PM8 2.33% 22.0¢ pensana metals ltd

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    Any opinions expressed in this postare merely opinions of the OP and not Pensana Metals. These should not be takenas financial advice. Always do your own research.

    With just 16 days of trading left inOctober, the PFS, being prepared by Wood Group [1], is expected anyday now [2]. Given this, I thought I’d summarize some of the keythings we know about Pensana Metals and the Longonjo project. This post won’tcomprehensively cover everything, but it should give you a solid overview to thecurrent state of Pensana Metals as we head into the PFS.

    What are Rare EarthElements (REE):

    Rareearths are a series of chemical elements found in the Earth’s crust that arevital to many modern technologies, including consumer electronics, computersand networks, communications, clean energy, advanced transportation, healthcare, environmental mitigation, national defense, and many others [3].

    What is NdPr:

    Neodymium and Praseodymium are lightrare earth elements which are used for permanent magnets in EV motors, windturbines, military equipment, consumer electronics, as well as other applications [4].


    Where are REE produced:

    China accounts for 80% of the US rareearth supply [5] and 96% of the worlds NdPr production [6 - page2].


    https://hotcopper.com.au/data/attachments/1763/1763331-06214c6adf6951870872503d433c08d3.jpg


    Pensana’s Strategy[7 – page 10]:

    Note:

    ·REEconcentrate is where REE are mined and run through a simple flotation process.

    ·REEoxides are the end product of refining the REE concentrate.

    Pensana Metals are targeting a uniquestrategy which can currently be seen at large scale only at MountainPass in the USA, (more on this in ‘The United States’). The strategy is to supplyREE concentrate to China for refining. This differs to the other rareearth projects you have probably heard of like Lynas, Hastings, Arafura, PeakResource, Greenland Minerals and Energy, plus others, who are trying to mineAND refine rare earths.


    Benefits of thisstrategy:

    1.Major Capex requirement reduction as arefinery does not need to be built to refine the mined REE concentrate

    2.Simple lower cost mining operation.

    3.More environmentally friendly (notcompletely environmentally friendly). Let’s be straight up here, mining rare earths in its self has a negative environmental impact. Mining AND refining have a greater negative impact (not surprisingly) as many other processes are introduced.

    4.China has refineries already builtwhich have been refining rare earths for many years [8]. They wouldhave sorted out many of the nuances which they experienced in refining REE.

    Implications ofthis strategy:

    1.Currently, the only major large-scalerefinery outside of China is Lynas’ refinery is Malaysia [9]. Thismeans Pensana’s REE concentrate must be supplied to China to refine, as thereis currently no infrastructure within the United States to refine REEconcentrate. Thus meaning the United States preference of rare earth supply completelybypassing China cannot currently be satisfied [10] Some investorsmay feel that this is a negative.

    2.REE concentrate does not fetch thesame prices as REE oxide.


    The Project:

    The Longonjo project is 84% owned byPensana[7]. The project is located in Angola and islocated close to modern road and rail.

    The project is located 4km from thesealed national highway AND rail line that run from the Atlantic port ofLobito 300km to the west.

    The Benguela Railway was reconstructedbetween 2006 and 2014 by the China Railway Construction Corporation at a costof US$1.83 billion [7 – page 11], [11].

    China has provided infrastructure and infrastructurefinancing to Angola [12].

    The Angolan Government invested aboutUS$2 billion for the rehabilitation of the Lobito port and associated infrastructure[7 – page 12].

    A power transmission line from themassive new Laúca hydro power scheme in the north of Angola has been activatedthis year and currently extends to Caala, 45km to the east of the Project [7– page 11].

    https://hotcopper.com.au/data/attachments/1763/1763335-a2c36fa0a416f720f7b900916f4c9f95.jpg

    https://hotcopper.com.au/data/attachments/1763/1763337-5f1d202c1ec288b379ae9495eb510b10.jpg
    This infrastructure will drastically reduce the capital requirements of the project.


    The Resource:

    In February the Mineral Resource estimatewas for 240 million tonnes at 1.6% REO including 0.35% NdPr [13].

    The focus of the PFS will be on thehigh grade zone which totals 22.9 million tonnes at 4.16% REO and 0.86% NdPr [13].

    “The deposit occurs as a blanket of soft weathered material averaging around 30 metres in thickness and up to 75 metres in places. The highest grades occur from surface. The deposit remains open at depth and in a number of directions laterally”[13].

    “Drilling to depth intercepted high gradefresh rock mineralisation over a large area immediately below the weatheredzone” [14]. The company didn’t bother sticking more drills in theground pre PFS because the high grade zone at surface is already sufficientfor the PFS. Keep in mind that when this fresh rock was actually tested by thecompany, when we talk about at depth we are talking about the drill hits in freshrock starting from 12 to 25 metres [14 – page 7 & 8].

    The resource is extremely shallow withmany hits from surface [14 – page 4], [13 – page 4].

    https://hotcopper.com.au/data/attachments/1763/1763340-bdcc4d2fa140aa05d788dad93cc92423.jpg


    The mineral resource estimate is beingupdated for the PFS [14 – page 12].



    Government Support:

    “Longonjostands to be the first major mine developed in Angola under the revised mininglaw and has attracted wide publicity in the national media due to its potentialto provide investment and jobs in an economically disadvantaged region” [7– page 5].

    “Supportand encouragement given by His Excellency Diamantino Azevedo, Minister ofMineral Resources and Petroleum and by the Governor of Huambo province, DrJoana Lina, who has taken a keen interest in the project and visited the sitepersonally” [7 – page 5].

    “It is encouraging to experience thesupport of the country’s ministries in this respect. The visit to the Longonjosite in April by over 60 members of mining, geology, environmentdisciplines, led by the Secretary of State for Geology and Mines, Dr Jânio daRosa Corrêa Victor, and national press to understand the project providedfurther testament to this policy [7 – page 7].

    Themine will of course assist Angola in repaying China for the cost of financingthe Benguala rail line.


    [15]:

    https://hotcopper.com.au/data/attachments/1763/1763342-8c057fa309e812ab5e321463c4015baf.jpg
    https://hotcopper.com.au/data/attachments/1763/1763344-192250ddb59abd3293c2cf98e3ce0f66.jpg


    Peer Resource Analysis:


    ALL CREDIT of these images goes to @anatol to hisexcellent post here #37512146

    Sorted by total tonnage:

    https://hotcopper.com.au/data/attachments/1763/1763352-ccea581a12d2a0e3a9a69d28208e2984.jpg

    Sorted by grade:


    https://hotcopper.com.au/data/attachments/1763/1763355-20986a702b50753519cac3daf22956c0.jpg

    Sorted by TREO:


    https://hotcopper.com.au/data/attachments/1763/1763358-7ef7d8dc96f0d365e0734cd048ec97bb.jpg

    Sorted by NdPr grade:


    https://hotcopper.com.au/data/attachments/1763/1763364-df20c6a52743ecfa5569afbfb2f4344f.jpg

    Sorted by contained NdPr:


    https://hotcopper.com.au/data/attachments/1763/1763365-e89a4d131e74fd2c428bb363c96e1876.jpg

    Sorted by TREO ratio:


    https://hotcopper.com.au/data/attachments/1763/1763366-f615ff8eb6562c8eab0ec949aa0ff7b3.jpg

    Again, credit @anatol for the above images!

    Rainbow Rare Earths Gakara Project:

    Besides Mountain Pass (see ‘The UnitedStates’), the other notable, however low scale miner of concentrate is RainbowRare Earths Gakara project in Burundi [16]. Rainbow Rare Earths arecurrently mining a small but extremely high grade vein with estimated grade between47% - 67%.

    From the Gakara Project, an extremelylow 550t concentrate was exportedand 650t sold in the six months to December 2018[17].


    Concentrate Pricing:

    The best metric of rare earthconcentrate pricing is using that of another current miner.

    Rainbowrare earths average net sales price per tonne in the period was US$1,890 [17].

    Rainbowrare earths currentbasket price US$11.55/kg (as at08/03/19) as per Thyssenkrupp Materials [17]. Their basket consistsof 19% NdPr which makes up 80% of the value. Thatmeans their NdPr value is $9.24/kg.

    Fromthe mineral resource estimate at the start of the year (which will be updatedwith the PFS and likely improve grades) NdPr makes up 21.89% of TREO atLongonjo [13 – page 13 – table 4].

    Usingthe above values, we can therefore roughly assume the Pensana basket price as $13.41/kg forthe same time period based on the weightings in the MRE at the start of theyear:


    Gakara

    REO

    Basket Price 08/03/19

    % of basket

    % of basket sum

    Value %

    Value$/kg

    Value$/g

    Lanthanum

    US$11.55/kg

    31%

    81%

    20%

    2.31

    0.00285185

    Cerium

    48%

    Other

    2%

    Praseodymium

    4%

    19%

    80%

    9.24

    0.04863158

    Neodymium

    15%

    Longonjo

    REO

    Basket Price

    % of basket

    % of basket sum

    Weight (g)

    Value$/kg based on Gakara basket price

    Lanthanum

    US$13.41/kg

    24%

    78%

    780

    2.22444456

    Cerium

    46%

    Other

    8%

    Praseodymium

    5%

    22%

    230

    11.18526317

    Neodymium

    17%


    Note: RainbowRare Earths receive a significant discount to their concentrate basket price.As you can see their basket price is $11.55/kg yet they received just $1.89/kg [17].This may differ for Pensana due to large scale concentrate volumes.

    Thelatest available concentrate pricing which Rainbow Rare Earths received as of30 June 2019 was US$1,448per tonne[18].


    Peer Capex Comparison:


    #

    Company

    Project Name

    Location

    Strategy

    Capex $

    Source

    1

    Arafura

    Nolans

    Australia

    Mine and refine

    US$726m

    [19]

    2

    Hastings Technology Metals

    Yangibana

    Australia

    Mine and refine

    A$427m

    [20]

    3

    Peak Resources

    Ngualla

    Tanzania

    Mine and refine

    US$3655m

    [21]

    4

    Greenland Minerals and Energy

    Kvanefjeld

    Greenland

    Mine and refine

    US$505m

    [22]

    5

    Pensana Metals

    Longonjo

    Angola

    Mine only

    targeting 'low' capital cost - Awaiting PFS

    [15]


    Operating Costs:

    “The opportunity for low cost softrock mining of the weathered ‘blanket’ of ore has been confirmed and, due tothe proximity to surface, the reserve per metre drilled ratio has kept costs ofthe exploration programs pleasantly low. The mineralised blanket extends over1.5 km and, although 30m thick, the discriminating factor here is that a highproportion of the high grade material is at, or close, to surface “ [7 – page7].


    NdPr DemandForecast:


    [23 – page 16]:

    https://hotcopper.com.au/data/attachments/1763/1763368-25b19cefae7f76febe7f9472369c44c4.jpg

    [15 – page 18]:

    https://hotcopper.com.au/data/attachments/1763/1763369-ba0e9bb5e866a7a24be082a7b3f31f81.jpg

    The United States:

    MP Materials Mountain Pass mine iscurrently the only large scale rare earth mine in the USA. It currently mines50,000 tonnes of concentrate per year and ships it to China for processing.They will need to spend $200 million dollars to restart the refinery [5].Thus as it stands, Mountain Pass are CURRENTLY following the Pensana strategyto mine REE concentrate and send it to China for refining.

    The refinery will take some time toget back up and running to allow the USA to bypass China. Upon this occurring,the goal will be to produce 5,000 tonnes of NdPr oxide per year. China alone produced120,000t of all rare earths in 2018 [5].


    Customers:

    “In discussion with Chinese customersfor concentrate offtake agreements” [15].


    Financing:

    “Discussionscommenced with Financiers for term sheet for main finance” [15].

    UK Financing into Angola:

    “The United Kingdom has 750 millionpounds to support projects in Angola” [24].

    “UK Government Disburses USD 172 Mn ToFund Major Electricity Project In Angola”

    There are plenty of similar articles onthe UK’s investment in Angola via google.



    Listing on LSE:

    Pensana appointed RFC Ambrian asbroker and agent to the company in advance of a planned listing on the StandardList of the London Stock Exchange by the end of 2019 [6 – page 1], [7– page 16].

    FidelityInvestments:

    Fidelity Investments holds a 10% stakein the company [26].

    https://hotcopper.com.au/data/attachments/1763/1763371-fe12f9aae32a4b4316c50eecdf7fce62.jpg


    ManagementExperience:

    Tim George – CEO - Tim George has more than 30 years'experience in mining and engineering, plant design and feasibility work, andspent over a decade in production management roles at a number of Anglo'sAfrica operations. He was also previously chairman and CEO of Angola-baseddiamond exploration company Xceldiam, which was bought by Petra Diamonds in2007.

    David Hammond - Chief OperatingOfficer - 7 years as Technical Director with Peak Resources Ngualla Rare EarthProject, Tanzania.

    Othermanagers and company directors are also highly experienced, but I’ve picked outthe key ones here.

    Cash on hand:

    $4.696m as at 30 June 2019 [27].

    Current MarketCap:

    Roughly $33m

    Final comments:

    As many ASX listed companies jump onthe rare earths train and have just acquired rare earths projects, Pensana is alreadyat the PFS stage. Remembering that the only other large scale operation utilisingthe same strategy that is ahead of Pensana is Mountain Pass.

    This project willbenefit both the Chinese and Angolans. China have almost all of the refiningcapacity.

    PFS this month. Good luck to all. Notfinancial advice. Do your own research.


    References:

    1.https://www.asx.com.au/asxpdf/20190314/pdf/443gtjlbnpb0kx.pdf

    2.https://www.asx.com.au/asxpdf/20190909/pdf/448bz85sdn3sd0.pdf

    3.http://www.rareearthtechalliance.com/What-are-Rare-Earths

    4.https://www.thoughtco.com/light-rare-earth-elements-lree-606665#targetText=The%20light%20rare%20earth%20elements,have%20a%20shiny%20metallic%20appearance.

    5.https://www.reuters.com/article/us-usa-rareearths-mpmaterials/california-rare-earths-miner-races-to-refine-amid-us-china-trade-row-idUSKCN1VD2D3

    6.https://www.asx.com.au/asxpdf/20190507/pdf/444x061w2j39gs.pdf

    7.https://www.asx.com.au/asxpdf/20190930/pdf/44913t31x8mwrr.pdf

    8.https://www.smh.com.au/business/markets/rare-earths-miner-slams-complicit-manufacturers-over-china-predicament-20191008-p52yu2.html

    9.https://www.copyright link/politics/federal/us-australia-pursue-rare-earths-foil-to-china-20191008-p52yml

    10.https://www.reuters.com/article/us-usa-rareearths-trump/trump-tells-pentagon-to-find-better-sources-of-rare-earth-magnet-idUSKCN1UH2L4

    11.http://www.xinhuanet.com/english/2019-10/03/c_138446624.htm

    12.https://www.reuters.com/article/angola-china-debt/angola-secures-2-bln-in-infrastructure-financing-from-china-idUSL8N1WQ2SH

    13.https://www.asx.com.au/asxpdf/20190219/pdf/442qq3tw6hs745.pdf

    14.https://www.asx.com.au/asxpdf/20190708/pdf/446g0xw3q0ppjs.pdf

    15.https://www.pensanametals.com/images/presentation/2019-sept/Pensana-Sept-2019.pdf

    16.http://rainbowrareearths.com/gakara-project/gakara-overview-highlights/

    17.http://rainbowrareearths.com/wp-content/uploads/2019/03/Rainbow-Shareholder-Call-13.03.19.pdf

    18.https://polaris.brighterir.com/public/rainbow_rare_earths/news/rns/story/rn61pkw

    19.https://www.asx.com.au/asxpdf/20190207/pdf/442fgrbxqwrxdd.pdf

    20.https://www.asx.com.au/asxpdf/20190311/pdf/443c9n7lyhmz7l.pdf

    21.https://www.peakresources.com.au/wp-content/uploads/2019/07/Project_Update_2017_171012.pdf

    22.https://www.asx.com.au/asxpdf/20190709/pdf/446h8j1z6dr053.pdf

    23.http://member.afraccess.com/media?id=CMN://6A933063&filename=20190607/LYC_02112373.pdf

    24.https://macauhub.com.mo/2018/11/09/pt-reino-unido-anuncia-recursos-para-apoiar-projectos-em-angola/

    25.https://weetracker.com/2019/10/01/uk-government-disburses-usd-172-mn-to-fund-major-electricity-project-in-angola/

    26.https://www.asx.com.au/asxpdf/20190614/pdf/445tz0zlf4dkdb.pdf

    27.https://www.asx.com.au/asxpdf/20190730/pdf/446zm6wrqpsfpf.pdf

 
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