Member Info for Mumbles2021

~Hi China, as i said before i try ensure that any comments i make on this are reasoned and evidenced based. By and large i think i succeed. After due consideration, and reviewing all the evidence available. Appreciating the usual negative commenter have a reason or a concealed purpose for the statements they make, which is why i either dont bite, or i try to formulate a balanced rebuttal. I hope it id appreciated. In AS1971 case, i have looked at all the evidence available based on my usual train of reasoning…….. i have come to the conclusion that some people are just D*cks!!!!

But a very welcome Skit, china......... enabled me to anonymously get rid of some pent-up frustration directed to someone who deserves it................................... Marvellous!!!!

Good morning MyIPA, very unlikely to be spot based. financiers need a floor price to guarrantee cashflow (always assuming production targets are met) and abilty to service the debt. Equally, offtakers want some comfort that prices will not exceed a certain level over a specific time frame so they can give long term price forecast to their own customers, Hence the CAP and COLLAR analogy that is regularly used in these scenarios. At the start of an offtake relationship, a floor price needs to be agreed upon. what this price discovery mechanism in the Pensana/Hanwa agreement is unknow. however, it is likely to be very different to the SMM spot price. Hanwa will know what their non chinese clients are already paying, and how that relates to their future price commitments.

Steffi, he didn't say it was "bad". He said it is no great shake and not worth an RNS as it is non-binding and doesn't include pricing. It's an opinion that he feels the need to share. Regarding pricing, as a supplier, would you like to commit prices when the commodity price under discussion is on an upward trajectory from historic lows, having increased by 25% in less than 6 weeks?

Hanwa is a large commodity trading company with 5,000 employees and a turnover of approximately 17 billion USD P.A., of which their margin is approaching 20%. They have $500 million cash in the bank. They are a serious player in the commodity market, especially for minerals critical to the Japanese strategic interest. They dont agree to put their name to an MOU and allow it to be published unless they are serious about it.

For others, they may want to join the dots.

May 2022 - The company has developed a marketing agreement with a

major Asian trading house to market 30% of the production capacity within Asia to secure direct offtake

agreements with customers. https://pensana.co.uk/wp-content/uploads/2022/05/FEED-RNS-ANNOUNCEMENT-MAY-2022-V22-FINAL.pdf

November 2022. Honda announce "Strategic Partnership for Stable

Procurement of Essential Metals" with Hanwa. https://global.honda/en/newsroom/news/2022/c220906eng.html

February 2024 - Longonjo mixed rare earth carbonate product quality approval

Pensana is pleased to announce that one of its major potential customers has approved the product

qualification specifications for Longonjo’s proposed mixed rare earth carbonate (MREC) product. https://pensana.co.uk/longonjo-mrec-product-quality-approval/

September 2024 - Offtake and Co-operation Agreement with Hanwa

Pensana Plc (PRE.LSE) is pleased to advise that it has signed a non-binding Memorandum of

Understanding (“MOU”) for an offtake with a major Japanese partner, Hanwa Co. Ltd

(“Hanwa”). https://pensana.co.uk/offtake-and-co-operation-agreement-with-hanwa/

Pensana appears to have been in discussions with Hanwa for some time. Understandably, Hanwa didn't want to be associated with a project they weren't 100% committed to. Mainly so they weren't inundated with enquiries from other Rare Earth hopefuls. which suggests that the opportunity for other Rare earth companies, has now passed.

Did you get past page 1, AS1971. Or did concentrating that long make your brain hurt?

China, the TREO content will be 50% , of which the NdPr content is 24% the NdPr content is therefore 12#. Which makes my MREC valuation compared to the SMM quote understated by 30#, ie the uplift is 44% not 1/3

Theo's note did have some basis, but it is now out of date. And I needed to counter. I have been thinking about it for a while. Split into six due to LSE character limits. You may or may not agree with me, but I have put the work in. PRE is a company I have invested in because I believe in it. I believe in it because I have done my homework on the company, the project and the market. Am I happy with the current situation? of course not. but of all the Rare Earth projects out there, it is the nearest to completing funding........And the planet needs a diversified supply chain,

Developments in the Rare Earth sector and how it impacts the Pensana Longonjo Project

Recent Rare Earth pricing (September 2024)

The economics of the Longonjo project and most other Rare Earth projects have been marginal over the last year due to a depressed NdPr market price. The spot price for NdPr on the SMM platform languished under $50,000 / MT until six weeks ago when it started increasing. SMM (Shanghai Metals market) printed $61,357 / MT (including VAT) yesterday, September 6th.

The SMM platform is the only publication where Rare Earth prices are publicly available. The prices published are spot prices that apply to the Chinese market based on the point of delivery in China. Liquidity is such that prices are arbitrary if price discovery is used, as the price can be based on only 1 or 2 daily transactions. This isn't a criticism of SMM. The nature of the Rare Earth market is minimal compared to other extracted minerals. The price paid by buyers external to China is much higher than the published Chinese prices, but the actual prices achieved are opaque and not publicly available.

In China, None-spot prices for forward delivery are determined by the two biggest producers of NdPr oxide, which are the China Rare Earth Group and the China Northern Rare Earth Group. The Chinese government consolidated these companies from 6 smaller companies in the last few years. Prices for delivery of NdPr Oxide in September increased by 4.4% compared to August, after being flat the previous three months and declining dramatically the month before. SMM Spot prices have increased by almost 25% in the same period as producers restrained supplies and held to their prices despite resistance from end users.

The Pensana Ozango MREC project, Longonjo - Economics

The Ozango facility at Longonjo will not produce NdPr. It will make an MREC, i.e. a Mixed rare earth carbonate. The initial design, which had a capacity of 42,000 MTs p.a., has been modified to be completed in two phases to reduce the initial capex, making financing more manageable. Phase 1 will produce 22,000 MTs of MREC annually. Phase 2 will increase the capacity to the original 42,000 MT, with much of the infrastructure required for stage 2 being incorporated into Phase 1 design and engineering to reduce future costs and lead time.

The SMM platform publishes prices for many metals; those relevant to Pensana are the MREC price and NdPr Oxide price due to how SMM arrives at the prices published for MREC. SMM advises a specification for MREC, which contains a rare earth oxide content of 42.0 to 45%. The reality is that the published MREC price is calculated as 8.1% of the published NdPr oxide prices and has been fixed at this level for several years. It isn't based on a specific price discovery process. Consequently, the printed price is precisely aligned with the NdPr price. Discounts and premiums are applied by suppliers/buyers to agree on prices that depend on the actual NdPr content of the product being offered.

Longonjo product is higher in NdPr content than the SMM quotation specification. Consequently, the achievable price for Longonjo MREC, with approximately 11% NdPr, should be 1/3 higher than the SMM printed price. As of September 6th, MREC was published as $4,967 / MTs, compared to $ 4,000 / MT at the end of July, a differential of almost $970 / MT at 11% NdPr content. $970 translates to an increase of $1,290 / MT as it relates to the Longonjo project economics and the published conditions of the advised loan agreement, i.e. a 7-year tenor, a principal sum of $120 million and assuming two years of the seven years is a payment moratorium during construction, a five-year amortisation period. The price increase for Longonjo products over the last six weeks represents over US$ 140 million of additional revenue over the loan's five-year amortisation period. $140 million exceeds the principal sum of the loan by over US$ 20 million. A back calculation of these sums will allow for OPEX costs, with interest rate sensitivities of between 10 and 15% applied, of between $4,200 and $4,500 / MT, and still maintain debt coverage ratio conventions of 150% (interest included) or 200% (interest excluded).

Should the NdPr price increase at the Adamas forecast 8-9% CAGR from today's pricing, Longonjo Phase one revenue increase will be almost double the $140 million that the rise from the last six weeks has made possible. The forecast price increase assumes an NdPr price of approximately $85,000 / MT by 2030. Forecasts from analysis and merchants' banks forecast that the actual cost for NdPr will be more than, in some cases, considerably more than $100,000 / MT. The question is how realistic these forecasts are and whether the prices will be sustained.

Opinion on current and future Rare Earth pricing

The preamble to this note discusses NdPr pricing behaviour over the last few months. It has concentrated on Chinese actions and reactions due to their dominance in the industry and consequent price-setting influence. The discussion on the current viability of the Longonjo project assumes that the NdPr flat price remains flat at the current SMM Spot price of $61,000.

The viability of the Longonjo project and all other rare earth projects depends on the NdPr pricing increasing substantially over the coming years and decades. The probability of this happening depends on the future Chinese policy regarding Rare Earths and critical minerals.

Chinese quota increases and consequent overproduction have impacted market confidence. The overproduction has been brought about by forecasts of Electric vehicle production that have been widely overstated in the short term, with price increases in energy prices resulting from global events such as Covid, the Ukraine and Middle East wars affecting consumer confidence in the transition economy. Sales have been further impacted by the dramatic depreciation of electric cars when they come up for resale, compared to IC engine vehicles, disincentivising buyers from buying new EVs, at least in the short term. Opinions vary, but the most realistic opinion is that initially purchased EVs are now coming onto the used market. At the same time, EV production is being hyped and ramped up by manufacturers. The market for EVs is still in its infancy, and the high total availability of EVs and the still limited demand has created a significant imbalance. Excessive depreciation of EVs can be considered a teething problem, which will be resolved as the market size for EVs increases dramatically and rapidly.

Governments are backpedalling from their initial policy implementation dates, but they are not, nor will they eliminate them.

Unforeseen world events have generated an oversupply/demand imbalance, impacting the current NdPr pricing compared to that forecast. However, the estimates are still based on expected undersupply/demand imbalances being experienced in the future. Forecasts never align with estimated timelines due to unforeseen events that cannot be included in economic models, skewing the estimates away from the expected from the expected timelines.

However, what we know strongly supports the idea that the NdPr supply gap will continue to increase unless there is a dramatic increase in the supply. The project economics over the last twelve months have ensured that the supply gap will grow, inevitably leading to higher prices.

The following factors are rarely discussed, but the imbalances will not be caused purely by a general increase of demand over supply but also by individual countries' realisation that their interests are being compromised by the present rare earth pricing, which was brought about either deliberately as a reaction to East/West tensions or inadvertently due to unforeseen market conditions caused by global events.

According to the US Geological Survey, the Earth's estimated rare earth reserves are equal to 110 million tons. Of this, 44 million MTs are estimated to be in China. From 2022 to 2023, global Total Rare-Earth mine production increased by 17% from 300,000 MTs to 350,000 MTs. China accounted for 210,000 MTs of the 300,000 MTs (70%) in 2022 and 240,000 MTs of the 350,000 MTs in 2023, a slightly reduced percentage at 68.5%. The differential is made up by increased supply from Canada, whose production increased from 12,000 MTs to 38,000 MTs in the same period. These numbers show dramatic growth in TREO production, albeit overdone in 2023/24.

This year's pricing lows and the impact they are having on the whole industry, especially Chinese producers, and how this may negatively affect their Chinese strategic interests have been recognised by the Chinese government. Prompted by numerous Chinese entities declaring dramatically reduced profits and, in many cases, huge losses, such as those highlighted in an article in the Nikkei Asia in July this year

“Rising Non-ferrous Metals”, a Shanghai-listed rare earth miner, declared a net loss of 285 million yuan for the first six months of this year. The decline in profits was due to a "drastic slide in sales prices of its major rare-earth products."

China Rare Earths is expecting a net loss of approximately 240 million Yuan, compared to a previous profit of 170 million. The company blames falling prices, which also sapped its inventory values.

Shenge Resource Holdings, backed by the Chinese finance ministry, has embarked on an overseas acquisition spree, acquiring Strandline Resources and 50% of Peak Resources to monopolise Tanzanian Rare Earth resources. However, Shange's interim results show a loss of 50-60 million yuan compared to over 80 million profit a year ago.

Shenge stated that despite increasing sales volumes, the "Substantial decline" of rare earth prices dragged its performance downwards.

Recognising the current situation's danger, the Chinese government have stated that "the state will take control of rare-earth resources to ensure national resource security and industrial security.". Also, it said that "Those who manage rare-earth resources "shall implement the lines, principles, policies, decisions and arrangements of the Party and the State," this directive effectively puts the Chinese Rare Earth industry under state control. This policy will be enforced starting October 1st, 2024.

From the writer's perspective, It doesn't make sense for China to produce 70% of the world's rare earth requirement at uneconomic prices when it only owns 40% of the reserves. The rest of the world will leave their rare earth reserves in the ground, waiting for the Chinese reserves to deplete. As a short-term Geo-political strategy, it may be beneficial to China. If maintained over the long term, China's reserves will deplete when its internal demand grows, eventually becoming a net importer rather than an exporter, a price taker instead of a price maker.

Conclusion

Markets are being markets, but all the evidence points to the demand for NdPr increasing far more than the projected increase current production will accommodate in the short to medium term.

The above provides a strong case for advancing the financing of the Pensana Longonjo project. While previous concerns over depressed NdPr prices may have caused hesitation, the recent 25% price recovery has significantly improved the project's economic outlook. The increase in product pricing over the last six weeks will generate over USD 140 million in additional revenue, exceeding the loan principal of USD 120 million and providing a solid buffer for debt servicing and operational costs.

The project's long-term revenue prospects remain strong, with forecasts pointing to continued minimum NdPr price growth of 8-9% annually. Additionally, China's increasing control over rare earths and the tightening supply further enhance the project's strategic value. Considering these developments, the project's economic foundation appears solid, offering a favourable environment for moving the financing process forward.

Hi Tony, the expert credit agency jas been moved from a condition precedent to a condition subsequent. So isn't hold up any signatures. AS1971 knows as much as anyone else, and less than most. What is indisputable is that at the moment the company has no reportable news, good or bad.

Eloro just F*ck off!!!!!

SP... for once we agree, when it comes to pricing on offtake contracts and subsequent cashflow projections, this should already be taken into consideration......

As well as owning a 1/4 of Pensana

Good morning Theo, for once we are in agreement. The lack of update on financing since February is unacceptable. However, your comment regarding the FSDEA being fed the same drivel is obviously incorrect. The financing at Longonjo is being carried out at Opco level, ie Ozango limited.

The FSDEA are already a shareholder in Ozango and their board representative is the chairman of the board. They are currently driving this particular strategy, announced a year ago. Rather than being fed the same diet, I would argue they are fully aware of all facts and the status of the project

Who is skulker, and was that a from random quote generator

Good morning, China; this is also for Theo’s benefit; this wasn’t organized short sellers or sophisticated arbitrage. Private companies, framed as financial institutions, exploited greed and gullibility by offering collateralized loans against shares held. The borrower then bought more of the same shares.

The company didn’t borrow the shares for shorting in the conventional sense. To quote one company’s website: “The equity becomes part of our portfolio for the financing term, but the borrower retains all beneficial ownership and upside from the asset upon completion of the financing term.” They didn’t mention the borrower also retains all the downside.

If the collateral value drops, the borrower must make up the difference with a cash payment. If not, the lender sells shares to cover the new LTV.

The Company profited by selling shares at a higher price during the rising market, like 100,000 shares valued at 70p collateralized at 50p, sold at £1.50, yielding £100,000 pending loan completion, none of which went to the borrower.

The lender aims to repurchase the shares at a lower price than sold (the short). If the borrower is lucky, the SP will have risen above the original cost, enabling repayment and profit on more than than shore originally owned. If not, margin calls and missed repayments lead to collateral liquidation and loss to the borrower.

For instance, on £50,000 loan, if repaid at 20p per share, gives the lender £20,000. In reality, the lender hasn’t owned the shares for months, thus avoiding replacement.

The lender earns a minimum £130,000 (0n 100,000 shares) for NO RISK. As the borrower still owes £30,000, which the lender will pursue. Potentially, lender could make between £130,000 and £160,000, meanwhile the borrower is wiped out. The above is an example, in reality, millions of shares were involved, based on the mistaken belief that share values only rise. Investors should accept potential losses or accept adult supervision.

This isn’t theoretical or a hypothesis. It happened.