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 Atherly, 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.
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.
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?
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.
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?
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 highest grade.
Were in Angola.
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.
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?
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...
Explain that to people who might be thinking
conventional about conventional mining. So
what does it involve?
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.
A duel listing.
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
to completion.
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?
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 would say.
Okay okay okay. Say let's talk about what
this process is. Okay the question was in
a conventional mining... people unstandard
that you're are trying to find stuff under
the ground. You're talking the concentrate
which is high margin when times are good...
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%.
Right.
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.
Does the price... is erratic? What's it look
like for the last 5yrs?
The last 5yrs the Rare Earth prices have collapsed.
They are very, very low,.
So low base..
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 good today.
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.
Yes.
What have you got today? What have you spent
money on? What have you done? so what do you
know?
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 IPO.
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?
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.
And how are you going to split between ASX..
is it LSE or AIM?
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.
Okay. That's great. So tell us tell us a little
bit about the technical team. I'm just guessing
you're not.
I am actually. I'm a mining engineer.
Right. Okay. My career .., I started underground
mine, shift foreman. I've come all the way
through. This isn't about me I'm just..
You sound like a banker.
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.
Okay fantastic fantastic. And you've got a
few other names on here. David, Mark, and
Neal.
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.
He's an active member of the team?
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.
Some pretty big numbers here.
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.
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.
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.
And I am what else are you involved with?
I'm currently CEO of Berkeley Energia. And
we been hugely successful in taking another
junior company.
You have.
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.
All the usual stuff.
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.
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...
Well we all know in September. We've got the
world's buggest engineering groups to do the
study.
Exactly.
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.
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?
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...
Outside of China.
Outside of China now. Okay. There are some
smaller..
That's a small market right.
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.
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.
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.
What is this market size?
It's about 160,000 tonnes of concentrate per
year.
What's that in dollars?
It's about USD$3Bn.
It's not huge. It's very niche.
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.
Right. And just talking about China, that
Chinese connection. Does that negate any raising
money from Chinese companies?
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.
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?
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 very noisy.
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?
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.
That is all you need to say for that. Thank
you very much for your time today. Thank you
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