Published on Thursday December 29 2011
While some investors may be gun shy of uranium, a number of analysts are predicting that uranium prices could climb in 2012/13 due to delays in new supplies coming online and Russia's plans to stop exporting enriched uranium next year from its secondary supplies.
In addition, uranium industry company UxC compiled a report on the uranium market for the period 2013-2030. In part it said:
“Following the Fukushima accident, there still remains a deficit of supply from the perspective that current production levels are insufficient to meet required future demand given the expected continued growth of nuclear power and the decline in inventory supplies such as HEU that have recently been supplying the market.
Study Results
The Ross Definitive Feasibility Study (DFS) and the Lance Expanded Economic Study (EES) have confirmed the technical and economic viability of the Lance in-situ recovery (ISR) uranium projects in the Powder River Basin Wyoming, USA.
- Ross Definitive Feasibility Study (DFS) NPV US$46 million
- Lance Expanded Economic Study (EES) NPV US$207 million with an initial capital requirement of US$79 million including the capital cost of the Central Processing Plant (CPP)
The Lance projects (EES) included three production units planned at Ross, Kendrick and Barber deposits.
The DFS has been completed by Lyntek Inc. (Denver based engineers) on the June 2011 measured and indicated resources of 8.8 million pounds of uranium at the Ross production unit only and has established the operating costs, well-field parameters and development costs which in the EES are applied to all three production units.
Rockbury Capital FZ LLC and the Company have then applied these parameters to the EES which includes a total 23.3 million pounds of U3O8. This number assumes the conversion of a 12.1 million pounds of the 30.1 million pounds of inferred U3O8 resources that are currently delineated at the Lance projects to indicated category or better.
The EES anticipates the expanded project including Ross, Kendrick and Barber production units feeding a Central Processing Plant (CPP) with an expandable capacity of up to 3.0 million pounds per annum. The CPP evaluation was included in the Lyntek Scope of Work and as such is to a DFS level of accuracy.
In the EES the first production unit will be at Ross with a capacity of 750,000 pounds per annum and production ramping up over 3 years to 2.19 million pounds per annum steady-state production with the inclusion of the Kendrick and Barber production units.
Costs
All important steady state total production cost was estimated at US$31.55 per pound U3O8 including indirect taxes, royalties and ongoing well-field development (C1 cash costs of US$11.93 per pound).
Mining
In situ mining (ISR) is a form of solution mining where uranium is removed from sandstone formations by the same chemical process that deposited it there in the first place. Currently the in-situ process is the single largest producer of U3O8 globally accounting for approximately 41% of all primary production.
ISR mining and processing of uranium consists of two steps: recovering uranium from the mineralised sandstone host via the cycling of recovery solutions through it and the processing of this uranium-rich solution into yellowcake.
Infrastructure
The Lance projects are located in north-eastern Wyoming, about 32 kilometres north of Moorcroft and adjacent to the ranching community of Oshoto. Moorcroft lies adjacent to the I-90 Interstate highway. From the Interstate turn off there is approximately eight kilometres of paved road followed by approximately 48 kilometres of graded roads.
Within the project areas, existing land uses include: livestock grazing, oil production, fodder crop production, communication, power lines and a road transportation network.
Infrastructure within the project area includes roads, utilities, oil wells and activities associated with agriculture (including livestock and hay production). There are several maintained roads and three power lines that pass through the project area.
Revenues
Sales of U3O8 are predominantly contracted on a long term basis with prices determined by a pre-set formulae linked to the reported term and/or spot prices. In the DFS, Lyntek has used a price forecast of US$63.31-79.50 per pound for the 2013-2022 period of operations.
For EES modelling purposes the Company has adopted a price forecast based on a UX Consulting Inc. (UxC) independent report on the long term uranium market for the period 2013-2030. The EES assumes U3O8 production is sold at a contract price of US$62.58 per pound, 2011 base escalated at an average 2.6% per annum.
Permitting
Following a recent review of the permitting strategy the company "is confident in finalising permitting." In addition all new project areas are being designed so they are contiguous with the Ross permit area and as such will be deemed to be amendments to the Ross Permit (once issued) rather than standalone applications. This strategy will significantly reduce the permitting process and timing going forward.
Project funding
The Company is well advanced in structuring and implementing the funding plan for the development of the operation.
It is anticipated that funding will be sourced from a combination of debt and equity.
Rockbury Capital FZ LLC and Boswell Capital Corporation have signed Non Disclosure Agreements with several international banking and uranium industry groups. These groups are currently reviewing the Company’s electronic data room with a view to proposing a financing arrangement, or part thereof. In several cases this will be combined with U3O8 sale and purchase arrangements.
Moving ahead
The Lance ISR uranium projects are ready to be progressed to development stage following relevant permitting and project funding factors which are all well advanced.
Total construction time is estimated at six months and first commercial U3O8 production remains on track for late 2012 (subject to permitting), ramping up over 2013.
This timeline to first commercial U3O8 production is subject to final Board approval which is expected before March 2012.
The company is now working towards detailed design and engineering and to awarding an EPCM contract for the projects ahead and the commencement of site preparation works. In addition, the Company is assembling a highly experienced team to successfully transition from explorer to producer and have the financial capacity to fast track the project implementation where possible.
Analysis
The outcomes of the feasibility study and economic studies of Peninsula's Wyoming uranium projects indicate viable uranium projects with a sufficient margin and buffer over costs of production. Capital costs are also reasonable given the significant scale and production levels envisaged in the studies. This should combine to ensure that project funding is available given the high quality of the projects.
Given the production timeline of the projects should coincide nicely with lower market supplies of uranium in 2013 and beyond.
Long term contract prices offer a higher revenue potential for Peninsula. While it has been a tough road for uranium companies post Fukushima, there are very few listed companies with advanced stage uranium projects that can propel a company from explorer to producer within 12-18 months.
Peninsula Energy provides a compelling uranium counter for longer term investors, with $23 million in cash, trading a significant discount to intrinsic value and longer term valuation with a number of catalysts for re-rating ahead.
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