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Pensana, PRE, Up 4% On No News – What’s Happening?

Tim Worstall
Tim Worstall trader
Updated 19 Apr 2022

Buy Pensana Shares Your Capital Is At Risk

Key points:

Pensana (LON: PRE) shares are up 4% in London this morning. There’s no particular news to drive this so what is the price changing like this?

As background Pensana is attempting to create an integrated rare earths supply system. That means mining the rare earths themselves, producing the concentrate, then doing the difficult and expensive part, separating them. This could work, it’s certainly possible that it might. It’s also worth recalling that the last people to try this, Lynas, needed an entire recapitalisation after they tried it. But perhaps this time will be different.

In terms of Pensana’s activities, there’s little to criticise. That doesn’t mean there’s nothing wrong in there – no one should ever be that categoric. Rather, to those who understand the rare earths market they are doing a series of things which seem sensible. We’ve remarked upon this about Pensana before.

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The difficult part of the whole rare earths game is in separating out the 15 lanthanides, one from each other. To do that in full requires a plant that costs of the order of $1 billion – that’s what it did, in the end, cost Lynas who built the last outside China one. It’s not, not really, difficult to do the work. But it requires iteration after iteration of solution in acid and that just means a large plant.

Pensana has already made one sensible decision, which is that the modern world doesn;t actually want all of the rare earths, it just wants the magnet materials, So, extract only those. This cuts the capital cost of that plant they’re building.

But a large plant means that you want to have homogeneous feed in large quantity. You don;t want to be messing with a bit like this from here, a bit like that from elsewhere. Thus having a processing pant means that you’d either like to have your own mine or a contract with a large-scale mine. Pensana is building it’s own mine too.

This makes sense given the realities of that separation technology.

So, given that they’re being sensible in those two basic decisions, are there any potential problems? To which the answer is yes – what’s everyone else doing?

The problem here is that the rare earths market is smaller than most people realise. Yes, it’s expected to grow hugely and all that but it’s still only 150,000 tonnes a year at present. That’s globally, including all the work in China. It’s more like 40,000 tonnes – at most – outside China. This means that the biggest influence upon any one would be rare earths miner is what are all the other would be rare earth miners doing?

How many other people are going to come to market with their own mines, their own separation plants? Is this going to mean supply expanding faster than demand, leading to a slump in rare earth prices as we had back in the 2013- 2015 time span?

Which is the other calculation that affects the Pensana share price. In the absence of any detailed news from Pensana itself – as now – there’s still the influence of the news from all of those other would be competitors. As it looks like there might be less competition – or more demand – then Pensana will benefit and as news of more then vice versa.

Tim Worstall
Tim Worstall is a freelance writer specialising in economics and the financial markets.