initial well-field development.

Road ahead

The Lance Projects are ready to be progressed to the construction stage subject to current permitting and project funding status.

Total construction time is estimated at 12 months with first commercial U3O8 production estimated to begin in 2014 subject to final permitting.

Peninsula has assembled a highly experienced team with specific production experience in ISL operations.

Detailed design and engineering is completed and the company expects to finalise the award of an EPC contract in the coming weeks.

Monitoring well installation has begun and site preparation and civil works are planned to commence after this appointment.

Permitting

The SML is now in the final format to be issued upon completion of the environmental review, which is the final step in the licensing process.

The environmental review format is scheduled to be published later this month in the Draft Supplemental Environmental Impact Statement (DSEIS).

The final SEIS is anticipated in the December quarter 2013 with the grant of the SML to follow.

Analysis

The optimisation study for the Lance Projects further enhances the economics, lowering costs and delivering greater cash flow.

This is another achievement on the company's road to production that will likely alert investors to the strong investment case of Peninsula Energy.

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