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One Uranium Stock for Investors to Punt On – PEN

Jan 24, 2022 | Team Kalkine
One Uranium Stock for Investors to Punt On – PEN

 

Peninsula Energy Limited

PEN Details

Peninsula Energy Limited (ASX: PEN) wholly owns the Lance Uranium Projects in Wyoming, USA, transitioning from an alkaline in-situ recovery to a low pH in-situ recovery operation. This transition aims to achieve the operating performance and cost profile of global uranium production projects.

Results Performance for the Year Ended 30 June 2021 (FY21)

  • Of the US$13.3 million cash proceeds from the sale of 275,000 pounds of uranium, only US$9.8 million was generated as revenue for FY21. A balance of US$3.5 million was allocated to derivative fair value.
  • It reported a consolidated group loss of US$1.4 million in FY21 after taking into consideration an income tax expense of US$0.5 million compared to a loss of US$7.6 million in FY20.
  • The consolidated cash position, excluding security deposits and performance bonds, as of 30 June 2021 stood at US$6.7 million.
  • Cumulative uranium inventory of 309,507 pounds was held in converter accounts with a book value of US$9.7 million as per the average uranium price of US$31.37 per pound.

Source: Company Reports, Analysis by Kalkine Group

Quarterly Activities Report for the Period Ended 30 September 2021 (Released on 29 October 2021)

  • The available cash balance as of 30 September 2021 stood at US$7.4 million
  • Sold 200,000 pounds of U3O8 at a relaised average cash price of US$50.35 per pound, earning a net cash margin of US$3.5 million in October 2021
  • 310,000 pounds of uranium in converter accounts at 30 September 2021, with aggregate value at US$13.1 million
  • Lance project, MU1A field demonstration has been operating successfully for over one year and operations yielding bettered uranium grades

Recent Update

  • The press release dated 2 December 2021 mentioned the conclusion of field demonstration operations for the Lance project Low-pH field at the end of November. The field demonstration of Low-pH In-Situ Recovery has delivered usable data and meaningful observations.

Outlook

The company remains well funded to accelerate its goals. It utilized A$13.4 million share placement to deploy in purchase 300,000 pounds of uranium at US$31.35 per pound. Further, uranium sales from the contract book continue to earn net cash margins, which results in sufficient funds to strengthen the operations when added with cash holdings. On 30 September 2021, the company had 310,000 pounds of uranium held in converter accounts. The total market value of this uranium as of 30 September 2021 stood at US$13.1 million.

Further, the company holds uranium concrete sale agreements with significant utilities for around 5.05 million pounds U308 at an average pricing of US$51 to US$53 per pound. 3.7 million pounds are firmly committed sales and ~1.35 million pounds of optional sales. The company will fulfil 0.7 million pounds of committed U3O8 sales with market sourced material over the next three years, and the remaining to be met from company produced uranium.

Key Risks

The company is exposed to risks associated with the existing mineral resource estimates, which could slightly deviate from actual findings. Further, the company must follow the conditions included within the prescribed low pH permit and use the common pH mining method across the entire Ross Permit Area. The group operates globally and is prone to foreign exchange risk arising from several currency exposures.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis), and the target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering its decent liquidity position as well as a portfolio of uranium concentrate sales agreements with major utilities and improved gross margin at 12.9% in FY21 versus 2.5% in FY20.

Considering the factors above, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.1925 per share as of 21st January 2022 (Time: 2:54 PM (GMT+10), Sydney, Australia).

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 on 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 the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and 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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