Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Eloro, I was starting to worry that you had all given up. At least you have come back for anther a tree shake. I guess it's a bit difficult to make any money with zero liquidity or volume.
As an aside, to my previous, a $260 million valuation would immediately be equivalent to 75p per share.
There has been some speculation on the timelines in previous RNS and expected timelines. Most were speculation based on conversations immediately after the March interim results. These assumed that ABSA bank would complete Due Diligence for the financing in September, with expectations of announcements in October at the latest.
I heard over the weekend that the commercial and technical due diligence will be completed at the beginning to mid-November and that negotiations on the term sheet will be performed in parallel, planned to be agreed upon when DD is completed. The DD docs and the agreed terms are to be sent to investment committees for consideration in mid-November with the expectation of a decision within two weeks.
After re-reading the company RNS's contents dated the 27th of June and the 21st of August, the company is meeting the timelines identified in those documents.
The financing RNS on the 27th of June stated that the target was for funds to be in place at the end of the year. A combination of wishful thinking and interpretation of initial comments assumed that this was for Longonjo and Saltend. Others were correct in reading that this referred to Longonjo only.
There was also some concern about how the company had managed to reduce the CAPEX by $ 100 million. Again, after re-reading the operational update RNS dated the 21st of August and getting clarification, the RNS is explicit about how Pensana is achieving this.
The initial plant has been scaled down in size and modularized. The reduction in size and concept has required considerable re-engineering, hence the extended timeline. The interim result is that at the end of year two, the facility will have an initially reduced capacity, designed to be scaleable to increase the capacity to the initial design in the third year by adding additional modules. Cont in post below ……
Longonjo is considered a standalone project for financing purposes, and an off-take contract has been agreed with a non-Chinese Far Eastern concern for the produced MREC to satisfy the cash-flow requirement.
Pensana will retain 66% of its Equity in Longonjo. If the strategic investor's valuation at the beginning of the year of $260 million is considered an independent valuation, the 19% holding Pensana is giving up is valued at $ 50 million. In this instance, the Angolan's $80 million contribution would be split between $50 million equity and $30 million debt.
This finances Longonjo with a zero requirement for capital from Pensana shareholders and, consequently, no dilution at Holdco level. There will be some reduced attributable cash flow to Pensana from Angola operations. However, it is 1/3 of the dilution that would be attributable if Pensana were to issue shares at current prices and has the added benefit of leaving Pensana's other Angolan assets (i.e. Coola) untouched.
Saltend:
The initial reduced capacity at Longonjo will meet Saltend's lower requirement for feedstock in the initial startup phase, with the increased capacity in Angola coming online as Saltend ramps up production after commissioning.
The $150 million green bonds are still available, representing 60% financing of the expected $250 million final project cost. It is unclear where the balance of funding will come from. It is fair to assume that there will be a capital raise.
As recently as today, conversations have occurred with Ms Nusrat Gani, the Minister of State for Industry (Department for Business and Trade). The UK government are very keen on this project happening. In addition, via the Critical Minerals international alliance, the US State Department has been making exciting noises regarding 15 global projects, one of which is Pensana. These points, together with an unsolicited approach by a US interest, suggest that once Angola is over the line, financing Saltend will be much more straightforward.
Not Bullish, or bearish. just making the point that there are far more options avaialble to all the stakeholders without decimating the PI's, as this would almost defintitely require a haircut by the banks and that is an last resort. Further loans are possibly but unlikely as they would be junior to the exiting facilties in place. i guess the additional project size would allow an added percenteage, but only if the cashflow generaton supports it. A limited equity position in the OPCO, that does not affect the controlling interest of HZM, would allow an investor to recoup their investment without impinging on the existing seniority in the payment waterfalls for the debt holders that further loans would.
there hase to some dilution but not at the level that the doom and gloom merchants are predicting. It all depends on how much the shareholders want it to work. This project is only one of a portfolio, It affected the SP but of it is sorted at a local OPCO level, the impact on the SP at holdco level will be a proportion of the expected contribution to the HOLDCOs bottom line.
Captain, you and i are both on the same page. I dont believe it will be the Chinese as they will invest for the offtake rightts, exactly the same as Glencore, which i doubt they will want to dilute
Captain Swag, that is a very viable option and one that the other major shareholders are likely to back. It doesn't require a capital raise at these current levels, it also doesn't require an EGM and a shareholder vote. I would put my money on Glencore as well, as they have the offtake rights and want the trading volumes, which is where they see the value, not in the mine and processing profits. 50-100 million up front, (which they will get back in directly paid dividends before the PI’s).
Glencore are in for the offtake, im sure that have exclusivity on the offtake rights for the mine life, or for as long they are are equity holders. I havent looked at the holding structure properly, but im very sure that each of the projects is a standalone legal entity with HZM as the holding company. There is no reason why equity cant be sold down in the specific project, without going back to the shareholders and without affecting the loan covenants on the project financing., This does not affect the HZM equity holdings in the other OPCOs. it WILL reduce the future cashflows accruable to HZM from the Line 1 project and obviously that impacts the SP . How much depends on how much cash is required and to the terms agreed. but what it DOES NOT depend on is the current SP, and consequently has no effect on dilution at HOLDCO level. I cant see Glencore giving up their 26 year cash cow for for the sake of $150 million upfront, and getting 50 million annually of the attributable free cash flows for the whole mine life. Trading companies do not invest in these projects to make their profits from the mines, they do it to capture the trading volumes which is where the real profits come from, last year was a case in point. The banks are not going to walk away, they've got too much skin in the game, and Glencore are in for the long haul. But there is no such thing as a free lunch. Some future cash flow will have to be given away, but i cant see why 150 millon USD would justify more than an 30% additional stake directly in the mine, considering the forecast are that this would return 350 million of the forecast NPV8, more than repacing the reduced from their holdings in HZM PLC. This is speculation, but their are far more ways to stucture this than the doom and gloom merchants seem to be suggesting.
Hi Tony, for me it emphasized the execution risk aspect that needs to be considered after finance and that its not a won race once finance is achieved. Hence the 20% discount Liberum analysis applied to the Pensana prospective NPV even after finance is achieved.
At the price HZM was a no brainer at the levels it sank to this morning. Even if they had to give 90% of the project away to other investors, the NPV compared to a company valuation of £45 million, still made sense and i didn’t feel the banks would walk away considering the amount they were on the hook for. Apologies to the PRE holders
SP/DP... but not quite as well as HZM did for me today. ~really have to thank Theorist for that tip!!!!!
SP/DP, works for me
I was thinking the same, but picked up sharply, not setting the world on fire, but finally exceeded 300k…..
If it's used as it should be it'll be used by the Uni's with support from the companies. It's a research grant. If anything, the companies will be adding to it, not chopping it them selves.
To raise an equivalent cash contribution at the PLC level by a capital raise, the equity ($50 million) share of 285 million shares valued today at $220 million would need to be realised. That is, 65 million shares on top of 285 million would need to be issued at 62p each. This share price of 62p should reflect the company value without viability and financeability concerns and is subsequently more in line with the Share price value before the re-rating at the end of March.
We discussed a potential share price in light of any positive financing announcement. Paul referred me to the Liberum report from the end of last year, which suggested that over £2.00 was possible. I observed that this valuation was based on the assumption of no financing announcement and a 40% chance of success. With financing in place (before construction) and an 80% success factor factored in, the potential price surpassed £4.00.
The share prices in the Liberum report were derived using a share issue of 247 million shares. Since then, the number of shares issued has increased to 285 million. Assuming additional equity is taken by another party at the Longonjo OPCO, The reduced cash flows attributable to Pensana PLC would be equivalent to a share dilution of 65 million shares, reducing the Liberum £2-£4 per share valuations to £1.40 to £2.80, i.e., a market cap of $600 million to $1,200 million. This market cap is considered a fraction of the potential, even at present NdPR price levels. (Refer to MP and Lynas' current market caps for comparison).
Note from a recent lunch with Paul Atherley and William Izod, continued in subsequent post.
PA stated that they couldn't disclose certain information, and we began the discussion from that point.
We discussed the achievable pricing of NdPr oxide and assessed the representativeness of the SMM quote. William emphasised that while it provided an indication, the current market and the prices non-Chinese buyers were willing to pay for an assured ESG-compliant source far exceeded the SMM quote.
We explored the significant price differential of ultra-high purity grades of Lanthanum and Cerium compared to high-purity grades, i.e., $500/MT versus $2,500/MT.
Pensana is still discussing the magnet metals project at Saltend and the separation facility.
Regarding Longonjo, it was stressed again that all financing would occur at the OPCO level, and there would be no capital raises to dilute shareholders at the PLC level.
The company is conducting due diligence for an ABSA loan, encompassing both commercial and technical aspects. The Bank has delegated the technical side to an engineering company. They may complete due diligence in September, but it is unlikely that they will make any announcements before October. They still need to specify the actual announcement date.
Regarding the anticipated financial structure, Paul indicated that the failed strategic investment at the beginning of the year had established an independent valuation benchmark for Pensana's Stake at $220 million. He also stated that the Pensana stake in Longonjo could decrease from 85% to approximately 65% after financing is completed.
I did not discuss the following scenario with Paul or William. I have put together my thoughts on the possible Angolan finance structure, using the above information and the financial structuring plan revealed on 27th June (i.e., a $120 million loan and an $80 million contribution from the Angolans).
We suggested that the Angolan $80 million contribution would comprise project debt and equity during our previous discussions. Currently, Pensana holds 85% of the Longonjo project equity. If they reduce this to 65%, they must relinquish approximately 22-23.5% of their stake. If PRE is valued at $220 million, the Angolans will pay roughly $50 million, giving them a 20% stake in the Longonjo project. The remaining $30 million facility could be structured as debt alongside (but junior to) the ABSA loan.
The preceding would result in an equity structure in Longonjo as follows:
- Pensana: 65%
- ASWF: 20%
- Existing partner: 15%
If this scenario materialises, the debt will amount to $120 million from ABSA Bank plus $30 million from the Angolans, totalling $150 million of the project cost. If a Bank's usual criteria, this represents a 75% LTV, the maximum allowable debt load.
SP, your welcome.....
Eloro, you're going to love the next post.......
Eloro, apologies again, seems I have called you Elmore, really sorry, about that. I prostrate myself in front of the typo gods, and will submit myself to a life time of self-flagellation. Or maybe, ill go for a pint.
Elmore, I was waiting for that, and not at all surprised that it you I saw it after I posted it, unfortunately the LSE site doesn’t allow for editing after posting. I have spent many many years in west Africa, but unfortunately for you I am blue eyed 100% Anglo Saxon.
I was write first time, they have been awarded a grant.......to support a feasibility study