Valuing Pensana

[John]

So i did some quick back of the envelope NPV calcs and came up with a NPV of about 500 million pounds....which equates to a SP of about 1.70 pounds per share...which is about x3 from here.

I assumed:
- Capex US$320
- Opex US$35 per kg
- Phase 1 only
- NdPr price of about US$75 per kg
- Discount Rate of 10%
- Mine life of about 15 years

I'm sure others on here will have done detailed analysis.....anyone want to share?

 

[John]

If phase 2 comes on soon after....roughly double it (ie 2 years later, but assume capex is a little less and opex a little less due to scaling)? So a SP of about 3 pounds? Which is about a x6 from here.

These calcs are EXTREMELY rough.

Please do not rely on them at all. But I am keen to hear from others.

 

[Ian Brown]

im not far from you John, although there are numbers you can use rather than those you have input, For instance the CAPEX for stage one is stated, (And has been as early as February this year as 217 million including 10% contingency), However for the sake of not trying to massage the numbers lets use the full finance facility of 267 million USD, this will then cover some potential over runs, interest costs during payment moratorium, But certainly not $320 million.

in respect of income, Longonjo is not producing NdPr, it s producing 20,000 Mts MREC, said to contain 2,400 Mts of NdPr, SMM have used a value of 8.3% of the NdPr price as rule of thumb for MREC for years, this give an allowance for separating the oxides out., the 35% higher concentration of NdPr content justified a price of 12% or $9,000/MT x 20,000 = $180,000,000 per year.

OPEX, Pensan has issued numbers, but again we need to consider this is MREC. The cost of Separating the various oxides will be bourne at a later process stage, having said that i will for the sake of argument use $4200/MT of MREC (equivalent to $35,000/MT of NdPr, my own position is that you can reduce this by at least $4,000/MT of NdPr or $500/MT for MREC.

But when calculating NPV we need to consider the period over which it is calculated and the actually discount factor.The mine life is advised in all Pensana Documentation as 20 years. with 130,000 Mts of NdPr and stage 1 producing 2,400 Mts per annum. i think the 48,000 Mts of NdPr can be taken as conservative.

You use a discount factor of 10%, Pensana are using 8%, this number is subjective and is an estimate of the erosion of the value of the currency over a period and apply risk compare to other opportunities. Regarding inflation in Angola, this can largely be ignored mainly due to being linked to the devaluation compared to the USD. Which in this case is the unit of accounting currency. So the question is what's the figure to be used regarding devaiuing the purchasing power of the dollar. A year a go i would have said, the dollar getting strong, now we are in a state of flux, not knowing what is going on, but i dont beleive there is any reason not to use %8 over 10%. for further support

8% Discount Rate (Pensana’s choice), comparing with projects in similar Risk Jurisdictions​

Confidence in project maturity (fully permitted, funded, construction-ready).

• USD-based accounting with minimal FX exposure.
• Strong partners (e.g., FSDEA, AFC, ABSA).
• Lower perceived execution risk due to simple geology, rail access, hydro power, etc.

Using the Above you still get an NPV that matches you own of 500 million, at todays estimated pricing,,

The numbers for Stage 2 are CAPEX 105 million, so double the revenue for 50% more CAPEX and i would certainly redo the OPEX by the 500 i suggested, this gives an NPV 40% higher at 700 million. or 1.2 billion for stage 1 and 2 combined, that is 7 x the current MCAP. All this is predicated on a static NdPr price of $75/MT. Which surely nobody believes in, Certainly not the investors in MP and Lynas. if you use more conservative Project blue forecast (rather than frothy but believable Adamas forecast) going forward to 2032, topping out at $110,000/MT and assume the price stays flat from then on. then the overall NPV increase to 2 billion or 11 x times the current MCAP or 6 pounds a share.

Of course what multiples you want to use in respect of the potential share price is a very different discussion

 

[John]

im not far from you John, although there are numbers you can use rather than those you have input, For instance the CAPEX for stage one is stated, (And has been as early as February this year as 217 million including 10% contingency), However for the sake of not trying to massage the numbers lets use the full finance facility of 267 million USD, this will then cover some potential over runs, interest costs during payment moratorium, But certainly not $320 million.

I see what happened here....i converted to AUS$......

in respect of income, Longonjo is not producing NdPr, it s producing 20,000 Mts MREC, said to contain 2,400 Mts of NdPr, SMM have used a value of 8.3% of the NdPr price as rule of thumb for MREC for years, this give an allowance for separating the oxides out., the 35% higher concentration of NdPr content justified a price of 12% or $9,000/MT x 20,000 = $180,000,000 per year.

Yeah I decided to just use a slightly reduced NdPr price to account for the MREC....which was just a rough proxy. When i normally do this, I like to have sensititivity tables for a range of prices. I like the way you have done it though.

OPEX, Pensan has issued numbers, but again we need to consider this is MREC. The cost of Separating the various oxides will be bourne at a later process stage, having said that i will for the sake of argument use $4200/MT of MREC (equivalent to $35,000/MT of NdPr, my own position is that you can reduce this by at least $4,000/MT of NdPr or $500/MT for MREC.

But when calculating NPV we need to consider the period over which it is calculated and the actually discount factor.The mine life is advised in all Pensana Documentation as 20 years. with 130,000 Mts of NdPr and stage 1 producing 2,400 Mts per annum. i think the 48,000 Mts of NdPr can be taken as conservative.

I just used 15 years. The last 5 years would not add much anyway due to the time value....But it would add a tiny bit to the NPV.

You use a discount factor of 10%, Pensana are using 8%, this number is subjective and is an estimate of the erosion of the value of the currency over a period and apply risk compare to other opportunities. Regarding inflation in Angola, this can largely be ignored mainly due to being linked to the devaluation compared to the USD. Which in this case is the unit of accounting currency. So the question is what's the figure to be used regarding devaiuing the purchasing power of the dollar. A year a go i would have said, the dollar getting strong, now we are in a state of flux, not knowing what is going on, but i dont beleive there is any reason not to use %8 over 10%. for further support

8% Discount Rate (Pensana’s choice), comparing with projects in similar Risk Jurisdictions​

Confidence in project maturity (fully permitted, funded, construction-ready).

• USD-based accounting with minimal FX exposure.
• Strong partners (e.g., FSDEA, AFC, ABSA).
• Lower perceived execution risk due to simple geology, rail access, hydro power, etc.

Ha Discount rates! I used to work at PwC and we used to build massive reports to justify a discount rate. I find the best approach is really just to use a range of rates to test the sensititivity. Typically for rare earth projects i see them as having a greater risk profile....but I can understand the 8% too.

Using the Above you still get an NPV that matches you own of 500 million, at todays estimated pricing,,

The numbers for Stage 2 are CAPEX 105 million,

I know this is the stated number....but it is just an estimate for now. I would probably add 50% more (i tend to do this in my analyis to provide a level of conservatism/fat into my calcs).

so double the revenue for 50% more CAPEX and i would certainly redo the OPEX by the 500 i suggested, this gives an NPV 40% higher at 700 million. or 1.2 billion for stage 1 and 2 combined, that is 7 x the current MCAP. All this is predicated on a static NdPr price of $75/MT. Which surely nobody believes in,

Yeah...i like to model whatever the break even NdPr price is (or MREC)....and then look at NdPr prices up to about $150/kg. I think this is a realistic range...but of course could go much higher under geopolitical scenarios.

Certainly not the investors in MP and Lynas. if you use more conservative Project blue forecast (rather than frothy but believable Adamas forecast) going forward to 2032, topping out at $110,000/MT and assume the price stays flat from then on. then the overall NPV increase to 2 billion or 11 x times the current MCAP or 6 pounds a share.

Of course what multiples you want to use in respect of the potential share price is a very different discussion

So given this analysis...the "fair value" looks like it is not factored into the SP....

So my quyestion is....what is the risk(s) that the market are considering for the SP to be sitting this low?

 

[John]

@Mumbles2025 also sorry for the slow reply. Had some family issues. All good now. And i'm back on deck now.

 

[Ian Brown]

Hi regarding possible reasons for perceived, or should we so lo valuation compare dot other at the same level of development, SR, a friend and Fellow investor in Pensana made the following comment regarding the stratospheric rise of Mkango over the last week, i think he makes some very valid points. But what i dont think is understood, is that Pensana seem to have an awful lot of options at the moment and are still weighing them up, or still crossing the t's and dotting the I's

Let’s give credit where credit is due. Mkango may have a smaller resource and no financing secured, but they’ve made real progress on the downstream front.

Where they are clearly ahead is in execution: a confirmed MSP, EXIM Bank’s 92 million dollar letter of interest, and an operational plan for separation and magnet production in Dallas. There’s no need to join the dots there, they’ve already done that. The market can and should value that potential. They appear to be aligned with US policy and government backing, which gives them a level of credibility and momentum that deserves recognition.

The irony is that many of the same people who want the market to value Pensana’s long-term strategic positioning seem reluctant to do the same for Mkango. That is inconsistent. If we expect the market to assign forward value to projects like Saltend and Longonjo, we cannot ignore others doing the same just because it suits our bias.

That is not to say Mkango is ahead of Pensana. They are not. Pensana has the larger resource, the more strategic location, and ultimately, the greater opportunity. But at the moment, our pathway is not clear, not to the market and possibly not even to us internally. The sooner PA delivers clarity on whatever he is working on, whether that is Saltend restructuring, a joint venture, or something else, the better. If it is credible, we will rerate quickly and decisively into the nine-figure valuation range.

Until then, Mkango will continue to catch up. Not because their long-term potential is greater, but because they have communicated a clear and credible execution plan. We need to do the same.

 

[John]

Agree @Mumbles2025

I belive the phrase is...."The sqeaky rare earth project gets the investment dollar"....or something like that.


I'm not a fan of marketing. But in this day of age, it is a necessary part of any business. And they need to be agressive in this regard. And they need to target all segments of the investment market. Retail, institutions, family offices, ETFs etc. etc.

I know that every man and his dog are trying to do deals with USA companies to get some of this Trump cash that he is going to splash on the sector. There are a few different ways to go about this:
- Approach USA businesses about doing deals.
- Use your Govt(s) to try to be part of some wider trade deal with USA.

Do you know if the UK or Angola Govts are assisting Pensana in this regard?

OR - while everyone is focused on USA...look for other markets that are not in the spotlight. These may yield better results. Germany comes to mind. And even Brazil.

 

[Ian Brown]

Good Morning John the UK Government have got far more PR out of Pensana, In return Pensana has had platitudes and nothing else. To the contrary without Angolan government support (via the FSDEA (sovereign wealth and largest investor), the Funding would not be where it is. The comments about not being funded by some are without basis, The African Finance corporation have said they have approved the funding, ABSA have said they have approved the funding. Is it because they are African institutions and not trusted by the market. The backing and financial strength of these companies needs to be realized.

Absa Group holds assets of around US $110 billion, The Africa Finance Corporation manages over US $12 billion and specialises in large-scale project funding through debt and equity. Angola’s FSDEA, with US $3.9 billion under management, plays a catalytic role, backing strategic projects with a focus on governance and commercial rigour—posting a 10% return in 2023. Having spent 25 years in West Africa, currently sat in Lagos 500 metres from the AFC head quarter building and having worked with them in my previous life, I can assure you that their Due Diligence is a total PITA, they are rigorous to the nth degree. If you have a declaration of funding from them, it is money in the bank.

The Africa Finance Corporation’s funding of the Lobito Corridor—now exceeding $650 million—is co-financed by a coalition including the U.S. DFC ($250 million loan), the EU and Italy (contributing €250 million and a separate $320 million facility), and the African Development Bank, alongside national governments of Angola, Zambia, and the DRC.

Regarding US support, Pensana have already received actual support in the form of a 3.4 million USD grant and has ongoing discussions with the DFC as part of that grant as they pass on their findings on feasibility of country processing and development of the Coola license. This as opposed to an expression of interest which Tanjeev and Mkango have splashed all over their RNS’s which whilst having potentail, is not any where near being cash in the bank. The two EOI only being two of which i know of at least 5 are in existence, i guess the other 3 receivers are keeping their powder dry. Logic suggests Pensana are way past the Expression of intrest stage. I cant help but consider that the ReElement discussion is part of this. But until it is announced, it is speculation and treated as such. Personally i think it has far more substance than is being attributed by the market to its peers. I am a little biased, but better informed than the market. The latter is the companies fault which may or may not be through necessity.