Peninsula Energy (PEN) - Technical Analysis and Due Diligence

Peninsula Energy Limited is an ASX-listed company that owns the Lance Uranium Project in Wyoming, USA which is in transition from an alkaline to a low pH in-situ recovery operation, with the aim of achieving the operating performance and cost profile of the industry-leading uranium projects. 

Merlin-Marr Johnson caught up with Wayne Heili, CEO and Managing Director, Peninsula Energy.  Mr. Heili has spent the bulk of his 30+ year professional career in the uranium mining industry. Before joining Peninsula Energy, he served as President and CEO of Ur-Energy, Inc., where he successfully oversaw the design, construction, commissioning, and ramp-up of the Lost Creek in-situ uranium project in Wyoming USA.

Prior to this, Mr. Heili served as Operations Manager of the Christensen/Irigaray in-situ uranium mines in Wyoming. He also has experience in ISR (in-situ recovery) and conventional uranium mines in Texas. His educational credentials include a Bachelor of Science degree in Metallurgical Engineering from Michigan Technological University. He is a past President of the Uranium Producers of America. 

Company Overview 

Peninsula Energy is an advanced uranium developer with projects based in the United States. The company was founded in 1993 and is headquartered in Australia. It is listed on the Australian Stock Exchange (ASX: PEN) and the OTC Markets (OTCQB: PENMF). Peninsula Uranium Limited, Beaufort West Minerals (Pty) Ltd, Strata Energy, Inc., PM Prospecting Pty Ltd., Tasman Pacific Minerals Limited, Tasman Mmakau JV Company (Pty) Ltd, Imperial Mining (Fiji) Ltd., and Tasman RSA Holdings (Pty) Ltd, are the company’s subsidiaries. 

Peninsula Energy’s Lance Project is well-positioned to be one of the first uranium restarts. The project is fully-licensed and the company has the majority of its operating staff in place. It has spent the last few years technically de-risking the project. The company has the ambition to transition from an alkaline base in-situ recovery producer to low pH chemistry. Following the completion of technical de-risking, the company is now focused on Economic Studies. It has plans to release a Feasibility Study by Q3 2022. This study will aid the company in making an FID (Final Investment Decision) on the restarted Lance Project in mid-2022. 

Uranium Roll Front Geology

The Lance Project is located in the northeast corner of the state of Wyoming. This is a traditional uranium roll front geology type that is commonly found in the United States uranium production centres and deposits. Roll front deposits are formed at chemical boundaries where oxidising water carrying the uranium meets with chemically reducing soils either on the ground or underground. 

Surface water or rain enters the groundwater system and flows downstream. Rain and freshwater are typically oxidised and are known to carry soluble uranium in very low concentrations up until a point where it meets a chemically reducing boundary. At this point, the water continues on but drops out metals like uranium that precipitate in the chemically reducing system. 

This results in large groundwater systems that carry low concentrations of uranium until it drops out, leading to the concentration of uranium. Over centuries, the uranium concentrations get rich enough to become a uranium deposit. The uranium precipitates once the formation is complete. This leads to chemical precipitation on a sand grain or a rock. 

At the roll front boundaries, a coating is created on a sand grain. The in-situ recovery reverses the natural process. Chemical oxidants such as oxygen or hydrogen peroxide are introduced into the system and water is passed across the front. This leads to the re-solubilizing of the uranium and the resultant uranium is then recovered. Notably, the company has injection well patterns and recovery well patterns. Peninsula Energy has a series of injection wells going across the host with the uranium ore body. As water crosses the ore body, the uranium is dissolved. Following this, the company collects the water in recovery wells. 

The company has roll fronts that span for miles. In a regional groundwater system, where similar geology is spread over a large area, the groundwater is introduced at the surface which then passes underground. There is an aquifer where the uranium is deposited. The permeability of the aquifer enables solutions to be pumped across, this is a major characteristic of a successful in-situ recovery. There are certain formations that might cement up. Although these formations may be a roll front, they don’t serve as good targets as water can’t be pumped across. The best in-situ recovery projects are the ones that address a permeable host sandstone that has the uranium roll front. 

Within the Powder River Basin, there are 2 major formations that have been historically developed for economic purposes, namely the Wasatch formation and the Paleocene Fort Union formation. 

Peninsula Energy addresses the Wasatch formation. Although it does not have the geological cross-sections, the company has interpreted the length of the roll front within the project area. Notably, there’s a boundary between the Fort Union and the Wasatch, and the company’s project is actually on the Fort Union side. Regionally, the groundwater here would travel from east to west, towards the basin. The red lines indicated in the map demonstrate the boundaries where the oxidising water is found in chemically reduced conditions. This establishes the map’s redox boundary, which also serves as a high target area for uranium mineralization. 

Here, the cluster formation of the red lines depicts multiple horizons with roll fronts. There are times when the company has found stack roll fronts of multiple horizons in the same area. There is often significant variability here. The company has found good permeability from north to south. Interestingly, the Lance Project area is 25 miles north to south and is 5 miles wide. This is a large-scale project, where the company has identified about 53Mlbs of JORC (Joint Ore Reserves Committee) compliant resource. 

Over the years, the company has drilled sufficiently to identify the existence of the front rolls, their boundaries, and the oxidization that reduces boundaries. There’s a lot of infill drilling required to take the resource from Inferred to the M&I (Measured & Indicated) category. 

In-Situ Recovery

Traditionally, oxygen or hydrogen peroxide is used to acquire the uraninite off the sand grain. However, in the 2018 Feasibility Study, the company utilised bicarbonate and alkaline conditions for extraction. This was later replaced by acidic chemicals.

It is important to note that U4+ tetravalent uranium is insoluble, while U6+ hexavalent uranium is soluble. Oxidising U4+ to U6+ brings the uranium into a soluble state. Initially, a very low concentration of uranium is carried by the groundwater, chemically reducing the front, taking the uranium from the soluble 4+ state to the 6+ state. 

The acidic chemistry is a concentrated solution leach. The company forms uranyl sulphate as the uranyl ion is a soluble, free solution. In order to prevent this uranyl sulphate from dropping back into its original form from the injection well to the recovery well, the solution is turned into a complex form by either using sulphate from sulfuric acid or by using bicarbonate from an alkaline solution. In both instances, the uranyl ion forms a large complex that is stable in solution form. A low pH or acidic leach process is more effective on a broader spectrum of uranium mineralization. Notably, uraninite and coffinite are the most common uranium minerals that are formed in the roll front type deposits.

The formations at the Lance Project are a bit older than a typical Powder River Basin uranium formation or deposit. There has also been some alteration of uranium minerals over time. Peninsula Energy found that a greater percentage of dissolved uranium can be recovered using aggressive acidic leach solutions. In essence, switching from alkaline leach solutions to the lower pH or acidic solutions allows for higher recovery rates and shorter times for underground uranium, driving better economics. 

Similar to all other US projects, the Lance Project was historically developed with alkaline chemistry. The project was developed, constructed, and put into operation in 2015. Between 2016 and 2017, Peninsula Energy realised that its uranium recoveries were lower, and a change in chemistry would be desirable. 

The United States in-situ recovery industry is focused on alkaline chemistry. Meanwhile, countries such as Australia, Kazakhstan, Uzbekistan, Russia, and China practise in-situ recovery by using a low pH or acidic chemistry. This is because acidic chemistry is more effective in addressing the uranium mineral, and it can be used to process a greater percentage of uranium minerals in a shorter time frame. 

Gangue Minerals

Peninsula Energy identified that the formations typically contain carbonate minerals. Carbonates are known to drive up acid consumption as they have the ability to neutralise acids. The level of carbonates present at the Lance Project is fairly limited. Acid consumption can be managed in a relatively low carbonate deposit. If an ore body has less than 2% carbonate mineral, low pH chemistry is feasible. However, if the carbonate material is above 2%, it would drive up the acid consumption significantly, making acid a major component of the overall costs. 

The Lance Project has about 1.5% carbonate presence. The ore body has between 1% to 1.5% carbonate over larger trends. A lot of US deposits are known to have 3%-4% carbonate material which may have caused the industry to shift towards alkaline chemistry. 

Acid Sourcing

Acid is readily available for sourcing in the United States. Neighbouring states such as Utah have regional acid production. Peninsula Energy plans to test the availability of acids for full commercial production in the near future. Western states such as Wyoming are significant oil and gas producers. Interestingly, sulphur is a common by-product of oil and gas production. 

In the 2018 Feasibility Study, the company assumed that the consumption of acid in the United States would be higher than the production. The US is a net importer of sulphuric acid. In the Feasibility Study, the company took into account the costs of sourcing sulphuric acid from the Gulf Coast by sea. However, since acid is readily available from the neighbouring states, the transportation and pricing would end up being a lot less than originally estimated. Overall, the company has taken a highly conservative approach when it comes to asset cost modelling. 

Since the last Feasibility Study, Peninsula Energy has worked extensively on technically de-risking the project. It ran a field leach trial which allowed it to drive the pH from its baseline condition down to the desired level on a field scale. This field demonstration provided valuable information on chemical reagent consumption. 

In the field leach trial, the company also increased the pH back up in order to demonstrate its capabilities in groundwater restoration. Following the trial, the company conducted a second field demonstration, implementing lessons from the first field leach trial. 

During this trial, the company took a previously un-mined area and ran field demonstrations on the virgin ore over a period of 18 months between mid-2020 and 2021 end. This enabled the company to gain field knowledge of the complete recovery curve, along with experience in pattern spacing. The latter helped in determining the distance between the injects wells and recovery wells which helped put injection well patterns geographically over the ore body. The 2018 Feasibility Model was based on lab results, while the 2022 Feasibility Study will be based on field results. 

Interestingly, the geography of the recovery wells and injection wells can sometimes be broad sweeping patterns that go over non-mineralized areas. In other instances, it can help with precise mineralization targeting. The company seeks to be highly precise with its pattern designs, particularly with low pH. Instead of using 5 spots of hexagonal patterns, a 5 spot would be 4 corner injectors surrounding a central recovery well. Peninsula Energy found that the most efficient usage of wells, ore body, and chemicals can be achieved by crossing the patterns or staggered line drives and injecting across the pattern back and forth. 

Material Recovery

Peninsula Energy’s average ore grades in the lower end are 500ppm (parts per million). Ore grade plays a major role, especially in conventional mining. For in-situ recovery, ore grades tend to be more forgiving. In fact, in-situ recovery can address ore bodies with much lower grades because the ore does not need to be removed physically. In-situ recovery uses patterns of wells to address the ore body. This can be done on a lower grade ore and still provide very good economics and yields.

Sweeping across ore bodies can lead to some inherent inefficiencies in the overall recovery. Typically, alkaline offers around 70% recovery of uranium. However, the company was hitting closer to 50% recoveries. This led the company to look at different chemistries. It was found that acidic, low pH chemistry offered up to 95%-99% recoveries of uranium mineralization in lab conditions. The company’s lab leach tests translated very well in the field. Due to the existing inefficiencies, the company is looking at 80%-90% recoveries with low pH chemistry. 

Once the capital has been recovered, the company can continue leaching the remaining bit as long as the recovered uranium is less than the reagent costs. The overall process is inexpensive, as the process mainly involves the circulation of solutions that are in the low pH range. Here, the main costs are labour and electricity. 

The ability to run very low solution grades in the facilities is limited by the plant capacity. In order to produce 1Mlbs-2Mlbs uranium yearly, a reasonably good solution grade needs to be maintained. The wellfields are replaced when the grade reaches around 20ppm. An average grade of 50ppm-70ppm in the facility ensures that new wellfields are available alongside older ones, bringing the average grade to a midpoint that can hit yearly production targets. 

Project Economics

The current uranium market is incentivizing higher production rates. In the revised Feasibility Study, Peninsula Energy is considering the ramp-up of its project to a higher production rate. The existing plant is built for 1.1Mlbs annual production. Increasing this capacity would require upfront capital. 

The Lance Project requires extremely low capital to transition the existing facility from alkaline to low pH. This modern facility was originally built in 2015 and it does not require any part replacements in the near future. The company only needs to transition the wetted parts to ensure that they are compatible with low pH solutions due to corrosive differences between the chemical reagents.

The 2018 Feasibility Study indicated a $6M project CapEx (Capital Expenditure) for a 6-month period. The facility has a very low capital requirement in a short time frame in order to put the project back into production. Peninsula Energy has spent the last 3-4 years technically de-risking the project. The updated Feasibility Study will take all the learnings from the past year and place them into a new study. 

The biggest challenges for the industry as a whole are the inflationary pressures and the supply chain disruptions. Even though the company had set a high starting point for sulphuric acid costs in the 2018 study, the cost has gone up quite significantly. 

The company understands that the higher acid prices won’t last forever. It plans to use the judgement of price trends in its Feasibility Study assessments. A lot of supplies and consumables that go into a successful in-situ recovery have a strong demand in the market. As a result, the company seeks to include a lot of advanced planning and thoughtfulness in the updated Feasibility Study. 

Uranium pricing has been highly dynamic in recent months. The current spot prices are approaching the $60/lb mark. In the 2018 Feasibility Study, the company’s long-term pricing stood at $50./lb The company anticipates that the project NPV (Net Present Value) and IRR (Internal Rate of Return) are going to reflect better uranium markets. Despite the mounting pressure, uranium has been outpacing inflation, which is a boon for producers. 

Over the course of the next 12 months, Peninsula Energy will launch the project economics, which will be followed by an FID to bring the project back into production. The company anticipates that its early production can make it one of the leading uranium manufacturers in the US industry. 

Currently, the company has drill rigs employed on-site. It is carrying out a lot of pre-production activities. In the past few years, the company has worked on redeveloping its project and improving its performance as it moves into the future.

To find out more, go to the Peninsula Energy website