Matthew Gordon: Hey, Wayne, how are you doing, Sir?
Wayne Heili: Fantastic. Matt, nice to talk with you today.
Matthew Gordon: Yes, I appreciate it. Thanks for coming on at such short notice. I do appreciate that you've got some big news, which I want to discuss with you, but first let's give everyone new to the story that one-minute overview, you know, what your business is about.
Wayne Heili: Well, Peninsula Energy over the past 2.5-years has been making significant advances in transitioning our existing alkaline-based in situ recovery operations in Wyoming to one that's going to use low pH mining solutions. We think that'll significantly enhance the economic potential of that flagship property for us when we recommence production. Our numerous achievements over the last several years, Matt, have that combined with the improving outlook and for Uranium demand in the market have not been reflected in our share price. Our board, you know, our folks believe that the spectre of the near-term maturity of the debt that our company carries has been the burden. And it is been the reason why our share prices and our share performance hasn't moved with other companies in this space. And today we're in the process of addressing that one final issue that's been holding us back.
Matthew Gordon: Okay. Which is a large raise! It is quite a big number, over USD$40M, it is not to be ignored. You know, your market cap is around what? USD$28M, USD$29M, and you're raising USD$40M. Why so much money?
Wayne Heili: Well you know, we have to be careful. So I'm going to kind of step into the Australian dollar rather than the US dollar. And we'll talk Australian dollars for a little while now. Our debt in Australian dollars is about AUD$27M. And our capital raise, we're looking at about AUD$40M on the raise. So the purpose of this raise is to entirely eliminate that debt in the nearest prospect that we can, and then we'll be taking on some additional funds to carry our company forward with the initiatives of improving the low pH technical understanding, some optimisation, some de-risking of our project moving forward. So, you know, the scale of the raise is really one that is recapitalising the company. Going after a rather large raise at this time, the fundamental purpose is extinguishment of the debt. Everything else that we're going to do, you know, could have been done with a much smaller raise, but the debt extinguishment is the main purpose.
Matthew Gordon: Right. Okay. And I do understand that you've had conversations with the lender. You've extended it a few times over the past few years, they've reached the end of their tether, have they? I mean, I know you kind of got an extension from April through to the end of June?
Wayne Heili: Yes. You know, look, we took this debt in 2016 when the company had just stood up the project and was just beginning production. You know, over the last four to five years now, we have extended the debt on a number of terms. We have changed the conditions on a number of times, you know, and today we really do believe that with the debt coming due at the end of October of this year, we really do face a very real prospect that the investment horizon for those lenders and that lender group is really near the end. And we're not certain that we would be able to extend or change the terms and conditions of the debt moving forward. Beyond that, we pay AUD$3M a year in interest and servicing of that debt. So that's a big chunk of corporate burn that's being financed by our investors. So, it is important for us to look for ways to reduce our burn rate, reduce our costs moving forward. And so, extinguishing the debt became a real priority for us.
Matthew Gordon: And what about, why this method? Why a 45.4% discount to the share price as I think it was at some point in May. That's hugely dilutive isn't it?
Wayne Heili: Yes. Well, we recognize the offer price is a significant discount to our last closing price or to the pricing of our last capital raise, which was completed at the beginning of this year. The COVID-19 influenced markets today, in those markets equity raises, that are primarily for the repayment of debt or for the restructuring of a balance sheet, are being similarly priced. This is a substantial discount, but it is in the ballpark and the same pricing as you would see if you looked into the universe of other raises trying to accomplish the same thing, Matt, we priced this rights issue to minimise the execution risk. We also put… we think the pricing puts values in the rights for the shareholders. So, if they might clear the market if any current shareholders did not wish to, or were unable to take up their entitlements, these shareholders may be able to realise some value by selling their entitlements in the market because of the way we priced it today,
Matthew Gordon: So, who recommends to you that that's the price? What was the starting price? I'm assuming you negotiated it, but it is still 45.4% so what were they originally recommending?
Wayne Heili: Well, this was a, yes, you know, we were looking at a 50% discount. We weren't quite at that that level. But, you know, you can see raises of this type in the markets today offering 30% to 60% discounts.
Matthew Gordon: Yes, I think the retail investors are… kind of taking their breath away. They're not quite sure what to make of it. Well, you tell me: what do you think they should make of it?
Wayne Heili: I want the retail investors to be assured that the form of this capital raise was selected because it puts our current shareholders front and centre first. They have first rights to take up this well-priced offering. We didn't do a placement to institutions in advance of opening up this rights offer. This rights offer goes to our shareholders first and if they take up their rights, nobody else will. Now it is fully underwritten and has been underwritten by Canaccord and a group of sub-underwriters. So, if the shareholders do not exercise their rights or opt not to, for one reason or another, you know, we could be assured that this raise will be successful. But it was very important to the board, very important to the company, was the treatment of our existing shareholders. And that's why we selected this form of a raise. And it isn't inherent with this type of raise that there are generally larger discounts, but again, each of our current shareholders has the first chance at these well-priced new shares.
Matthew Gordon: Okay. What were the other options you looked at?
Wayne Heili: You know, for the last 18-months now, we have been negotiating an arrangement that would achieve a partial monetisation of one of our offtake contracts. And the intent of that monetisation was to repay the debt. That's been a part of our story, but the viability of that arrangement really depends on the ability to purchase Uranium in the spot market and at the time of execution, and the ability to buy at a price that would generate a significant upfront payment to the company. With the recent increase in the spot price of Uranium, the upfront value for a monetisation type of transaction has diminished significantly. So, the appeal of the attraction and the monetisation is not what it once was. And for us, we're being mindful of the proximity of the maturity of our debt. We did look at all of our realistic options for the company and we took the prudent decision, we think, to avail the company of what is a fairly certain market right now, the Australian market is a pretty buoyant fundraising environment at the moment. And it is not always like that. It hasn't been under the COVID environment. There's been a lot of uncertainty in the markets and it may return to a volatile and uncertain market. So, we see this as a good time to remove the spectre of long-term debt. We think this was the best mechanism that we could look at. We value our shareholders and we put them first in line for this raise and, you know, really other mechanisms that didn't put our shareholders today first in line, were quickly eliminated.
Matthew Gordon: You must have been one of the few Uranium companies wanting the spot price to stay low then?
Wayne Heili: Well, that is the irony, Matt, of our position. You know, the monetisation depended on a low price and the markets were low for a long time, but the monetisation transaction was just simply not getting done with some of the negotiations and the agreements that had to be completed. It just couldn't be, we had a structure that we thought was a win for all parties, but there were some contract details that weren't working out. We have looked at it, it has gone on long enough. We needed to reduce you know, the price of Uranium going up was against the interest of the monetisation. But Matt, it certainly is not against the interests of the company in the long term.
Matthew Gordon: Right. True, true. A couple of things on the actual terms: first of all, the date for this, what's the date for this?
Wayne Heili: Well, the record date for shareholdings is June 10th, but we're really looking to complete this raise in the month of June. We'll have the proceeds come and completed by the 30th June. And we'll be printing a strong balance sheet for the end of our fiscal year, for the end of the June quarter.
Matthew Gordon: A question from an Aussie shareholder: why didn’t you do this after the end of the Aussie tax year? Allow them to sell down some of their shares and then roll over the capital gains into the next year?
Wayne Heili: Yes. I've heard a few folks say that, that it would have been more advantageous for the current shareholders. First and foremost, you know, that wasn't something that went through my mind; sitting in the US, I don't have the same tax years, and maybe that was a miss on our part. But our motivation for the timing was to make sure that the company was debt-free and had a strong balance sheet at the end of the fiscal year.
Matthew Gordon: Right. Okay. Second thing – Canaccord - under what terms are they underwriting this? Are they going to have a position on this? I mean, how are you paying them?
Wayne Heili: Well, Canaccord is brokering and underwriting and managing the process. Euros is also a co-manager of the process. You know, Canaccord gets an underwriting fee of 5% and a management fee of 1%. So the total cost on this is about 6% of the proceeds. And Canaccord has gone out and enlisted a book of sub-underwriters. They do that on their own, but you know, we have talked to major shareholders, we have talked to investors and high net worth folks interested in this space. Some of the Canaccord folks, some of the principals are in that block, but the sub underwriting is being done by institutions and outside of Canaccord . So you're not seeing Cannacord taking a major position.
Matthew Gordon: Okay. I guess my main concern when I see deals like this and groups like that, and I've had it done to me, so it is particularly raw, is where they dump stock into the market after a 4-month hold, the stock gets hammered as a result, and sometimes never recovers. Certainly, companies of a certain stage. Is that a likelihood here, or have you taken precautions, or have you been given assurances?
Wayne Heili: Yes. look, that's a concern. Everybody has that concern, and what we wanted * accord to do was to get a strong look to strengthen our registry. You know, we have asked them to look for investors who are long on Uranium, and they have. We have very good support from long Uranium funds in the sub-underwriting. Look, we did not want fast money in this deal. Really what we want is for our existing shareholders to exercise their rights. We want them to benefit from the pricing and the future that this company has to offer. We appreciate our current shareholders’ support coming into this, and we hope to continue to enjoy them. We encourage them to all take up their rights. The best way to avoid fast money coming into this company is for the shareholders who are currently owning the company to take up their rights.
Matthew Gordon: No, absolutely. But at the same time, you don't want to hold them to ransom here on needing to do that when some of them may not be able to, and, you know, some may also be long suffering buying in at much, much higher prices, and you're asking them to kind of double down on something, which you need to give them comfort that you believe you're going to be able to get over the line. Not just the raise, but in terms of getting the company into production and survive long enough to be a player in this market.
Wayne Heili: And that's, really Matt, what the residual of this shareholding is about and our current cash position. We look to see that this company can move forward with our de-risking and optimisation work at Lance and start to prepare for the resumption of production operations at the facility with our current cash flow. We'll have a strong balance sheet that'll carry us through 2021 and beyond, and, you know, into 2022, and not just sitting on our thumbs, we're going to be working to advance the technical aspects of the project. We continue to identify ways that we can make this a stronger production operation at a lower cost. We want to continue to test that. We have been preparing the new field demonstration, as you know, we have done one field demonstration at the project already with the low pH, but now we're at the cusp of starting the second field demonstration.
We'll do that in July or August, but certainly we'll be starting the new field demonstration in the September quarter. You know, we're going to invest in the project. We're going to invest in getting it ready for production. The reality is, you know, we haven't made a final investment decision to start or resume operations, but the market trends are very positive, and we're prepared to do this. We're prepared to ramp up our production on general market improvements or on US market opportunities. And we believe, and we have looked at this very closely, we can be back in production and producing at a healthy rate within six months of a final investment decision.
Matthew Gordon: You have got this raise, you're going to be able to retire that debt, so you're going to debt free. So there's no burden. Was that a securitized debt possession as well? Sorry, if I may, I'm just trying to understand.
Wayne Heili: Yes.
Matthew Gordon: So securitized, so it is quite severe. You can park that up. You do have, I remember from our last conversation, some revenues over the next couple of years from your contracts that you've got in place. I mean, how much are we talking about as a contribution there?
Wayne Heili: Sure. Right. Well, look, over the next 18-months, our contract book yet has 525,000lbs of deliveries. If we do that, if we supply those deliveries from the market and make purchases in the spot market today, our deliveries are priced well above the spot market. So, there's a good margin on that. If we did this without producing, we could realise a net inflow to the company of AU$9M over the next 18-months. Looking forward into the future, our contract book extends out to 2030, and generally is 400,000lbs to 600,000lbs per year, every year from now to 2030, so we're really just moving into the sweet spot. And one of the benefits, if you will, of not conducting the monetisation is that we're preserving that strong contract book and the near-term deliveries, which were the ones that had the most value in a monetisation. So rather than taking money today through a monetisation, but taking less than the value of the contracts, we're preserving those contracts, and in 2021 and 2022 and 2023, we have a stronger contract book and much stronger revenues.
Matthew Gordon: Okay. I'm just trying to get an idea of the numbers here. So you've got, over the next 18-months, AUD$9M of contribution. That's the delta, after you pay down your debt, paid any interest and paid fees to the various parties, I mean, what sort of number are we sitting on?
Wayne Heili: Well, the residual…let me grab a sheet of paper with some math on it. There we go. So, you know, out of the AUD$40M which we're raising, AUD$27.5 is going to go towards the retirement of the debt and the payment of the interest. 6% of it is costs for the equity raise. Generally speaking, we're looking at having AUD$9M to AUD$10M proceeds available for us to advance the project, to do the low pH transition de-risking work, and to carry the company forward. We had a good quarter. I'd say we're having a good quarter. We had some revenues in the second quarter of this year and our balance doesn't significantly diminished because we have been very careful with our spending. So, we're coming in, you know, we're coming to the end of this quarter with a good cash position. We'll pick up some additional cash through this equity race. And we'll be fairly strongly cashed up the potential to be, I guess, somewhere in the range of AUD$16M to AUD$20M.
Matthew Gordon: Okay. AUD$16 to AUD$20M. Your G&A is what for the next
Wayne Heili: Yes. well, our corporate overhead has been reduced to probably around the range of USD$2M per annum or less in Australian.
Matthew Gordon: Yes, AUD$3M there for the next 18-months.
Wayne Heili: We have knocked that down. Look, we're spending money at the project…we're spending money on -
Matthew Gordon: That's what I want to get to; what are you going to do with this money? You've got some cash. Do you just sit and wait it out because the market's doing what it is doing, or are you progressing this new low pH solution that you've come up with?
Wayne Heili: Absolutely. Advancing the low pH…
Matthew Gordon: At what pace, what do you get? What are you doing?
Wayne Heili: We are spending the investment into field demonstrations, there are going to be about 3 patterns of wells. We have put these wells in. You know, you spend USD$250,000, USD$300,000, USD$400,000 on well installation and then you're going to acidify or start running the operation. You have operating costs, chemicals, et cetera to run the test. I see that as being USD$500 to USD$1M; these are US dollars because I'm going to be, you know, the US operation. So, we continue to pour money into the technical improvements. We have some test work, laboratory test work and other scaled up test work that we'd like to conduct. Each one of these technical valuations are leading to optimisations. At the end of the day, I think, you know, we'll be issuing a new Feasibility Study on the project, and then there's costs associated with issuing a new technical report for any project. But you know, this isn't just about overheads. This is about investing in the project, not sitting on our thumbs and waiting for the market, but again, bringing our project to a better point so we can enter the market sooner at a better operating cost.
Matthew Gordon: Right. Okay. So, we're moving on to that slightly healthier, better part of the compensation, which is, how do you get your company into production? Again, I know we have had a talk previously, but for people new to this, your predicted timeframe for going from these tests through to Feasibility Study, through to a point where you are going to understand the economics better - what are you allowing for that timeframe?
Wayne Heili: Putting the company in production and conducting the tests is not mutually exclusive. They can happen concurrently. And that's important to understand; if we decide to make that investment decision because the markets are, and good days are upon us, we can be in production within six months. We have two existing wealth fields at the facility that have not been optimally mined that we can today start putting into production as low pH and recovering more, or additional Uranium from resources from those areas. And, you know, we do need to invest in some of our facilities to make it compatible with the low pH chemistry, the change of chemistry, including asset storage change and including refurbishment of our wastewater systems. All of those things, you know, we have said, we're ready to start doing some of the initial preparation. As the market signals indicate, you know, we'll be investing in that right away. And we have the resources and the flexibility now to do that with this gap raise. We don't have to wait and say, okay, now the market is good, let's raise some money so we can start. We're actually going to be in the position of saying, now that market's good, let's start.
Matthew Gordon: Okay. So you can be in production in six months at the point, you've got all of this stuff in place. Is that what you're saying? And you've got the money for that. So when is the next raise?
Wayne Heili: Okay. Well, we have the ability, you know, with this planning to put us into 2022. We're going to have a good cash flow, a good positive cash flow in 2021 with the contract sales that we do expect to happen. So we're, you know, we're really not going backwards at this point in time. We have year in, year out sales that can be met either through production from the markets, depending on what the market tells us to do. The market goes up, we'll meet our sales through production. If the market stays slow, we will probably meet our sales through purchases for the period that we can. So we have great flexibility. We're going to have a good cash balance and we're going to have revenues that really nobody else in our space can speak of right now.
Matthew Gordon: Okay. You talked about a bunch of stuff there. Can you break it down? How do you spend the spare capital that you're going to have? You have got about AUD$9M left from the AUD$40M Aussie raise. You talked about, maybe over that next 18 months, a AUD$9M contribution there in terms of, well, depending on what the spot price is. How are you going to allocate that money? And at what point do you stop? If the market has not recovered, at what point do you stop and go, okay, we need to sit on a cash reserve here. We have done enough testing. We know how to do this when it gets going, but the market's got to give us those signals.
Wayne Heili: Yes. I mean, Matt, you're asking the questions that we ask every day is, you know, is the market, right? Should we be investing, or should we, should we be waiting? Today we know that we can guarantee or feel a lot better about the ramp up of our project. If we invest in de-risking and optimisation, and we're ready to put several million dollars into the technical de-risking and optimisation of the low pH transition. We are prepared to do some of the fundamental investments that you know, that some of the longer lead time investments that are going to get us ready for production. So, you know, we have now, not allocated, but we now expect to have the resources to do these things, which are going to put us in a prime position to make the investment decision to start production. That decision hasn't been made. And, you know, we're going to watch the clock. We're going to watch our cash balance very closely. We're going to be good stewards of the resources that we have, but we're absolutely planning to advance our capabilities and understanding of the project so that when we do come into production, we'll come in strong.
Matthew Gordon: Okay. Do you think the retail market understands what you're trying to do and why?
Wayne Heili: I hope so, you know, we have been communicating the importance of the low pH transition at Lance for the last two and a half to three years. I mean, this is something that has been front and centre in our story. This transition will put our project into a lower operating cost position with a higher productivity from our well fields in our ore body. This is technically a very important thing that doing with the transition. We are the first company in the United States to use what is a global leading Uranium recovery process: low pH ISR. And our project is particularly amenable to that chemistry. Not everybody in the United States should use that chemistry. And our industry in the United States for the longest time has fully relied on the alkaline chemistry. But this is a case where the technicals tell us that the alkaline chemistry wasn't the right thing to do. And we should be doing the low pH. We have we have achieved the regulatory approvals that we needed to move forward and now it is really on us to invest in the project, start it up when the market says go,
Matthew Gordon: Okay, do you think your prospectus has done a good enough job of explaining exactly why you're doing this, what you're going to do with a spare capital? And what are you going to do to kind of get the forgiveness of the Aussie retail investors?
Wayne Heili: I hope so. We put a lot of effort into the prospectus, and I can tell you too, that a lot of effort goes into describing the risks of these operations, you know, in the company and general market risks for any company. So, I would encourage the investors to read the prospectus, to understand the pathway that this eminent trajectory that this company has been on. The accomplishments of the last several years are really remarkable, when you look at it in hindsight. Today, this is an opportunity for us to recapitalise this company, to put it in a position of strength, and having the ability to rapidly respond to the market stimulus. We all hope and expect that the Uranium markets are on a positive trajectory, an upwards trajectory. That's what we have been seeing. We think that'll continue. And, you know, our company is preparing itself to respond to better markets, rather than the markets that we have seen for the past decade.
Matthew Gordon: Could you have waited longer?
Wayne Heili: Could we have waited longer to do the capital raise?
Matthew Gordon: Yes.
Wayne Heili: No, I don't think so. And this was really our judgment, the debt wasn't due immediately, but the longer you wait before you try and retire your debt, the bigger the price you are going to pay to do so.
Matthew Gordon: Wayne, thank you very much. That's a great update. I know it has been a tough, a few months, well, I say a few months, it is a few years really, isn't it for a Uranium? And I the early signs are there. I think people are encouraged by what's happened in the last couple of months, but you guys have still got a long way to go, and you've got to get yourself in a position to be able to fight that fight. So, thanks for today. Stay in touch. Let us know how you're getting on. And if there's any news, pick up the phone.
Wayne Heili: Thanks, Matt. You know, we're doing everything we can to position this company for the rebound. We believe the rebound is here. We have seen that early signs of it. And on the Uranium pricing from the USD$34/lbs to USD$35/lbs price range, maybe it is just the start. There's certainly a lot of macro impetus to see the Uranium price go up. You know, we see that happening. We want to be ready. We want to be on the front line, producing Uranium early and enjoying the profits, being well prepared.
Company Website: http://www.pel.net.au/
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