Impact: Negative
Peninsula Energy received notification that its toll milling agreement with the Irigaray ISR plant in Wyoming will terminate within 270 days as per the agreement signed with Uranium One, subsequently acquired by Uranium Energy Corp. (TSX:UEC, Not Rated). Instead of operationalizing Phase 1 and shutting it at the end of the 270-day notice period, management will advance directly to its long-term Phase 2 plan. While the delays in production (we speculate by ~18 months) and in PEN’s graduation to producer status this summer are disappointing, and negative from a cash flow perspective, it does not ultimately change PEN’s long term plans. It will now accelerate Phase 2 expansion originally scheduled for during year 2 of production. This will likely impact analysts’ DCF models and require PEN to find additional Stage 2 capital that was planned to have been covered by Phase 1 cash flow. We anticipate the stock to come under pressure (share price fell 28% overnight) but expect it to stabilize as capital requirements and timelines are better understood.
