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8% is the discount rate applied and is quite low for a REE project in Angola with many imponderables. 8% would indicate a strong degree of confidence. Reverting to basics, whilst there may be a defined JORC resource, nowhere has the company indicated what the mining reserve, and the finalised treatment route, recovery etc is and these will contribute to determining the economics. Late last year the company said they were producing a BFS - where is it? FEED is irrelevant, if there is a BFS. All the hype is on Saltend , European market, magnets etc but why is there no info on Longongo, which is why many invested originally. A lot of the speculation, yo-yoing around the SP could be erased if investors could be given a clear picture on the economics of the mining/treatment operation which has to be the cornerstone feedstock for Saltend. Not too much to ask/expect.
Could we be moving towards a state where only Saltend goes ahead? If development on Angola was delayed, could we find sufficient stock from elsewhere (e.g., RBW)? Given that we have a 'special process' planned for Angola, could we still input stock from other sources into Saltend - presumably there has to be some sort of intake customisation for each stock source?
Gentlemen, based on the information provided in the BP, ie CAPEX ($423M), NPV $2.4B), Free cash flow ($359M p.a., EBITDA). discount rate (8%) and payback period (2 years) , I get an NPV of £2.35 billion USD over 12 years. Even when the capex is being repaid (first 2 years), the free cash exceeds $100 million p.a. allowing plenty of cushion for initially servicing of 100% financing.
Consequently Charles, i am struggling to understand where you arrived at the $1 billion NPV.
Roundthetrap, in respect of the discount factor. that depends on what components you include to arrive at the number, ie inflation, and interest rates, but most significant for this project country risk. Inflation can virtually be discounted in Europe, (with deflation being a major concern, until mr Bidens intervention). in West Africa, inflation is a major issue for the local currencies, due to devaluation against the USD. as all the projections are in USD, this can be cancelled out locally. leaving country risk. 25% of the investment is in the UK, and 75% in Angola. Using the CAPEX as a basis, this give Angola a country risk of 10% and UK of 0%, to arrive at a discount factor of 8%
Consequently a WACC of 5% applied to the two year payback, but spread over the whole period of the NPV calculation period, barely deserves consideration when considering whether the Discount factor should be 8 or 10%. Determining a discount factor is subjective and can be used to artifiially enhance the return on a project, but i don't think 8% is unreasonable on this project. With the finance cost included over the period of the NPV calculation, Angolas country risk reduced from 8% to 7%
As a reference, my previous employer used a country risk of 6% when considering investments in Nigeria. Which i would consider to be on a par or worse when compared with Angola.
Great post Mumbles-thanks for sharing.
Interesting line of thought Charles_H. Pensana have already proposed an RE magnet recycling line of business in their Apr BP. This fits in so nicely with the US and EU's 'secure and sustainable critical metals strategy' for the next 20 years. It also makes Pensana more attractive to cop an ATF finance grant later this year by virtue of pushing for EV magnet recycling technology development. Just as a basic refiner of RE oxides for onward processing, Pensana's transport/automotive connection seems a bit more tenuous.
Recycling is also much more manageable from the raw materials processing aspect, negating transport of large masses of feedstock from remote politically fragile mines, and some awkward issues at source with thorium waste streams.
Some reports have suggested 3kg of magnet recyc will yield 1kg of RE metals. Feedstock is both widely available (electronics waste/end-of life EV components/wind turbine replacement/refurb) and predictable in quantity. Pensana wouldn't be forced into magnet fabrication either, because the recycled pure RE metal alloys are directly usable by most existing magnet maufacturers.
Current levels of RE metal/magnet recycling in Europe are very small and there must be huge opportunities for first-past-the-post companies able to deliver a sustainable and green RE magnet lifecycle.
It's quite easy to imagine that Pensana could end up as an RE magnet leasing company guaranteeing manufacturers a cradle-to-grave lifecycle service with integral fully-costed back-end waste disposal
A bit like the oldest profession in the world - "you sell it - you still got it....".
Mumbles, I'm sure the numbers as presented are internally consistent and add-up as you suggest - however I am looking beyond the initial data and attempting to understand the assumptions that appear to be embedded in the EBITDA. One angle on this shown below:
- average for first five years: EBITDA = 359, Revenue = 550
- from this we can imply that cost is (550-359) = 191
- since we know that cost per treo kg is $22, we can determine the average volume over the five-year period: 191k/22 = 8,682kg of treo (assuming that the 22 is constant)
- we can split total volume into NdPr and Other reo based on 4.5/12.5: so the total volume splits into 3,126 of NdPr and 5,556 of Other
- we can split the revenue into NdPr and Other based on an assumption declared in the PFS (NdPr = 91% of revenue): so 500 NdPr, 50 other
- from this you can determine the implied price of NdPr over the five-year period: 500m/3126 = $160 per kg of NdPr
Given that the Pensana investor presentation shows the Adamas assumption for 2030 to be $100/kg (and current price is $68/kg), the $160 looks high. This then leads into the discussions on price and, in turn, to the NPV scenarios I laid-out in an earlier post (13/06 11:24). Based on the available data, overlaid with my own interpretation and opinion, I still suspect $1bn is more realistic.
If you make enough Assumptions you can disprove anything !
First glaring assumption, Cost to produce NdPr and TREO are the same
Second Adamas projections from 2019, were already way out of kilter by 2021 ~ current drop is due to Political pressure which can not be maintained without China shooting itself in the foot.
For what it is worth, I suspect that US$3+B is more realistic given they will probably increase production from Y3 ->
Mate you can't with any degree of accuracy make that call. All your prices and workings are based on your own assumptions. It doesn't take much to massage the numbers to a view which reflects ones own narrative.
Charles, i note that your $1B is based on 2/3 of the design capacity ($8,682), and todays spot price. I assume you are putting the same valuation on your appraisal for Lynas and MP. If you are, i suggest you, i and everyone else sell our stocks in all three of these company today. I will put together a far more detailed critique of your response shortly
Thank you Charles for your own thoughts. ill put my response down in more detail later, but please can you confirm that you believe that the your NPV of $1B is realistic, based on reducing Pensana's production and consequent revenue from 12,500 MT to 8,682 MT p.a. , with a price based on todays spot price without any escalation as forecast by in independent analysts . It that is correct then i would probably come up with the same NPV as yourself.
My opinion, is that with a design capacity of 12,500 Mts and a mine that can easily produce the required raw material, then the production quantity is more like to be the constant
i already calculated the Opex the same way as you, and came up with $15 rather than $22, which i agree is an anomaly. but adds $7,000/MT on to the cost base, rather than reducing the revenue by 1/3. Your methodology appears to be disingenuous
however, the NPV and OPEX is calculated over 10 years but the stated revenue only over 5 with an expected escalation in the price, in which the 2nd 5 years will have a higher revenue than the first 5. I don't have time to look into the details, today. but from what i seen of the BP and the behaviour of the BOD. i see know reason t change my own view of the companies valuation or where i expect the company to be worth. for me the stared NPV, is probably (but not definitely) understood. the company valuation certainly is.
for understood, read understated
Mumbles, the $1bn valuation would be based on:
- full production for all years (1-10)
- opex of $22 per t of treo (this is stated in the BP, no need for an assumption)
- NdPr price of $100 per kg (versus current market price of $68)
- discount rate of 8%
- no interest or tax!
Hopefully the table below helps clarify (seems to paste back into Excel in a usable format) - the calculation is very high-level (i.e., simplistic), but serves to check the focal assumption - that of Price.
Also, to clarify my earlier post - there were no assumptions in those calculations, I simply used the data explicitly stated in the BP to determine that, over the initial five year period, the NdPr price is implied as being $160. The 8,682t is a by-product of that calculation, represents the average annual production in the first five years, and suggests to me a fairly extended ramp-up in the first couple of years.
Hope that helps - welcome further discussion (even if it bores everyone else!)
Vol-NdPr Vol-Other Vol-Total Price-NP Rev-NdPr Rev-Oth Rev-Ttl Opex-Ttl Capex Net PVF PV CumulNPV
0 - - - - - - - - (423,000) (423,000) 1.0000 (423,000) (423,000)
1 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.9259 203,246 (219,754)
2 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.8573 188,191 (31,564)
3 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.7938 174,251 142,687
4 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.7350 161,343 304,030
5 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.6806 149,392 453,422
6 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.6302 138,326 591,747
7 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.5835 128,079 719,827
8 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.5403 118,592 838,419
9 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.5002 109,807 948,226
10 4,500 8,000 12,500 100 450,000 44,505 494,505 (275,000) - 219,505 0.4632 101,674 1,049,900
Charley, I appreciate that you have a lot of faith in your own numbers, sadly I an many others have differing results .
But given that start of production is at least eighteen months away and we really have very little detail on the whole process, I think it is safe to assume that NOBODY can have an accurate answer.
By the way you are starting to sound very much like SF2TH, have you managed to work out how your spreadsheets fails to show that clay mining will actually make a loss. Basket Price / (grade * recovery) must > OPEX
Dumbpunter
There is some thorium and uranium in the Angola mining asset that needs processing. I suspect Pensana MREC process has a methodology to deal with thorium and uranium separation before anything goes to Saltend. I believe one Canadian miner found a similar process to separate those two radioactive elements and so Pensana is not alone in coming up with innovations to deal with the issue. Some other markets may also want the material as fuel for their nuclear reactors, but that may need more of a work up after everything gets built. Another factor is the Angola resource is so large that they can mine plan around where radioactivity is the highest and not disturb it and still have decades supply of feed to Saltend.
The Pensana sulphate MREC did give a cost figure in the business plan and it was lower by around 10% from other rare earth miners (excluding gypsum stacks of rainbow rare earths), however its best to assume they end up the same as the other rare earth miners in a similar position to themselves. Pensana MREC also has a process, so they claim, to take it up 33% ratio apparently so there is is one additional step they need to do, however most of the profit is made at the Saltend facility which Rainbow does not have in its plans. I dare say Saltend may be able to take some of Rainbow's feedstock if the two companies want to work together especially if the South Africa source saves Pensana monies and Rainbow got more monies than if they sold it to Chinese processors. Tony
Using RBW's Gakara as an example is fraught with danger, it is a one off, the ore is/was hand picked, that means there is a huge amount of waste between the Ore veins, mechanizing will then mean that everything mined will have to be processed, what effect will that have on the financials ? Pensana will probably take concentrate from SA so long as it is clean of U & Th, from what I am hearing that will go for anybody else's product.
Don't hold your breath, and certainly not if that 20% remainder is La Ce !
How do you work that out. If you are an RE miner only, then i agree with you. But if you are selling the final product, the price achieved and revenue is derived from volume and of the finished product.
The NPV is priced the margin from the final selling price. As Pensana is a full supply chain, the the NPV is based on the margin secured from the final selling price at Saltend not Angola minus the production costs in Angola
The CAPEX and the OPEX is all in the BP, the final selling price is currently based on SMM exchange prices. The fiscal terms for Angola are in the mining license. These royalties and taxes are based on the Angola prices, which may or may not be 20% of the final selling. Which was a very good reason for the Angolan Soverieign wealth funding investing heavily. As they can participate In the margins from mine to end product
It seems that we are being trolled by a well know contributor to Hot Copper, either that or Dumbpunter and Charles_H are copying argument put forward by Setfire2thehive, The spread sheets miscalculations and Basket Price drivel are his constant trade marks ! while pumping an Ionic Clay deposit in Uganda. Which IMO has little hope of ever making a profit, especially if operated at full ESG Compliance . Last time I looked they had a stated mining cost of around US$12.60/t and Revenues in the $10-12/t range ! and that is before performing any EIS to determine actual Rehabilitation costs !
While some people like to calculate a Basket Price by determining the value of 900kg of TREO concentrate, I prefer to calculate the recovered Value from one In-situ ton of Ore, which for Longonjo (the mine) is somewhere between US250-500/t depending on partial (81%) recoveries and if it is weathered or fresh Ore.
Not me, China. As stated previously, I'm an independent actor in all respects.
"Charley, I appreciate that you have a lot of faith in your own numbers, sadly I an many others have differing results "
Putting aside any funding or executional risk, the only real debate is around price, all other aspects (capex, opex, volume) are broadly provided by the company.
That leaves us with three main scenarios (excluding interest, tax and any ramp-up period):
- Current price ($68), NPV = nil
- Adamas 2030 price ($100), NPV = $1bn
- Estimated business plan price ($140), NPV = $2.3bn
What price level are you assuming in your assessment, China?
Last time i ran my numbers I used NdO2 @ US$87/kg
Now everybody realizes that the Chinese Government is currently manipulating the prices to discourage the West from developing Process capacity. That is what you do if you want to preserve a Monopoly, and that is also why the further up the supply chain Pensana can get the better the Margins. Magnets prices are still above $40/kg and yet contain only about 300gms of NdPr !
Your motives are now obvious. Others disagree
Re baskets prices. The average price in the BP for 125KT over 5 years, is $44,000/MT. Whether that is exactly represent or not I haven’t worked out independently or (rest assured i will be doing), but it definitely isn’t the price of NdPR. The difference is I have confidence not only in BOD, but also in the LSE who vet any RNS before allowing publications. Fundamentals such as NPV need to be justified.
Give it up Dumbo, you have already exposed yourself as a Down-ramper, so nothing you can say from here on will have any credibility. As to RBW, good luck I think they will need it.
You hit a sore point after a pretty rough ride on another forum by a moron. I've just had an overnight for a small procedure hence would have dug it out sooner. It's in the archives on the Pensana website. There's a very compressive set of data in there. I intend to do the same.
DP, the numbers aren't given but the calculation is indexed on Shanghai Metals for 31st March 2021, was current when the BP was published