US uranium play Peninsula Energy (ASX:PEN): CEO interview

 

Peninsula Energy (ASX: PEN)

We spoke to Wayne Heili, CEO of Peninsula Energy (ASX: PEN), about the imminent commencement of uranium production at the Lance Projects in eastern Wyoming, the favourable price environment for uranium in which it is launching and the prospect in the near future of a much bigger operation at Lance.

We learned from Wayne that most Americans now favour nuclear power for its no-carbon footprint and its potential for very cheap electricity in the future.

Full transcription below.

 

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Transcription

 

Stuart: Hello, and welcome to “Stocks Down Under.” My name is Stuart Roberts. And I’m one of the co-founders of our service. And joining me today, on the morning of Monday, the 6th of June, 2023, from Casper, Wyoming, Wayne Heili, CEO of Peninsula Energy, ASX: PEN. Good afternoon, Wayne. It’s still the 5th of June where you are.

Wayne: That’s right. We’re a little behind you guys all the time.

Stuart: But I’ll tell you where you’re very much ahead. Peninsula Energy any day now will be able to start production of uranium from its Lance Uranium projects in Sunshine County in the northeast of the state, about 200 miles Northeast of where you are, Wayne. You are the next producing uranium mine in the entire United States. Well done.

Wayne: Well, thank you, Stewart. Yeah, we’re looking forward to getting the Lance Project back up and running. It’s been a hiatus since the middle of 2019 where we’ve done a whole lot of work to transition the project to bring on some better technology, and some better performing operational chemistry. So, we’re really excited. Still looking at starting up around mid-year, and that’s got the team scrambling at the site, and everybody nervous about details. But it’s a very exciting time, and the markets are right for it too.

Stuart: Absolutely. Let’s paint the picture. It’s June of 2023. Last week, the Minister of Mines in Namibia made an unfortunate statement where he was talking about the state needing more equity in some of the resource projects there. Quite reasonable statement from that point of view, but it had the market spooked. Namibia is one of the world’s leading uranium producers thanks to Rossing and other projects that are coming on stream. Suddenly Peninsula Energy in good old Red State, Wyoming was looking a lot more safe than investments in Namibia.

Wayne: Well, jurisdictional risk kind of was highlighted last week with that. Fortunately, for the Namibian producers, that was all smoke and no fire. But you know, we don’t anticipate that type of behavior or even those inferences from our political leadership here in Wyoming or in the United States. We have a very stable jurisdiction, a tier-one mining state. Wyoming has always been a leader in coal production, oil, and gas production, uranium production, you name it. The minerals we have, we produce, and the state is really reliant on an economy that centers around mining.

So, you know, we get full support. Just a couple of weeks ago, we had the governor of the state of Wyoming out to our site in advance of our startup. He took a tour along with Wyoming Senator John Barrasso. You know, they were both interested in learning more about the uranium mining industry and how they can support it. And they came to our site along with other industry representatives. It just shows the kind of support that we have.

Stuart: Absolutely. Let’s talk more about the Lance projects. There’s three of them. And you did your DFS last year on two Ross and Kendrick, and tailored to the Powder River Basin. When you weigh up all your resources, you’ve got about 54 million pounds of uranium. Now, we talked about chemistry before. You’re gonna produce using In Situ, ISR, In Situ recovery. The beautiful thing about ISR is it works at very low cost. You can be profitable at under $40 a pound is the rough rule of thumb. I take it that you needed some chemistry spots to be able to refine your ISR before you could get it to this stage.

Wayne: Well, there was a couple of drivers on our chemistry change. You know, the project was put into production with an alkaline chemistry In Situ recovery base. And that’s how all of the US projects have traditionally been licensed and put together. But around the world the low pH In Situ recovery has really become the dominant way of producing. In Australia, Kazakhstan, Uzbekistan, you name it, over half the world’s uranium is produced by the low-pH chemistry. And we know that those producers populate the lowest quartile cost production globally. So, we asked ourselves first, you know, why not do it in the US if it’s really that much better for uranium recovery, and produces at a nice cost profile, why not do it?

And then the second driver for us was really our uranium mineralogy, it responded a lot better to the low pH chemistry than it did to the alkaline chemistry. So, with those two recognitions, it just became fundamentally important for us to make that change. And that’s what we’ve been working on for the last several years.

Stuart: Right. The timing is exquisite for beginning of production at the Lance projects. We’ve got uranium kicking around just north of $50 a pound. A lot of the experts are expecting it to go a lot higher, but it’s proving very stable at those levels. At that level, you can operate this mine quite profitably.

Wayne: Yeah. We saw our all-in-sustain costs around $39 a pound. So, we were comfortable making the production decision. We also have a nice contract book of future sales going out to the entirety of the next decade out to 2033. And the prices in those sales contracts are also very supportive. They’re really better than the current spot market today. But spot markets too has really been seeing a little bit of an upward tick in the last couple of days of trading. And last week we’re now at about fifty-five and a half dollars a pound.

Stuart: Right. Yeah. So, good times. Obviously, you’ve now got this project funded, Peninsula sitting on about $26 million in cash. Any challenges between now and first production in terms of extra expenses you’re gonna have to make?

Wayne: Not for first production. We’re positioned very well to get the project back up and running in the near term. You know, we’ll be cash-flowing decently with early production. But our outlook is that this project is going to need to be expanded in the near term. I think we need to take the project from its current capacity, which is about 800,000 pounds a year, up to about 2 million pounds a year. So, our future outlook is once we have this project up and running and successfully producing, is to ramp it up to a higher level.

Stuart: Right. The public policy environment in the United States is quite supportive. U.S. gets about 15% of its electric power from nuclear sources. Even the Democrats are grudgingly admitting that we need nuclear. And of course ever since the trouble started in Russia, the need for domestically produced uranium has only been stronger. That stood you in good stead. You’ve been a uranium true believer for most of your working life.

Wayne: Well, actually, from day one in my working life. So, I came out of college and went and took an assistant metallurgist job at a uranium mill in South Texas. So, the entirety of my professional career has been dedicated to uranium production. But wow, yeah, the political support is real, and it’s on both sides of the aisle, the Democrats and the Republicans. You know, today with the war in Ukraine, there’s a lot of political will to ban Russia and Russian nuclear fuels from the US markets. We have bills advancing in the Senate and the House, you know, with bipartisan support in both. We have bills for the support of development of HALEU fuel, which is a high-assay, low-enriched uranium fuel that’ll go in the small modular reactors.

The government wants to support and make sure that we’re a leader in that advanced fuel technology globally. So, we’re getting funding bills and support bills from both sides of the aisle with support just showing how popular nuclear is. I saw a story or an article today. I have to fact-check it, but I think there was a survey out, at around the end of May, that suggested 75% of the American public now supports nuclear energy and the use of nuclear energy. And that’s an all-time high.

Stuart: Wow. It’s amazing how times have changed. So, paint the picture for us a year from now, if we’re having this discussion, can we expect to see a potentially final investment decision on an expansion within 12 months at Lance? Or is it too early to think about that?

Wayne: It’s not too early to think about it. You know, we really need to get up and running and see maybe six months of production results. But then, you know, we’re gonna turn our focus to expanding the project and making the Lance projects all that it can be.

Stuart: Right. And beyond Lance, have you got plans to expand like pick up other uranium projects in the United States or other parts of the world?

Wayne: You touched on it earlier. The Lance project is really the collection of three project areas. We have the Ross production area, which is our fully licensed area at Lance. And that’s gonna carry us for a couple of years of production. Then we have the Kendrick area, which I regard as a development area. We’ve applied for inclusion of the Kendrick area into our production licenses, and we think in a year and a half to two years those applications will be up for final approvals. And that means we’ll have that done well in advance of the time we need it for continuing strong production rates. But then most importantly, and what people kind of miss is that the Barber area at Lance is really an exploration area. We have about 30 million [inaudible 00:10:31].

Stuart: Including in last year’s DFS.

Wayne: That’s right. Because it’s mostly inferred resources, 30 million pounds of inferred resources at Barber. And doing economics on inferred resources is frowned upon. And so, we carved it out, and we started to differentiate the three project areas so that the investors understood what we have in Barber is an excellent exploration project. We think that with Barber there’s potential for resources, you know, well in excess of a hundred million pounds. We just have to get out there with some drill rigs and define the resources with closer space drilling over time or in a program. But we’re gonna start putting some drill rigs to work on an exploration and development program later this year. So, we’re kind of excited about the prospect of showing the upside of the projects that we have.

Stuart: Right. So, Peninsula Energy, the primary exchange is ASX. You’re also traded over the counter in the U.S. How’s the liquidity going in the OTC part of the register?

Wayne: Yeah, the OTC QB markets have provided a lot of liquidity for us especially when we were first introduced. We saw 20 to 25% of our daily volume trading across the OTC, you know, which means that for every three shares that traded in Australia, one traded in the U.S. That’s tapered off a bit. But there’s a lot of enthusiasm amongst the U.S. retail investor community and the institutions that will use the OTC as a trading platform. It’s not a formal listing, and not everybody uses it as a trading platform, but it’s a well-accepted trading platform that’s…The shares have to come out of the Australian market to be traded in the U.S. We don’t issue new shares to trade on the OTC. So, for every share that’s traded in the U.S., it had to be removed from the Australian market. It has a doubling of volume effect.

Stuart: Right. Thank you, American investors. You’re making it easier for all of us.

Wayne: Absolutely. We’re getting greater liquidity on both exchanges thanks to the OTC.

Stuart: Right. Well, Wayne Heili, well done on what you’ve achieved since you came on board at Peninsula. It’s been a great outcome so far, but as you’ve shared, and as Frank Sinatra sang back in that old song, the best is yet to come. So, keep up the good work.

Wayne: Well, thank you, Stuart. Really appreciate the time today.