RE: SP retrenching - why?31 Jul 2025 05:31
The question is whether Pensana is materially undervalued given the stage of development it has now reached — and more importantly, whether the risk discount currently being applied to the share price is justified.
It’s common to assign a blanket project risk to developing assets, particularly in mining, and to apply a discount to the overall valuation to reflect that. In Pensana’s case, we have a 20-year project life, with a forecast output of 40,000 tonnes per annum of Mixed Rare Earth Carbonate (MREC), containing 4,500 tonnes of NdPr oxide per year. This sits against a defined resource of 138,000 tonnes of NdPr.
As of today, Shanghai Metals Market (SMM) quotes MREC at $5,928/tonne. That benchmark is calculated at roughly 8.1% of the NdPr oxide price. However, Longonjo’s product contains significantly more NdPr, and it has been independently assessed that it would command a 35% premium to the quoted MREC benchmark — taking it to around $8,000/tonne.
At this price, the total revenue over the life of the mine is $6.4 billion. Assuming operating costs of $3,500/tonne, annual EBITDA is $180 million, or $3.6 billion over 20 years. Based on standard discounting with zero price escalation, this gives a project NPV of $1.4 billion.
Applying a 50% risk discount to that figure — to allow for execution, market and pricing risks — still yields a valuation of $700 million, which is around 2.5 times Pensana’s current market cap of approximately $280 million.
This is based on Longonjo alone. No contribution from additional licences, no upside on pricing, no strategic premium — just current pricing with a conservative grade uplift. Importantly, the project is now fully funded, construction has commenced, and both FSDEA and AFC are equity holders. Rail, power and water infrastructure are already in place.
Two offtake MoUs have been signed, and in both cases pricing is yet to be agreed. This puts Pensana in a favourable position to benefit from upward market trends, including the recently established $110/kg NdPr oxide floor introduced by the U.S. Department of Defense. Forecasts already suggest 5–6% annual price growth through the next decade as the structural supply gap widens.
Yet the company remains priced at just 20% of its worst-case NPV, and 40% of that same value after applying a conservative risk adjustment. It’s difficult to justify this level of discount, given the progress made and the level of de-risking already achieved.
The worst case is already worth £3.50 per share. Even with a 50% risk haircut, that still puts fair value around £1.75 — more than double the current price.
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