We have made no secret of our bullish stance on Uranium at Market Matters, with holdings in Paladin Energy (PDN), Cameco (CCJ US) & Silex Systems (SLX) across various portfolios. We see nuclear energy as a key aspect of the energy transition as a cheap and reliable source of power. The price of uranium has recently traded over US$80/lb for the first time in more than a decade, up ~300% from 2008 levels as buyers, mostly utility companies, struggle to get their hands on supply. As yellow cake prices have been climbing, more and more companies are looking at bringing production online and Peninsular was expected to be selling into the market this year before issues with their mining contractor came to a head.
Peninsula had hired Uranium Energy Corp (UEC) to extract uranium from their Lance project in Wyoming through leaching, producing a resin that would then be processed by UEC. The goal was to use earnings from stage 1 to fund a ramp-up of production and bring the processing in-house however UEC walked from the contract right as first production was due. Peninsula now plans to go straight to the stage 2 plans, tapping the market for $60m this month with plans to raise a further $90m through debt and equity to fund the project through to positive cashflow – we suspect the US Government will support a good portion of the capital still required.
While there are still risks in play here and production is ~2 years away, Peninsula has resolved a lot of the issues caused by UEC’s actions in a short period of time and has a clear path to ramp up with the Lance project. Given the recent issues and capital raise, PEN is trading on a discount to the rest of the sector.
- PEN is a very high-risk, very high-reward play on Uranium, and while not for the faint-hearted, we view this as a very interesting ‘speccy’.
MM is bullish PEN as a highly leveraged Uranium exposure
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