Pensana (LON: PRE) has, as we've been saying, had a significant problem. Effectively, it had no cash. Which is indeed one of those corporate problems that you really wish you never do have. What makes it worse is that PRE was in the process of discussing the long term financing requirement of the business as a whole. Being out of cash as you ask for the hundreds of millions to make the plan work just isn't a good look. Makes matters very much harder. As well as, obviously, making long term plans somewhat moot if there's no cash to keep the business running right now.
This problem has now been solved. The two major shareholders, M&G and the Angolan state investment fund have agreed to increase their stakes in Pensana. This amounts to a roughly 10% increase in the equity and at these prices it's clearly highly dilutive of earlier shareholders. But, when needs must then needs must, right? Pensana now has - or will very shortly - the cash to keep going while negotiating that larger and longer term financing plan.
Pensana share price from London Stock ExchangeThe dilution there is obvious, visible to the naked eye. That drop from around 60 pence to around 30 was on the back of the announcement that there's no money left. The recovery is modest by comparison with that.
As to the business as a whole, the plan seems sensible enough. The refinery is the expensive, rare and profit making part of the rare earths business so Pensana intends to build one of those. The mine is to make sure that there's a consistent and controlled feed of material through that plant. Given all of the usual constraints about how difficult it is to predict the future it's not a bad plan. As long as, obviously, they don't run out of money again. Possibly a small investment in some cash flow forecasting software might be a good use of this new money?
In the very large sense whether this will work in the end depends upon what everyone else does in the rare earth space. Too many new mines and processors open then, as is common enough in the minor metals space, they're all at risk of going bust.