Pensana (LON: PRE) just dropped one of those announcements that stock markets really don't like: “The Group does not currently have sufficient funding to meet its outstanding creditors due to suppliers and is dependent on securing immediate term funding to settle those creditors and provide short-term working capital.” To put that into more common language, without more cash they're bust. Which is one of those things generally thought of as being a bad thing.
The basic Pensana design is perfectly acceptable. The world requires more rare earths, why not be a rare earth miner? More than that, what's in really short supply is rare earth processing capability (the difficult and expensive part of the process) outside China. So, do that too - and use the mine with rare earths to feed the processing plant with rare earths. The problem with this is that doing both together is an expensive proposition. Pensana simply doesn't seem to have enough money to be able to achieve its plans.
Pensana share price from London Stock Exchange
Pensana has been talking to varied potential investors but has not managed to persuade any to write a cheque as yet. Which is what has led to this current position. Obviously, this stage of a mining company just eats capital. Loan finance is very scarce on the ground until reserves are proven and the project substantially derisked. So while there might be - maybe - some option for a short term facility somewhere, the solution is going to have to be more capital. How dilutive that is - if it even happens - remains to be seen.
From the independent review: “indicate the existence of a material uncertainty which may cast significant doubt over the group's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.” Again the colloquial meaning of that is simple enough. More cash quickly or they're bust.
At which point opinion comes into play. Ours, given that we know a lot about the rare earths business from the inside, is that the project will be rescued at some price. It's simply too attractive a package for someone not to pick it up. But the how and the when of it being picked up will matter intensely to Pensana shareholders. For there's no guarantee at all that someone will buy Pensana to gain access to the project. There's also that option of waiting and then buying from the administrator.
No, this is not to say that administration is certain, only that it's possible, and that possibility will inform potential bidders and the price they're willing to offer.