Member Info for Mumbles2021

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.

I have to admit, i did have some questions on the NPV (net present value), as i couldn't find the time scale over which the NPV is calculated. I believe you are assuming 10 years. i could find a number in the BP that stated. The NPV uses a discount factor of 8% and i agree that the Post tax revenues require more than 10 years to achieve that number and it would be helpful to know number used. But the mine life is dependent on the reserves and much emphasis has been place on the size of the reserves. for the record the mining license is for 35 years. Wouldn't it be more helpful to calculate how many years it would take to achieve an NPV 2.4 billion at 8% discount and decide whether it was possible, or realistic, before saying that the BP is misleading to the tune of 58%. I am sure the LSE, who vet all the RNS before publishing required back up for the numbers used.

Gentlemen, from my understanding, their has been no ESG premium considered when calculating the financials for Pensana. Although an emphasis has been made on the ESG compliant credentials of the project. This is a neccesity for the potential end users. The corporate attitude of compliance to ESG, is going (or has gone) very much the same way as Compliance to Bribery corruption. The discussion is binary. Either comply completely, or find an alternative. Security of supply and ESG concerns meant finding an alternative.

My take on this is, that if Lynas currently enjoy a “small premium” due to their ESG credentials, then it is likely to disappear.

Apologies for the fragmented response, the conclusion in the article states
“Compromised availability and lack of sustainability is prompting the industry to be less reliant on rare-earth magnets”
If this issue is addressed, then manufacturers would prefer rare earth magnets

The quotation comes from this article, which fully explains why some some EV manufacturers are trying to avoid rare earth magnets. One is cost, but primarily due to supply sustainability. Excellent article https://www.automotive-iq.com/electrics-electronics/articles/developing-electric-motors-less-dependable-on-rare-earth-magnets

@China, Charles H isnt wrong that currently European automotive manufacturers are trying to avoid NdFeB magnets. But that is due to concerns regarding ESG credentials of current supply and supply chain risks due to the virtual monopolisation by the Chinese, and the current limitations on the production capacity outside of China, should an acceptable and reliable source of NdFeB magnets become available, they would much rather use them

to quote a leading manufacturer of motors.

“Special neodymium magnet alloys that include terbium and dysprosium have been developed with higher Curie temperature, allowing them to tolerate higher temperatures of up to 200°C. Because of the RE magnet properties, no other magnet material can match their high strength performance. “You cannot really replace RE magnets,” says Da Vukovich, president of Alliance LLC”

Personally, i have no doubt that Pensanas full production will have no issues finding buyers in Europe. Both with EV manufacturers who would much prefer these motors, should a sustainable reliable source be available and the offshore wind industry who due to the sheer size of the installations require the most efficient materials to achieve the optimum outputs.

No different to any other day. Like buying a season ticket to Alton Towers !!!

Re the EIA, the September 2020 shareholder release, states that the Wet and dry season baseline studies have been completed and submitted to the Angolan Authorities. I haven’t delved through the rest of the announcements to ascertain whether there are any issues with it.

The mining license and the terms associated with it was awarded in April last year
https://pensana.co.uk/wp-content/uploads/2020/09/27-April-2020-President-Approves-Mining-Title-for-Longonjo-Rare-Earths-Project.pdf

@chine “The only constraint on delivering more than 4500tNdPr.pa will be Saltend's processing capacity”. Which unless the final design and contract accommodates extra processing capacity, pretty much excludes processing RBW production on a contract basis.

With Mkango I would look carefully what the structure is, Talaxis is full owned by Noble group. They will almost certainly have exclusivity on the offtake from the Malawi mine. Up until 2 weeks ago Mkangos ace in the hole was a processing company in the UK midlands call Magnetite where rare earths were going to be processed. This week they are developing a processing plant in Poland.

I do believe that there is a good chance that with some capital behind it this project will take off. That capital will be finance, and supported based on 100% offtake guarrantees at the mine, and take or pay processing guarrantees at the processing plant The question is where will the margins go. My own experience is that between the mine and the processing company there will be a wholly owned subsidiary of Talaxis (Noble) who via transferring pricing will extract a large percentage of the margins directly into Nobles books. Consequently this offtake company are going to buy low priced raw material from Mkango. The processing plant will proablaly be paid a tolling fee (processing) high enough to cover the capex plus a small margin. All upside will almost certainly go to noble group. It’s way these trading companies get involved in these projects. Shareholders are seen as a way reducing their risk, without impacting their own upside.
PRE has control of the margins all the way from the mine to the end user.

Kkkrrr, that was my own view, a just of excess supply of shares over demand. The ASX holders price floor of which is significantly lower the majority of LSE holders. And consequent level at which they are prepared to sell, correspondingly lower.

As you say, theoretically should resolve it self once the ASX shareholders that want to, have exited.

Love the article, i think this says it all
“Some say the Curve relates to the de-risking of a project as it advances, with risks shifting from exploration related to development related. That may be true, but I suggest the curve is simply based on investor perception and impatience”.

I was well up, bought more, and now under water. But i fully agree with you. The SP is going to descend every week until financing is announced. If you don’t have confidence that it will happen, strongly suggest to cut losses (or take profits) and ;leave now. For me, I’m staying.

There are too many positive against the very few negatives not too.

FYI, I have booked a place for the Humber business week discussion, a week on Monday. Which i am looking forward to immensely

its a virtual meeting, on Zoom. registered this morning. Lots going on in the Humber region. the Zero Carbon Humber project, with Equinox blue hydrogen plant (another saltend project) looking really interesting. The Humber looking to be very much the Aberdeen of the offshore wind industry. Which goes to show how breezy it is. I grew up there and can vouch for this!!!

Just jumping in, seems there is a concerted push to reduce rare earths in EV’s but this is use to the current unsustainable production methods. Permanent magnets are still considered the best technical solution Pensana main thrust is the compliance with best practice mining and production. Which will hopefully lead to a larger market share of those EV manufacturers who will continue to use permanent magnets. Attached article from last year makes an interesting read https://www.idtechex.com/en/research-article/will-rare-earths-be-eliminated-in-electric-vehicle-motors/21972

Also stated they started work on the Saltend site last Thursday. I would suggest that the site owners (PX Saltend chemical Park) have received enough assurances that this project is definitely going ahead, if they are spending money

Its the Private Equity company exiting as they do. The fact that it is a management buyout, hence the managment is remaining the same, is encouraging, as the consistancy of services should remain for the Chemical park tenants. in respect of ARA and the new owners taking Pensana private, its unlikely. PX chemical park wll already be full of debt from this management take over to consider making an offer for Pensana that will be accepted. I'm sure that they wont want any involvement in West African mining either. Ineos or BP is a different matter. both are tenants of the Saltend Chemical park, and could probably afford the multiples that the company warrants. But would also want to ring fence the mining operation from their core businesses. For me, its about getting the finance, not about buy outs.

Apologies for the typos!

Been in West Africa for 22 years, seen too many apparently great projects due to inability to raise finance. (Also seen a few basket cases, that also got financed). My concern isn't about short term share price gains, although that would be nice, its about the risk to the project. The finance risk, upon which all the other risks hinge, such as execution and operational risk would appear to be already built in to the SP, but the longer we wait, the greater the risk appears to be, bigger the discount will be applied to the SP. i cant imagine that their were no agreements in principle in place before the BP was published. wish they would get on with it.