Company Overview: Peninsula Energy Limited (ASX: PEN) is engaged in the exploration and mining of uranium. Presently, it is running in-suit recovery operations at its fully owned Lance Projects in Wyoming, USA. In addition, PEN’s portfolio holds Karoo Projects in South Africa and RakiRaki, a joint project, in Fiji.

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PEN Details

Material Business Updates

Low-pH Field Demonstration: As announced on 7 September 2021, PEN provided an update on the MU1A low-pH field demonstration in the matter of the Lance Project. The oxygen potential level reached ~400 mv supporting increased uranium production-grade. Recovery composite stream uranium grade was evaluated at ~40 ppm.

Historical Financial Trend:

PEN illustrated prudent working capital management in recent years while keeping the value proposition intact. Debt levels assumed a significant decline with the debt-to-equity ratio closing at 0.01x in 2020. Operating revenues grew at a 3.5% CAGR (FY16 – FY20).

Figure 1: Historical Financial Overview

Source: Company Reports, Analysis by Kalkine Group

Q4FY21 Performance and Key Corporate Updates:

Figure 2: Quarterly Performance and Corporate Events

Source: Company Reports, Analysis by Kalkine Group

Full-Year FY20 Performance:

Financial Position Update: PEN ended FY20 with a cash balance of US$11.9 million. The principal amount of US$16.82 million was paid to satisfy the existing debt. The company completed a placement of US$0.41 million.

Top Line Evaluation: Cash proceeds from the sale of 191,000 pounds of uranium amounted to US$7.48 million. The sales were vastly comprised of uranium concentrate mined from the Lance Projects, which corresponded to ~24,000 pounds.

Figure 3: Annual Performance Highlights:

Source: Company Reports, Analysis by Kalkine Group

Top 10 Shareholders:

The top 10 shareholders together form ~18.63% of the total shareholding. Nero Resource Fund Pty. Ltd and Sandhurst Trustees Ltd hold a maximum stake in the company at ~­­­4.36% and ~4.09%, respectively.

Figure 4: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Metrics:

PEN’s liquidity profile remains strong amidst increasing capacity expansion programs. In addition, debt levels have declined substantially in recent years, exhibiting low financial risk. PEN’s prudent working capital management with definitive sales contracts may provide substantial support to operating cash flows.

Figure 5: Key Financial Metrics

Source: Analysis by Kalkine Group

Outlook:

The commercialization of Low pH Fields: The low-pH field demonstration, that commenced in August 2020, is projected to run through H1FY22. The demonstration holds three developed large-scale production patterns.

Long-term Contracts: PEN remains to be the only junior uranium producer with sales contracts extending to 2030; hence holds potential for sustainable growth.

Secured Top-Line: The company has secured Uranium sales for CY2022 and CY2021 totalling 450,000 pounds to generate a net cash margin of US$8.0 million to US$9.0 million and US$7.0 million to 8.0 million, respectively.

Key Risks:

PEN holds undiversified exposure to commodity markets with a sole focus on Uranium extraction and is hence extensively sensitive to potential high price volatilities. Exploration risk and high storage costs have weakened top-line and bottom-line stability. PEN is yet to generate scalable revenues, delays in uranium processing may void the supply contracts and increases the cost burden.

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

Stock Recommendation:

PEN has delivered 3-month and 6-month returns of ~+81.82% and ~+150%, respectively. The stock is trading above the average of the 52-week low price of A$0.060 and the 52-week high price of A$0.310, indicating a  trailing opportunity. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). The company might trade at some premium compared to its peers’ average EV/Sales (NTM trading multiple), considering strong back-up of sales contracts and the recent uptick in uranium commercials. For the purpose of valuation, few peers like Empire Energy Group Ltd (ASX: EEG), Senex Energy Ltd (ASX: SXY), Boss Energy Ltd (ASX: BOE) have been considered. Considering the recent uptrend in uranium prices, the establishment of exchange avenues for commodity sale, improved production prospects from Lance Project, and potential upside as indicated by the valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.290, as on 15 September 2021, at 10:22 AM (GMT+10), Sydney, Eastern Australia. Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated risks such as highly concentrated exposure to uranium and potential exploration risks.

PEN Daily Technical Chart (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 is 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 the 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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