China has 87% of the Rare Earths market. The Rare Earths market outside China is extremely diversified with no major players holding more than 1% of the market. This is probably due the small fragmented nature of Rare Earths buying and use prior to the car battery revolution. The electric car revolution has changed the market potential.
Let's start with the potential issues. Pensana is a small company at AUS$30M with circa AUS$5M in cash. They will need to raise capital soon and with that comes dilution. They currently have 1.4 billion shares out. There will need to be a roll back of the shares. Also there is no detail on the demands of the EV Brands to the Chinese magnet manufacturers. There is no clear understanding of the timing or indeed any numbers around the terms. So there is no sense of the battery manufacturer's conviction.
Pensana can be an important and high-margin niche player in Electric Vehicle market. One of two Rare Earth producers outside China. Investors see potential for rapid growth if they can build a commercial mine. It's early days so for us the risks are high. We suspect that retail investors would like to see a strategic investor, ideally an off-taker, before getting involved.
Click here to watch the interview.
Matthew Gordon: Hello welcome to our viewers on CruxInvestor.com and also to our listeners on CruxCasts our new podcast series. We're here today with Paul Atherley, the chairman of Pensana Metals. It's a new story for some of our viewers, so Paul if you don't mind give us a two minute rundown.
Paul Atherley: My
pleasure. Thanks for the invite Matt. It's an exciting space. It's EV and I
think every day you open the newspaper and there's something more about EV.
Whether it be Tesla or whether it be VW or some aspect of it. So I guess for
many investors the question is how can I invest in that space. Clearly as
Tesla. But then the mining companies all come around and said 'well there's
these things called Battery Metals'. And we've all heard about Lithium, Cobalt
and Vanadium and all these complex chemicals, assemblages in the anode and the
cathode. But when we think about what a battery does, a battery powers an
electric motor. And the thing that we would like to say to investors is the
biggest energy transformation in history happening right now. And that energy
transformation is the conversion of internal combustion engines, into
electrification of motive power. The way you think about it is, not just cars,
it's wind turbines. These are electrified. Airplanes are now being electrified.
Ships pumping out all this pollution from bunker diesel fuel will be
electrified. So any form of motive power will be electrified. And there's two
metals really that go into an electric motor. Really quite simple. You'll
remember from school. There's there's a copper wiring. There's essentially a
magnet. And a long time, before you were born and I was I had my first car. It
used to have a starter motor that big. A big lumpy starter motor and that's
starter motor, there's a big lump of magnetite and an electric copper rotor.
Well what's happened in the last 30yrs or 40yrs. These Rare Earth magnets have
come along, so instead of being a big lump of magnetite. They're tiny little
magnets. These are incredibly powerful. They're durable and they are very heat
resistant. And they're moldable. You can turn them into any shape. So that
perfect for axial motors in electric cars. They're perfect for weight,
sensitive areas. So they've now taken off. And the components of those magnets
are some Rare Earth metals called Neodymium, praseodymium, Iron, Boron and a
few other things. So essentially, what we're saying is, Neodynium and
Praseodymium, NDPR as we call it are the key metals that go into the magnets
that are the drivers of this energy revolution.
Matthew Gordon: Okay. Great summary and I do remember some of that stuff from school but not very much of it. Tell me... it strikes me that you know everyone understands the EV story. That that's where it's going, but you've found a little niche in there. So this is particularly exciting I think to a lot of investors, and you're on a great show and you continue next week I think. How is that being received? Do people understand where you sit in the EV story?
Paul Atherley: The
EV story, as you say, is very well understood by the generalists and the big
institutions, we're talking to, are coming at it from the EV angle. What
interest them is, when we explain NdPr or Rare Earths as people are more familiar
with, what they're unaware of is 87% of the world's magnets come from one
country and that's China. China mines this....these rare earths. Which turns
into oxides, turns it into compounds, turns into alloys and ultimately, it's
magnets. And so, when Tesla talked to the Chinese Rare Earth manufacturers and
the Chinese magnet suppliers and says 'Show me your supply chain'. The supply
chain is all China. So what happened is, the Chinese are now looking elsewhere
in the world for new supplies to their processing stream, so that they can say
'that they are diversifying'. And we've seen a big move in this space. Because
there is only one non-Chinese major Rare Earth producer in the world today.
It's an Australian listed company called Linus Corporation. And another
company, a very large Australian conglomerate called Westfarmers, which the
$1.5Bn cash for this only non-Chinese Rare Earth producer. So what these
institutions that we're talking to are fascinated by, is the strategic nature
of Rare Earths. And as of this morning, in the conversation on the trade war
between China and the US, there's a commentary in the Global Times (I'm sure
you read the Chinese newspapers every day). Global Times is basically saying,
'we could turn off Rare Earths to the US', and that turns off, not just for
EV's, but for military applications, for wind turbines, for medical
applications across the board. So the response from the generalist institutions
is, they're fascinated by the strategic nature of somebody who can become a non-Chinese
Rare Earth producer.
Matthew Gordon: A couple of thoughts there. I mean we've talked extensively with Uranium companies recently and the geopolitical nature and security issues that they are facing or they feel they're facing. So I do understand the standpoint that you're discussing here. The second point is do you feel that Rare Earths is now getting a hearing where it didn't. I mean I remember financing back in 2013 Rare Earth, Great Western Minerals, $100M in South Africa. That was a difficult raise. People don't understand the nature of Rare Earths and the uses. Do you think because any easy revolution has changed people's perception or understanding? I mean how easy is it going to be to go and raise capital?
Paul Atherley: Well
a lot easier than it was then. An example would be Fidelity I've already bought
5% of us on markets. And we expect them to follow that money. And we're getting
a very big audience, this week and next week from major institutions. The
answer is considerably easier than you had. But the two reasons for that. One
is the reason you mention, it's EV's because people now understand the
relevance of Rare Earth to the EV. Secondly is that we're doing we're not doing
what many of the other producers are talking about, that potential development
we're talking about, is going downstream. We're simply going to produce a
concentrate. We're not asking for $500M or $1Bn to build a Rare Earth Oxide
Processing Plant. And the reason we can do that is our project is located right
next door to a $1.8Bn railway line that goes through a $2Bn port. So we have
the advantage of one of the world's largest Rare Earth deposits. One of the
Matthew Gordon: We are in Angola?
Paul Atherley: We're
in Angola. And it's right next door to a major railway line, which has been
upgraded by the Chinese. So in the perfect position to become a concentrate
supplier, very low capital cost, very low operating cost, to supply the Chinese
Rare Earth processors.
Matthew Gordon: Thank you. So tell me a little bit about all those moving parts. Tell me about the project, and what your thinking is, what strategy is to develop this into a much larger market cap company?
Paul Atherley: Well
we're AUAS$20 market cap company at the moment and we've got probably the best
Rare Earth project on the planet today. So the question you're asking me is how
are we going to fund it from where we are today into it's a reality. And it's
relatively straightforward, because the advantage of being a concentrate
producer is the capital cost is extremely low. It's not $500M...
Matthew Gordon: Explain that to people who might be thinking conventional about conventional mining. So what does it involve?
Paul Atherley: In
my personal view if you have infrastructure, it translates the capital
investment down from say $500M closer to $100M. And as you and I know, $100M
capital raise, hundreds of funding is bite size. You can go to one provider.
Somebody will provide you with $100M. The moment your more than that it's
several hundred million dollars, you're dealing with a syndicate. You're
dealing with all sorts of complications about being able to fund it. So one is
the funding is bite size. It is a single entity. And secondly is we've got
fantastic margins. You know... a bulk concentrates of Rare Earths in China, is
considerably, by orders magnitude, more profitable than say Lithium
Concentrates or other concentrates in to China. So our margins are very very
high. Our capital cost is low. So we have the opportunity now to, and we're clear,
we've announced we're bringing the company to London in the Autumn.
Matthew Gordon: A duel listing.
Paul Atherley: We
have caught the imagination of the bigger institutions. And we think that the
combination of a very relatively low capital cost, big institutions. That
combination will be relatively easy to turn into a funding to take us through
Matthew Gordon: You're talking to not institutions. That's where you see the ability to quickly raise a large chunk of change. Because you know you want to move this project forward. But where does the retail, high net worth (HNWI), family office sit on this. Is this an audience that you're talking to?
Paul Atherley: They
can buy this stuff freely in Australia today. The stock is well articulated in
the presentation that's on the Web site. As per our conversation today. I guess
if they bought the stock now they're getting in ahead of the institutions I
Matthew Gordon: Okay okay okay. Say let's talk about what this process is. Okay the question was in a conventional mining... people understand that you are are trying to find stuff under the ground. You're talking the concentrate which is high margin when times are good...
Paul Atherley: To
to explain to explain how to visualize it.
This is a Carbonatite, which no one outside geologist knows what I mean
which is good. Basically all it, is a weathered pipe of mineralization. And it
leaves up blankets of mineralization on the surface. It's deeply weathered.
What weathered means, it's basically broken down, this slightly acidic
rainfall, breaks down the fabric of the
mineralization, so it becomes relatively soft and more accessible. That top 50m
to 60m is our ore body. It's a blanket. So there's no big mining. It's a
stripping off the surface. That's number one. Number two is the actual process
we're going through is the grade at the ore in NDPR is 0.5% and we're going to
upgrade that to around 6%.
Matthew Gordon: Right.
Paul Atherley: let
me give you an example for those of you familiar with Lithium. A Lithium
Spodumene miner, is hard rock miner, would have a Lithium ore body grading
around 1.5% Lithium, upgrading to a 6% concentrate. We're going from 0.85% to
6%. So it's similar. The difference is is that they concentrate when it arrives
in China, is worth less than $1,000 a tonne. Our Concentrate, when it goes to
China is worth more than $2,000 a tonne. So considerably more profitable than,
I'm only using lithium as an example because people are familiar with it, but
it's the same for copper. Same for Zinc. So basically we a very high value
Concentrate, off a very low cost base.
Matthew Gordon: Does the price... is erratic? What's it look like for the last 5yrs?
Paul Atherley: The
last 5yrs the Rare Earth prices have collapsed. They are very, very low,.
Matthew Gordon: So low base...
Paul Atherley: All
the numbers I've given you are off the low base. But when they ran last time
the Rare Earth prices went up x10. So they've got this capacity... so in your
language, as a banker, a financier, is 'highly asymmetric'. But I'm not
suggesting investors buy the stock, because I'm not saying to you, NDPR prices
going to go up. I'm simply saying right now the economics look really really
Matthew Gordon: That's a great point to make. So from a from a low base, the economics still work because you've got a low AISC, I guess people would understand, and high margins at the moment. So even if there's a fluctuation in the price, you're still making money.
Paul Atherley: Yes.
Matthew Gordon: What have you got today? What have you spent money on? What have you done? so what do you know?
Paul Atherley: So
what we've done is, we've done 2-3 rounds of drilling. And the drilling has
brought us up to what's called an Inferred Resource. We've now just completed a
diamond drilling program. The diamond drilling program is an Infill program,
that will take part of the Resource from Inferred Resources, to what's called
Measured & Indicated. And Measured & Indicated Resource, along with one
other main thing, which is these diamond drill core, is all being aggregated
and put into separate samples sent to Australia and tested. They will form the
metallurgical test work basis for the process route. You put those two things
together and it's the basis of the process design, the plant design, for the
PFS (Pre-Feasibility Study). And PFS due to be being prepared by the Wood
Group, or just any of the investors in the UK will know. That's will be in a
study presented to the market in September. So all those numbers are talking
about. The capital cost, the operating costs, the margin, metallurgical process
route. All of those numbers come together. Third party validation for a PFS
following which we all then come to markets. It's a dual listing, essential an
Matthew Gordon: In the summertime. And say Okay say you're getting you're going through a process. Fairly early days. How much money have you raised to date? And what do you spend that on?
Paul Atherley: On
this, in the most recent times, we raised AUS$5.5M in the middle of last year.
We've spent most of that. And we're now looking to finalize the Study and then
as I say come to market with essentially, an IPO in the Autumn.
Matthew Gordon: And how are you going to split between ASX.. is it LSE or AIM?
Paul Atherley: It
will be standard listing on LSE. That starts to be decided. We have announced
we're coming. The methodology and the final arrangements have not been decided
yet, but we're definitely coming to a standard listing.
Matthew Gordon: Okay. That's great. So tell us tell us a little bit about the technical team. I'm just guessing you're not.
Paul Atherley: I
am actually. I'm a mining engineer.
Matthew Gordon: Right. Okay.
Paul Atherley: My
career .., I started underground mine, shift foreman. I've come all the way
through. This isn't about me I'm just..
Matthew Gordon: You sound like a banker.
Paul Atherley: I
spent a bit of time working in the bank industry as well. It's great we've just
employed a Mining Engineer by the name of Tim George. He's our CEO. He's ex
Anglo American. He's been based in Africa for many years. He's worked in Angola
before. And he's the guy driving all the technical stuff. The next time you
speak to the company you'll speak to speak to Tim. And he'll give you much more
detail about the technical aspects.
Matthew Gordon: Okay fantastic fantastic. And you've got a few other names on here. David, Mark, and Neal.
Paul Atherley: Well
Dave Hammond comes from Peak Resources. They've got this fantastic Rare Earth
project in Tanzania. Now Tanzania's going a bit slowly at the moment because of
Government issues, but a great project, great team. Dave has joined us and he's
a bit of a Rare Earth specialist. Very, very enthusiastic about our project.
Matthew Gordon: He's an active member of the team?
Paul Atherley: He's
fully active. He has been living in a tent in Angola next to the Project for
the last month and a half. Positioned off the diamond program. So he lives and
breathes it, loves it. And very very enthusiastic about it. But the other two
directors, you're indicating is Mark Hohnen and Neil Maclachlan. They're serial
offenders, if you like in terms of turning junior companies into very large
amounts of money.
Matthew Gordon: Some pretty big numbers here.
Paul Atherley: So
they turned sort of Kalahari to, it's about the same size we are today, into
basically a billion dollar company. And really this is what we look at in our
sector, as you know, we you come in a high-risk end ... the way we think about
it is that $5.5M last year was the high-risk raise. And we have drilled the ore
body and it wasn't there, that gets to zero. But he didn't. It's come up and
it's come out really well. It's come to be one the biggest ore bodies in the
world and one of the highest grade. So now this next raise is slightly less
risky. He takes us through more complex things. Things like the metallurgical
process, through things like the capital on operating costs, all of those. So
that by the time we get to the IPO, it's sort of two rounds of derisking. And
then you start looking at it many of us are looking at it in terms of what's
its valuation look like? What more capital do you need to bring that into
production? And maybe even start thinking
about what the cash flows look like. So it's derisking steps that we go
through. And in each stage you go from $20M to a higher value to high value.
Matthew Gordon: While we're on the team. Tell me a bit about you and looking at your description here, it's kind of interesting and unusual.
Paul Atherley: Well
I've got a background in... I am a mining engineer. I was hard rock miner. I
competed in the Queensland Rock Rolling rolling championships finals. I work I
worked in underground in a mine for Mt Isa, in Australia. And I worked my way up
sort of Mining Engineer, shift boss, Foreman, mine manager then I managed a few
gold mines. And then I made the transition into investment banking. I went in
as a junior as an investment banker then ended up as a Executive Director of
HSBC, in the resources sector. And then realized I was on the wrong side of the
table from people like you. You know I want to be the one raising the money
rather than the one providing the money. So raising capital doing what I do now
with mining people, is money is my day job.
Matthew Gordon: And I am what else are you involved with?
Paul Atherley: I'm
currently CEO of Berkeley Energia. And we been hugely successful in taking
another junior company.
Matthew Gordon: You have.
Paul Atherley: Funding
it to $120M. Funding with a sovereign wealth fund. Bringing that asset to
'ready to go'. Obviously, we've got some challenges with a change of Spanish
government, but that was a classic pathway. It was a junior company that with a
great team in Spain. And the great team around me, we took it through the
stages I've just described. And we attracted that tranche of capital that I'm
talking about $120M. And shareholders who came in 3yrs ago saw that company,
despite the Uranium price falling from $48 a pound to $17.50, to 12yrs lows, we
went up x5. And people made an awful lot of money in that 3yrs run. And
obviously it comes back now, because we've got this delay with the
externality, the externality of
politics. But the value. Berkeley has AUS$100M in the bank. And very good asset.
So the externalities affect you, but the actual internal aspects of the
company, the value is still there. All I'm saying to you and potential
investors in Pensana, this pathway that Mark Hohnen and Neil Maclachlan and
myself and others have been on, is very clear. You know for me, we only want to
be in projects that work. For me it's about an ore body, infrastructure, power,
water, all that boring technical stuff.
Matthew Gordon: All the usual stuff.
Paul Atherley: If
that works. If that's there. Then okay you're subject to market prices of the
commodity, currency... subject to those externalities that you can't control.
You can do your best. But from from an investment perspective, the project
itself looks very very good.
Matthew Gordon: It doesn't. Again we typically haven't today talked to much about the the asset, the technology the team etc.. because you tell us story well in the marketplace. I'm interested... and I'm assuming that what you say is true and therefore you're going to be able to deliver this one technical perspective...
Paul Atherley: Well
we all know in September. We've got the world's buggest engineering groups to
do the study.
Matthew Gordon: Exactly.
Paul Atherley: And
so there is risk between now and then, that some of the emphasis I'm putting on
it may change. Might go better...But broadly, you're relying on our team's
experience to say this is what it looks like today.
Matthew Gordon: Exactly. And you've got a team have done that before. So that's the comforting factor. So then it comes down to, is the story that you're telling with regards to where you fit in the EV story going to work? I mean how big is that space? How big is that market that you're going for? Do you represent 1% or 50% of it?
Paul Atherley: Okay
broadly because we're only producing concentrate. We're not producing a metal
or a magnet or an oxide. We're the only supplier of... We're looking to be the
only independent supplier of Rare Earth Concentrates...
Matthew Gordon: Outside of China.
Paul Atherley: Outside
of China now. Okay. There are some smaller..
Matthew Gordon: That's a small market right.
Paul Atherley: Well
it's a unique market. The uniqueness of it means that we think we'll be able to
command premiums because the Chinese need to diversify.
Matthew Gordon: Tell me why? I get the need to diversify that you should always do this... mitigating risk. But it's it's an unusual step for the Chinese.
Paul Atherley: It's
not so much a mitigating step. It's what's Tesla has being public on. Tesla are
concerned about the underlying supply chain, for things like magnets, and
things like cobalt. And so they look at... if they buy magnets from the
Chinese, they look at the supply chain. If the supply chain is all China. It's
not as good as, if the supply chain is geographically diversified. So hence if
we can be a Concentrate supplier to the Chinese Rare Earth processes, that's
attractive to them for diversification reasons. That's one area. The other is,
although the Chinese are 87% of the market there's another 13% of the market,
we can go there as well.
Matthew Gordon: What is this market size?
Paul Atherley: It's
about 160,000 tonnes of concentrate per year.
Matthew Gordon: What's that in dollars?
Paul Atherley: It's
Matthew Gordon: It's not huge. It's very niche.
Paul Atherley: But
really what's going to happen is, somebody and already as you're probably
aware... other companies are looking at this. People are a little wary about
having all the Rare Earth processing, magnet production in China and small
amounts in Japan. So right now there are
plans to look at building processing facilities in the UK and also in the US.
So as an independent Concentrate supplier, we are aiming to supply not just the
Chinese market, but also potentially UK, US and anywhere else.
Matthew Gordon: Right. And just talking about China, that Chinese connection. Does that negate any raising money from Chinese companies?
Paul Atherley: Yes.
We said we don't need any money from China. We're very, very confident that
raising money here. We've had a number of people with a list of people
approached us already. And said look post PFS (pre-Feasibility Study). We're
very keen to give you money. And it makes absolute sense to not take money from
the Chinese that keeps that independence.
Matthew Gordon: Absolutely. Absolutely. And then I guess just to understand the Tesla impact. Now they were kind of first to market. Thought leaders and a very vocal ex-CEO now. Why did they... why does their voice still resonate in the marketplace and is telling the Chinese what they should and shouldn't do?
Paul Atherley: They
use it as a proxy. When the Chinese say Tesla, they really mean all the
auto-manufacturer. So they just say Tesla because I know who they mean. But
obviously they've got the domestic suppliers and the external supply. So I just
use Tesla as a proxy for the auto-industry EV thought leaders. And they are
Matthew Gordon: They are. And but they've led the charge. I think they've done extremely well. So to finish up. Tell me why you think investors should be interested in your story now? Well and also when you come to London?
Paul Atherley: When
fidelity saw the story they said 'we want 10% of your stock. They bought 5% on
market.' And when they're asked why they bought it because they thought it was
a 20 bagger.
Matthew Gordon: That is all you need to say for that. Thank you very much for your time today.
Paul Atherley: Thank you.
Company page: https://www.pensanametals.com/
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