Pensana (LON: PRE) has had its little problem just recently but the shares are up 14% this morning. This is on the back of their announcement that they've managed to get the mine - the rare earths mine - in Angola financed. Or, to be more accurate, they've got the cornerstone equity investor and have instructed a bank to find the necessary debt finance. Which is, you know, nice. But we're not sure that this makes up for their other problem.
After all, only two months back we were told, about Pensana: “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 idea at Pensana is reasonable enough. Build a rare earths refinery - the thing that's in really short supply outside China - and then develop a mine to feed that refinery. It's the refinery side that is so desperately short of cash. And we're really not sure how much of this mine finance will be allowed to bleed over to that side to solve that problem. But that's not the thing we really do not believe in today's numbers
Pensana share price from London Stock ExchangeNo, the bit we don't believe is here. “Longonjo will target production of 38,000 tonnes per annum of mixed rare earth sulphate, containing 14,000 tonnes of TREO and 4,400 tonnes of NdPr oxide,” That part's fine. They're suggesting 30% magnet rare earths which is a concentrate that any refiner would love to have. It's here “representing around 5% of world production” and then here “the value of NdPr oxide consumed will increase eleven-fold by 2035. Prices are forecast to rise from current levels of US$67,000 per tonne to US$100,000 per tonne by 2025, increasing steadily to over US$200,000 per tonne by 2035.” No, we don't believe those price forecasts for a moment.
As we've pointed out a number of times there have been 10 declarations of rare earths in ionic clay finds on the ASX alone in only the past two months - Metal Hawk only the latest. Note Pensana's claim here, that they and they alone will be 5% of global production from just the one mine. The ND/Pr price just isn't going to rise from here in the face of such expansion of supply.
Pensana might indeed get into production, they might well be profitable even. But forecasts of $200 per kg for Nd/Pr in 2035 strike us as being hopeful to the point of silliness.
