Peninsula Energy(ASX: PEN) (OTCQB: PENMF) shares are down 28% today. The problem for PEN shares is simply that a major supplier of technology has dropped out. This means that Peninsula must now build up the capacity to produce that service itself. This is entirely possible, isn't one of life's grand problems. But it does require both capital and time - requiring more capital and time makes a company worth less, that's just the way it works.
As to what is done by Peninsula: “Peninsula Energy Limited, together with its subsidiaries, engages in the exploration, development, and mining of uranium deposits in the United States. Its flagship project is its 100% owned Lance uranium project located in Wyoming.” OK, so we know what it does. But it's also true that people have been forecasting a uranium boom for a couple of decades now. And while the price has risen recently there's not exactly great evidence of a boom in market volumes. As with the allied fusion energy, the good times always seem to be still over the horizon.
But as to the particular problem that PEN has: “Resin processing provider Uranium Energy Corp (“UEC”) has notified Peninsula that it is terminating the agreement to treat loaded resins and produce dry yellowcake from the Lance ISR Projects. The processing agreement contains a mutual provision for 270-day notice of contract termination, Peninsula will accelerate plans for in-house resin processing and dry yellowcake production at the Lance Projects”
Peninsula Energy share price from ASX
The method of mining used here is that the uranium is dissolved into acid. Then you use a resin - the uranium preferentially sticks to it - to extract from the solution. Then you process that to get to the saleable item, yellowcake - uranium oxides. To successfully mine this way you've clearly got to have a uranium deposit, acid, resins and a manner of processing the resins to make yellowcake. It's that last which Peninsula has now lost with this contract termination and pullout.
This is solvable, entirely so. The technology is well known, there are suppliers of all the pieces needed to make it work. But it does have to be constructed, the system to do this. So, this is going to call on capital and also take some time. Which is why the price decline of course. More capital, more time, a lower share price, why wouldn't that be true?
At some point such a price decline becomes a buying opportunity again. We don't think Peninsula is there as yet but it might well get to it. Worth monitoring.
