Company Overview: Peninsula Energy Limited (ASX: PEN) is a uranium mining company, which started in-situ recovery operations in 2015 at its 100% owned Lance Projects in Wyoming, USA. The company’s projects include the Lance project and the Karoo project. The company started trading on ASX in May 1994.
PEN Details
This report is an updated version of the report published on 03 June 2022 at 3:55 PM GMT.
Decent Uranium Portfolio Position to Aid Future Business Growth: During the March 2022 quarter (Q3FY22), the company sold 200,000 pounds of U3O8 with respect to long-term sales contracts at an average realised cash price of US$51.98 per pound, and the company received US$10.4 million in early April 2022 related to the sale. PEN’s portfolio of uranium concentrate sale agreements is for up to 4.8 million pounds U3O8 as of 31 March 2021. Out of these 4.8 million pounds, 3.45 million pounds of firmly committed sales and up to 1.35 million pounds of sales optional at the election of the customers.
Insights of Q3FY22: The below picture provides an overview of the business progress in the quarter ended March 2022:
Q3FY22 Updates (Source: Analysis by Kalkine Group)
Business Updates: The below picture gives an idea of key business updates:
Business Updates (Source: Analysis by Kalkine Group)
Highlights of 1HFY22: The below picture showcases a performance overview of the business in 1HFY22:
Financial Summary (Source: Analysis by Kalkine Group)
Inventory Overview:
- At the end of the quarter, the company held 110,000 pounds of U3O8 at converter accounts, which is 200,000 pounds lower than 31 December 2021, as inventory was used to satisfy sales commitments during the quarter.
- The total market value of PEN’s 110,000 pounds of uranium inventory on 31 March 2022 was US$6.4 million.
Top 10 Shareholders: The top 10 shareholders together form ~13.83% of the total shareholding, while the top 4 constitute the maximum holding. Exchange Traded Concepts, LLC., and Exchange Traded Concepts, LLC are holding a maximum stake in the company at ~4.97% and ~4.62%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: During 1HFY22, the company recorded a current ratio of 17.76x as compared to 12.60x in 1HFY21.
Liquidity Profile (Source: Analysis by Kalkine Group)
Key Risks:
- Regulatory Risk: Any failure in the compliances could lead the business to fines, penalties, etc. Hence this may hamper the company’s operational growth.
- Change in Climate: The company is exposed to risks arising from the extreme change in the climate, which may cause temporary suspension of its operation.
- Price Volatility: The company’s performance could be impacted by the adverse movement in the prices of uranium.
Outlook: Looking forward, PEN will continue to engage with its existing and potential new customer base with respect to possible new long-term uranium concentrate sale and purchase agreements. The company would be focused on pricing mechanisms under those agreements, which would support the planned transition to low pH ISR operations at the Lance Projects. PEN believes that the purchase agreements entered in 1HFY22 would support the forecast net cash margin of US$8 million to US$9 million on uranium sales in CY2022. The company is optimistic about the implementation of a US$75 million Uranium Reserve through the US Department of Energy (DOE). This would provide the US uranium production projects, including the Lance Project, with the opportunity to bid for new uranium sales contracts.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of PEN is trading near its 52-week level of $0.115, offering a decent opportunity for accumulation. The stock has been corrected by ~12.79% in the past month. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the COVID-19 uncertainties and other material business risks, etc. For valuation, a few peers like Paladin Energy Ltd (ASX: PDN), Energy Resources of Australia Ltd (ASX: ERA), and Boss Energy Ltd (ASX: BOE) have been considered. Considering the expected upside in valuation, decent uranium portfolio position, encouraging performance in Q3FY22, decent liquidity position, optimistic long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.185, as on 03 June 2022, 2:30 PM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
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PEN Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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