The following is an extract from the broker report.
Major Upgrade to Feasibility Study Economics
Peninsula Energy Limited ("Peninsula", "PEN", "Company") has announced a major update to the Feasibility Study for its Lance In Situ Recovery ("ISR") Uranium Projects, located in Wyoming.
The previous study included only one production unit; however, the new study includes three contiguous production units, all of which have significant JORC compliant resources.
Some assumptions have been made around conversion of inferred resource to the indicated or better category.
We believe these are appropriate given the large resource potential in the region. Resource has never been a key risk for this project, in our opinion.
The headline number of the study is a Net Present Value (8%) of US$254m vs the initial feasibility for the Ross production unit alone of US$46m.
The Expanded Economic Study reported Net Present Value (6%) of US$207m. The key difference in the recent study is increased mine life and produced uranium.
We have adjusted our numbers to be largely in line with the Feasibility Study and have a revised valuation for the project of A$202m (NPV10), increased from A$137m.
Consequently, our valuation has increased from 12.4 to 13.2cps and our price target from 8.1 to 8.5cps.
Funding Proposals Have Been Received
The new feasibility study will form the basis for funding proposals, which we believe will be largely debt but with an equity component.
Non Disclosure Agreements have been signed with several internal banking and uranium firms that are reviewing the project in the Company data room.
Until structure and timing of funding is clearer, investors will need to look at past funding success as a measure of the likely path forward.
The Company has cash of $13m and requires $78m in pre start-up capital. In the context of the size of the project, which should deliver >$600m in profit, this is a relatively small amount of capex.
Permitting Timeline Becoming More Visible
The Company has only two key permits remaining to be granted. The Permit to Mine, granted by the Wyoming Department of Environmental Quality, is contingent only upon posting of a reclamation bond for ~US$9m.
The Source Material License schedule calls for grant prior to 12th November 2013; however, the process is ~6 months ahead of schedule by our reckoning.
Pre-construction activity is likely before final grant of the license but we have pushed back our start-up date from mid-2013 to early 2014.
This coincides with the end of the Megatons to Megawatts program, which should facilitate competitive sale and purchase agreements.
Transition to Development and Production Underway
At the core area of its Lance Projects, the Company has evolved from the exploration phase to pre-development, with completion of feasibility, Decision to Mine and appointment of senior management with ISR and project construction experience.
Exploration and resource growth remains a key part of the business, both at Lance and also at the Karoo Project, in South Africa, where recent results have been excellent.
The next six months are likely to provide significant positive catalyst and share price appreciation as well as a positive shift in industry sentiment, in our view. We rate PEN as a Buy with a price target of 8.5cps, previously 8.1cps.
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