Pensana Metals releases positive PFS
KEY FACTS: Pensana Metals (ASX: PM8) has today released a positive Preliminary Feasibility Study (PFS) for its 84%-owned Longonjo rare earths project in Angola. Following recent exploration and other test work, the company anticipates an open pit operation producing an average of 56,000t/y of NdPr over a nine-year life. The project will have an initial capital cost of US$131m.
The focus of the PFS is on the initial development of the highest grade portion of the near surface weathered zone mineralisation. The production target and forecast financial information in the report are based on both Indicated Mineral Resources (80%) and Inferred Mineral Resources (20%). The open pit mine will have an average depth of 25m and a negligible strip ratio. The company is designing the project on the highest standards of ESG compliance from the outset.
The company has continued progressing the project towards a Definitive Feasibility Study (DFS) to ultimately fast track development studies aimed at starting production as soon as possible. In order to receive the Mining Title, the company is submitting the required Financial, Technical and Economic Feasibility Study (EVTEF) and the environmental impact study (ESIA) to the Angolan government in 4Q19.
Detailed front-end engineering studies have commenced and Pensana anticipates advancing the project to start construction activities early in 2020. Construction is expected to take 12 months followed by 2 months of commissioning. The Longonjo Project has received significant support from the Angolan government and national media interest as a flagship foreign investment in the government’s efforts to diversify the economy.
The company has used concentrate prices derived from market forecasts by Roskill and using the base case Pensana reports total EBITDA of US$1,319m for the project with a pre-tax IRR of 101% and a 13-month payback.
Pensana recently announced that it is in the process of applying for a standard dual listing on the Main Board of the LSE. The company is expecting to make an institutional equity raise following the release of the DFS around the time of the listing on the LSE.
COMMENT: This positive PFS confirms our earlier thoughts that this is a world-class rare earths mine in the making. It now allows the company to progress towards a DFS and fast track the development of the mine, which has the potential to be a significant NdPr producer outside China and the first major rare earth mine to be developed since 2012.
The capital cost outlined by Pensana has been designed to keep upfront capital costs low although excludes contingencies. The lower upfront capex is helped by Pensana’s strategy to ship a concentrate directly to China to be refined, unlike many other rare earths projects which plan to also refine the concentrate and results in a significantly higher capital cost. The project also benefits from access to recently developed nearby power and rail infrastructure which results in a considerably lower funding requirement than that for many other projects of equivalent size.
There is significant scope to increase the mine life and improve the project economics because less than 20% of the Inferred Mineral Resource is contained in the life of mine plan. Further infill drilling has good potential to convert more Indicated Resource to Inferred Resource. The company has already contracted further infill drilling that is scheduled to commence this month and is aimed at demonstrating the conversion of additional Inferred to Indicated Resources.
Furthermore, the high grade, near surface mineralisation still remains open in several directions, offering the potential for further extensions to the Mineral Resource estimate with additional drilling. There is also the potential to exploit the unweathered mineralisation beneath the existing resources at a later stage of operation.
The evaluation has been conducted on a pre-tax basis as the company does not yet have approval for its EVTEF which should provide for certain reliefs over the initial 6-year period of operation.
We published a detailed note on Pensana Metals’ rare earths project on 13 September 2019 and will follow up with a further report looking more closely at the PFS in due course.