With many, many thanks to the CEO’s from Zephyr Energy, Power Metal Resources, Scirocco Energy and SpectrumX who entertained and informed us at last night’s investor event. To see their video presentations view here.
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Charles, I don't understand the need for the LCM study in the first place. I certainly don't understand it being given to a company with an interest in the how the finding of the study are reported. the LCM suggested model is motivated totally by self interest. this is not criticism, all power to their elbow. LCM are trying to capture margin from all the way up the supply chain, instead of the end user margin which is where they are now. They are very good at self promotion, and have a very large voice for their size. LCM seem to have captured a narrative.
Why would Pensana need to get involved in this. The Pensana business model captures the margins all the way from the mine to the end user with an integrated supply chain. this has worked in the oil industry since the end go the 19th century with vertically integrated supply chains.
LCM are trying to force companies further downstream from them to reduce their margins, in order that theirs is increased, all without LCM making any investment further downstream, then by regulating the price at every stage to ensure a higher margin for the magnet producer. Considering the shareholders have a considerable Indian influenced am not surprised as it has worked well in India, where government regulated pricing has ensured that large profits have accrued to those with the most political influence.
I am not saying the PM may grow organically, im saying it has to for as you say demand growth and import substitution.
Joe, Mumbles: yes, fair enough, describing the expected UK supply chain as ‘government controlled’ is probably going too far – however, the external dependency is still there – PRE will be reliant on the plans of the magnet producer at the end of the chain if that latter entity is independent. This arrangement, and the ‘common profit margin’ described by the LCM study are hardly open market.
Mumbles: I think you’re suggesting that the PM manufacturing market may grow organically as a result of demand and a desire to substitute – if that was the case then surely we wouldn’t need the likes of the LCM study? It’s not easy – it seems that options are either a government-sponsored new entrant, or expansion from a limited existing base (VAC).
Joe, GK: humour me – please name one European manufacturer (Europe being PRE’s stated market) from the many lists of companies you have provided (a company that manufactures PMs from metal, not a distributor or component assembler). Perhaps there are in fact others outside of VAC, but I suspect none of these are of scale (and PRE wants to supply 5% of the global market).
Charles, if you think the Conservative party will nationalise Pensana you either lack the most basic grasp of politics or you need to check your meds. To make such as 'out there' comment betrays your distorted view of British and European government.
Pensana's downstream customers/partners could well come from the list on the The European Raw Materials Alliance (ERMA) website https://erma.eu/network/ (it's very extensive)!
Fantastic imagination. Unless you believe the west is going to abandon the free market model that has worked so well for it. Albeit with some ups and downs, but that is what the market is. The market is there and is growing. On wind power alone the CAGR is approximately 10% on a Europe wide capacity of 465s TWh (UK 65, Germany 125). Currently the requirements for NdPR works out at about 200 kg per 1 MW. Installation of Wind generating capacity is expected to exceed another 100 GW in the next 5 years. This will require an additional 4,000 MT of NdPr jut to service this requirement, without the increase in EV, VW’s expected requirement on its own is expected to exceed an another 4,000 MT’s p.a. This is additional requirement, in addition to the West strategic policy of import substitution of the Chinese supply. It has been well established that their is insufficient capacity outside China to satisfy the expected demand, as well as the import substitution. Never in history, in a new market has the requirement for a guaranteed offtake been required if the demand can be seen. In established mature markets with limited growth potential (ie petroleum production), offtake guarantees are essential, this is completely different
I’m still concerned about the ambiguity surrounding Pensana’s business model – in short, to whom will Pensana sell?
I believe the only magnet manufacturer in Europe of any scale is Vacuumschmelze, and they are already supplied metal by LCM. Will Pensana be relying on VAC to expand, with PRE moving into that space (either directly or through supply to LCM)?
Perhaps the most likely alternative would be selling into the expected government-coordinated UK supply chain (the LCM study). While such an option will allow UK to achieve the political aims of security of supply and job creation, there is a danger that this will cause Pensana to essentially become something akin to a public utility, with volume and price decided by a central government agency – a good outcome for the government, but perhaps not for PRE shareholders.
Both of the solutions above create strong external dependencies for PRE – they are not selling into a traditional open market. As well as potentially being volume-limiting, do either of those solutions create a situation where PRE will be able to sell at the prices included in the business plan? While the whole global pricing subject requires a separate post (or several of them), it’s worth bearing in mind that the BP NPV of £6.50 per share relied upon significant price increase – at current prices (including the recent uplift), the NPV is around £0.50 (my own estimate using assumptions based on BP data – please DYOR).
An obvious solution might be for PRE to fully integrate downstream, but this is easier said than done. Even in the UK government solution, it’s not clear who would provide the magnet-making expertise.
Hopefully the upcoming RNS that was indicated to Tornado will provide some clarity in this area.