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Pensana Up 2% On Offshore Wind Processing Hub – How Important Is This?

Tim Worstall
Tim Worstall trader
Updated 7 Jul 2022

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Key points:

  • Pensana is now signed up to green electricity for rare earths processing
  • The value of this depends upon opinions about ESG values
  • If investors think this important then it's important

Pensana Rare Earths (LON: PRE) shares are up 2% today on the back of their announcement of an offshore wind rare earths processing hub. The question for us is how important is this announcement – are we likely to see more of a move as a result? There are two possible answers here, each dependent upon how important we think fashion is in this industry. If we think that ESG (environmental, social, governance) issues are very important in the mining space then this is a significant announcement. If we don't, think ESG to be just largely passing fashion, then it's not important.

The announcement itself is that the rare earths separation plant that Pensana is building at Saltend is going to be powered, in part, by offshore wind energy: “Pensana will use the low-cost and resilient supply of low-carbon electricity to power the Saltend separation facility and then later to power the conversion of NdPr Oxide into magnet metal, making it the first in the world to use offshore wind to produce ultra-low carbon magnet metal.” That this wind power passes through a battery plant first will mean that the supply is resilient. Or at least more resilient, it's still not going to guarantee 24/7/365 wind power for the plant.

Which brings us to that ESG idea. If we think that using green energy to produce the metals to build green energy with is important then perhaps this is a significant announcement. Perhaps Pensana will be able to charge a premium over the Chinese prices of the same metals and oxides as a result of being greener? If so, then that's clearly positive news for the finances of the company in time.

Pensana share price
Pensana share price from IG

Also read: Five Best Green Energy Stocks 2022.

On the other hand if we think that ESG just isn't going to be that important in this field then it's not really all that much of an announcement. It's entirely possible to think that people building windmills (the major users of what this plant will produce, once up and running) will buy based upon price, or manufacturing quality, not the energy source used to produce. Therefore it will not be possible to charge an ESG premium and so, well, it's nice that Pensana is signed up for electricity supply but not actually important. Other than that they've got electricity.

The other way of putting this is how much will other investors worry about whether the ‘leccie supply is green or not? The more investors buy into the ESG story the more this boosts the PRE share price – the less then the less.

Of course, the real determinant of how well Pensana does in mining and processing rare earths is going to be what does the rest of the industry do? For there's a vast wave of investment into this field and it's entirely possible – possible, not certain – that there will be too much production in the medium term future. Whether that's going to be true or not that is the issue that will determine the Pensana share price in the medium term.

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