As we all know by now, electric vehicles and wind turbines will be key for the energy transition towards achieving a net zero emissions future. In my review of "The Rare Metals War," I mentioned a company called Pensana PLC (LSE:PRE, Financial), which is building the world’s first sustainable magnet metal supply chain to meet all this burgeoning demand. In this discussion, I review why I think the company has a bright future.
Pensana’s rare earth mine in Angola is a great opportunity to help meet the transformational growth in demand for permanent magnets and diversify away from the world’s overreliance on Chinese supply. Total magnet rare earth consumption is forecasted to grow by a compound annual rate of 8.3% to about 250,000 tonnes by 2035, driven by EVs and offshore wind. For now, supply remains largely dominated by China.
Neodymium and praseodymium oxides are the unique materials used to make the permanent magnet components in EVs and wind turbines. If new independent primary magnet metal supply is not brought into production, China’s monopoly over these materials will persist, given it has over 90% of the world’s production.
London-listed Pensana’s goal is to become an alternative source for European automotive and wind turbine original equipment manufacturers. China’s own consumption for these minerals seems to mean that it will require all of its own production under its $11 trillion Carbon Neutral 2060 plan. China is on track to spend another $3.8 trillion on wind and solar through 2050.
Rare earth refinery in the United Kingdom
Pensana is developing its Saltend processing hub, located in northeast England, as an independent and sustainable supplier of these key rare earth magnet metal oxides. The $195 million facility is being designed to produce about 12,500 tonnes per year of rare earth products, of which 4,500 to 5,000 tonnes will be neodymium and praseodymium oxide, representing over 5% of the world market in 2025.
Powered by renewable energy, Saltend will be the first large separation facility to be established in over a decade and will be one of the few major refineries located outside of China.
The facility is located within the Saltend Chemicals Park, which used to belong to BP (BP, Financial), part of an important a cluster of new energies businesses in the Humber Freeport. The project will create over 500 jobs during construction and over 125 permanent jobs once in production.
In October, Pensana signed a memorandum of understanding with a major unnamed non-Chinese counterparty to offtake of 25% of annual production to supply critical raw materials for production of its magnet materials from Saltend. It is likely to be a large commodity trader given the press release said it was a “significant partner across the globe.” This deal gives me confidence Pensana’s plan is on track at this early stage.
The core feedstock to Saltend will come from the Longonjo rare earth project, which is an open pit neodymium and praseodymium mine located in Angola, in which Pensana has an 84% ownership stake. It is in the process of developing the mine with capital expenditure at about $300 million.
Longonjo is interesting, in a good way, and differs from other rare earth developments because of the low-cost mining of the “free dig” high-grade surface-weathered zone mineralization of the deposit. Also, the location is favorable given the project is adjacent to modern infrastructure and the company’s plan is to process on site and ship a low-volume, high-grade mixed rare earth double sulphate, thus reducing logistics costs.
According to the company, initial feedstock will be shipped as clean, high-purity mixed rare earth double sulphate from Longonjo, meaning it has a low environmental impact. The open-cast mine and state-of-the-art concentrator and proprietary mixed rare earth double sulphate processing plant was designed by the leading engineering and construction company Wood Group (LSE:WG., Financial). The project also has a patent pending on the processing methodology, which could be applied for other resources down the line. Pensana is also looking at packup supply to reduce risk should Longonjo, as a greenfield project, not ramp up when the U.K. refinery is ready. It is also looking at exploration at Coola, which could potentially add reserves to Longonjo’s forecasted 20-year life.
Europe’s policy targets
Another key differentiator for Pensana is that it wants to provide its customers with proof of provenance and an independently verified lifecycle certification of the raw materials. This will become increasingly necessary under the EU's 2023 Carbon Border Tax, which will require importers to buy goods with accompanying digital certificates showing the amount of carbon dioxide emissions embedded in their production so as to calculate carbon taxes.
The provenance of critical rare earth materials supply, life cycle analysis and Greenhouse Gas Scope 1, 2 and 3 emissions are, therefore, fast becoming important factors in supply chains for major manufacturers. For the miners who want to supply these supply chains, it is becoming increasingly apparent the proposed EU and possibly U.K. carbon border taxation would mean that it would no longer be possible for manufacturers to procure material extracted or processed unsustainably.
As a founding member of the European Raw Materials Alliance, Pensana is advocating for sustainable rare earth oxide production and separation capacity in Europe and is also looking into an innovative recycling facility. Back in January, the company announced it had signed a cooperation agreement with Equinor New Energy (EQNR) to share technical and commercial information about developing a low-energy method for recycling end-of-life magnets at Saltend. The potential size for this recycling facility would be an annual market of 4,000 tonnes of end-of-life permanent magnets.
Thr partnership with Equinor shows Pensana’s commitment to the circular economy and demonstrates its focus on producing a sustainable supply chain for these critical materials. Equinor is interested because it has major plans for the Humber hub with its "Hydrogen to Humber," or H2H in Saltend, going into phase two of the government’s cluster sequencing process. The government’s plan for the Humber hub is for it to be completely net zero, making it one of the world’s first industrial sites to be carbon neutral. At the very least, Pensana benefits from the halo effect as a partner in this government-backed scheme.
At Longonjo, which is now past the front-end engineering and design stage, Wood Group and Pensana have successfully piloted process simplification opportunities discovered in the mixed rare earth sulphate precipitation circuit. The piloting more cost-effective flotation concentrate calcining process, post-FEED, should enable a significantly shorter lead time for fabrication and ease of installation at Longonjo. Also, its carbon footprint will be reduced through more efficient reagent consumption at the plant.
Moon-shot cars
In September, Pensana signed an agreement with car manufacturer Polestar, of which Volvo (OSTO:VOLV A, Financial) is a significant shareholder, on its ambitious target of creating the first truly climate-neutral car by 2030. The scope of the Polestar 0 project is to identify and eliminate all greenhouse gas emissions from the extraction of raw materials to when the car is delivered to the customer and onwards to the end of vehicle life.
Polestar has partnerships with suppliers across the value chain, from raw material suppliers to retailers, including Boliden (OSTO:BOL) for metals, Norsk Hydro (OSL:NHY, Financial) for zero-carbon aluminium, SSAB for fossil-free steel, Sekab for bio-based chemicals and ZF for electric powertrains. This world-class research and innovative thinking on the Polestar 0 project is another great partnership for Pensana.
Conclusion
While Pensana currently has a Standard listing on the London Stock Exchange, management has said it is working on upgrading to the Premium listing category, which will enable it to join the FTSE U.K. benchmarks.
This should happen in the next several years and, by then, the company, if everything goes to plan, will have been significantly de-risked as its projects develop. The stock should also have a higher valuation.
Benchmark inclusion will add further upside, but right now the stock is worth considering as Pensana is uniquely positioned to benefit from the strong demand undoubtedly needed to facilitate the global energy transition. Additionally, European original equipment manufacturers will enjoy having a more local, sustainable source of key rare earth magnet metal oxides.
Since Pensana has all the characteristics of a hot growth stock, I am strongly considering it for my portfolio.
