# Pensana “six months of considerable progress”

- Link: https://www.directorstalkinterviews.com/pensana-six-months-of-considerable-progress/4121059002
- Published: 2022-03-30T07:47:08+01:00
- Author: Amilia Stone

**Pensana Plc** ([LON:PRE](https://www.directorstalkinterviews.com/company/pensana-rare-earths-plc/pre.l)),
building the world’s first independent, sustainable rare earth magnet metal supply
chain, has announced its unaudited results for the six months ended 31 December 
2021.

**Half Year Highlights**

 * Initiation of geotechnical drilling and trenching at both the Saltend and Longonjo
   sites ahead of main construction activity
 * Appointment of highly experienced natural resources financier Steven Sharpe as
   Non-Executive Director of the Company
 * Total comprehensive loss for the period of $4,235,572 (31 December 2020: $1,717,491)

**Post period end**

 * Front-End Engineering Design for both Saltend and Longonjo completed and value
   engineering ongoing
 * Approaches received from major European and US electric vehicle and wind turbine
   OEMS to secure magnet metal supply chain
 * Memorandum of Understanding executed with key Asian trading house for 50% of 
   Saltend’s production
 * Financing well advanced, including potential support from the UK government’s
   UK Export Finance and the Automotive Transformation Fund
 * Successful institutional equity placing of £10 million with M&G, one of the UK’s
   largest and long-standing fund managers
 * Increasing engagement with UK and US generalist institutional investors following
   M&G’s 5% direct investment and the appointment of Head of Investor Relations 
   and Communications

> **Comment from Paul Atherley, Chairman:**
> “We have seen six months of considerable progress for the Company as we look to
> establish an independent and sustainable magnet metal rare earth production facility
> at Saltend in the UK to meet the burgeoning demand from the electric vehicle and
> offshore wind sectors. Both the Saltend and Longonjo projects have been brought
> to FEED status, with financing and offtake discussions being well advanced.”

**CEO’s Review**

**COVID-19**

Whilst Covid-19’s grip on the world continued to be felt over this six-month review
period to 31 December 2021 (the “Period”) the team, alongside our key technical 
advisors progressed unabated on the key workstreams of FEED, geotechnical drilling
and pilot plant test work on the Saltend and Longonjo projects. Operational readiness
programmes saw the work packages for Saltend and Longonjo delineated to high levels
of accuracy and the Group’s management team strengthened with key appointments to
the Board and our business development team in Japan and Europe. M&G’s £10 million
equity investment which completed post period end  was a further significant institutional
endorsement towards the Company’s strategy of becoming the world’s first major new
rare earth mine in over a decade and the critical rare earth processing hub for 
the UK.  The strategic relevance of these projects has been highlighted by ongoing
engagement with several EV makers, OEMs, large industrials and potential downstream
partners.

**Rare earth supply continues to take centre stage**

Pensana’s Saltend Chemical processing facility is at the forefront of efforts to
break the UK’s dependence on China for supplies of rare earths, critical elements
used in the manufacture of permanent magnets, which are used in green technologies
such as EVs and wind turbines. China produces more than 98% of the world’s magnets
and is preparing to tighten its grip on the market by combining three of its huge
state enterprises to form China Rare Earth Group that will control 70% of China’s
output. Following recent comments by MP Alexander Stafford, Chair of the APPG on
ESG, vice-chair of the APPG on Hydrogen, and vice-chair of the APPG for Critical
Minerals that “China’s dominance of rare earth metals has left Britain strategically
vulnerable”, politicians in Europe and the US are supporting efforts to diversify
supply chains. Recent events in Europe have further highlighted the significance
of ensuring diversification away from the world’s traditional reliance on fossil
fuels, and we believe Pensana will directly benefit from supportive UK Government
policies by building the facility within the Humber Freeport.

**Saltend rare earth processing hub (“Saltend”)**

Pensana is establishing Saltend in the Humber Freeport zone and alongside the Wood
Group, have designed the facility to be easily adapted to cater for a range of rare
earth feedstocks. This is an attractive alternative to mining houses who may otherwise
be limited to selling their products to China. In addition to our plans to process
Longonjo’s feedstock material, discussions have advanced with third parties over
the Period for the additional supply of sustainably sourced rare earth carbonates.

Importantly for many miners around the world who are looking to access the European
and US supply chains, it is becoming increasingly clear that the planned EU and 
potential UK carbon border taxation means that it is no longer acceptable for manufacturers
to source material extracted or processed unsustainably. Once in production, Pensana
will look to expand production capacity when additional feedstock becomes available.

**Project delivery**

FEED for each of Saltend and Longonjo completed post-Period end. A comprehensive
value engineering and optimisation programme is well advanced and is expected to
be reported next month and is expected to result in further reduction in capital
costs.

Working alongside Wood Group’s Perth, Reading and Johannesburg offices, Paradigm
Project Management (PPM), a specialist Africa centric project management and engineering
company, and Professional Cost Consultants (PCC), with offices in South Africa and
the UK, the estimated capex has been reduced from US$525 million to US$494 million(
Saltend: US$195 million and Longonjo: US$299 million).

Worldwide supply chain constraints and inflationary pressures brought about by Covid-
19 and the recent Ukraine-Russia conflict, which could have impacted both Saltend
and Longonjo projects, have been largely mitigated by this detailed optimisation
and value engineering processes. 

Specific workstreams involving capital and operation cost savings currently underway
include:

 * Spent acid regeneration to maximise the recycling efficiency of the sulphuric
   acid plant integrated with off-gas from the calcining of concentrate at Longonjo,
   which is an important aspect of the process and constitutes a significant reduction
   of the carbon footprint through reduced reagent consumption
 * Piloting on a more cost-effective flotation concentrate calcining process offered
   as a vendor alternative post FEED, which would enable a significantly shorter
   lead time for fabrication and ease of installation at Longonjo
 * Optimisation of Saltend’s civil & earthworks for load bearing structures undertaken
   alongside the completion of detailed geotechnical investigation, which will shorten
   the construction period and allow for future affordable expansion into downstream
   activities associated with magnet metal production, magnet recycling and processing
   of HREO
 * Piloting of process simplification opportunities discovered in the MRES precipitation
   circuit in Longonjo

**Corporate**

**Board and key company appointments**

As previously announced in September 2021, highly experienced natural resources 
financier Steven Sharpe was appointed as Non-Executive Director of the Company. 
Steve’s experience in the finance space alongside his intimate knowledge of the 
rare earth industry has proven invaluable to date. As we move towards main financing,
Steve’s experience and guidance will be a key component in the team progressing 
this workstream.

The Company has also appointed experienced ESG professional Danny McNeice as [Sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
Manager. He will provide technical and strategic guidance to the business to embed
ESG throughout because of his local Yorkshire experiences in the Drax fold and their
carbon footprint mitigation activities.

A key market for the Company is Japan, and Pensana is pleased to announce the appointment
of experienced marketing executive Junji Kitaguchi as the Company’s marketing representative.
Junji has extensive experience of business development and directed power, environmental
and infrastructure-related businesses as General Manager of Mitsubishi Corporation
Europe & Africa. He most recently operated as a senior advisor within Mitsubishi
corporation creating a joint venture with a major European utility company.

**Angola**

At a macroeconomic level, Angola’s economy continues to de-risk. Their handling 
of the Covid pandemic has been commendable and with a Fiscal Surplus on the back
of oil prices and a Debt to GDP ratio falling from 135% to 95% in 2021, it was not
surprising to see Moody’s upgrade Angola’s credit rating to B3 with a stable outlook.
Anglo American, De Beers, Rio Tinto and others are now re-investing in the country.

Pensana will host a UK Department of International Trade trip to Angola at the end
of this month. The visit includes delegates from several major mining houses and
UK Export Finance. As part of the trade summit, the delegation will be visiting 
the Longonjo site, traveling via the recently upgraded US$2 billion Benguela railway
line, which provides a direct link from Longonjo to the Port of Lobito.

These are extremely positive developments for Angola and a true reflection of their
ongoing ambitions to place the country on a strong growth trajectory with specific
focus on critical technology minerals, agriculture and tourism sectors.

**Exploration**

Good progress was made in advancing exploration activities on Longonjo’s neighbouring
Coola License despite Covid 19 travel restrictions preventing international geological
consultants from entering Angola during a large part of 2021.

Soil samples collected over the Coola carbonatite complex in 2020 were re-assayed
for scandium (Sc) and fluorine (F). Scandium in the soils is highly anomalous with
most values >80 ppm. This is significant as, although scandium is not an uncommon
element, exceptional values of over 200 ppm occur at Coola. Late-stage hydrothermal
fluorite veining occurs in fenite to the southwest of the ring dyke over an area
of roughly 30 000 m2. The fluorite occurs in breccias as discrete coarse purple 
grains and irregular veins varying from a few mm to over 20 cm of pure purple fluorite.
Fluorine in re-assayed soils over the known fluorite occurrence reached values as
high as 21% F. An outcrop sample of a fluorite vein proved to be of very high-grade
material (> 97% CaF2).

The primary focus of exploration during the second half of 2021 was on the Coola
carbonatite following up the rare earth element, scandium and fluorite mineralisation.
The carbonatite complex at Coola was mapped in detail and soil and rock chip sampling
completed over the ring dyke to ascertain the nature, degree, and extent of rare
earth element and scandium mineralisation. In addition, infill soil sampling and
rock chip sampling was completed over the area of fluorite mineralisation and an
augering programme of the soil covered central diatreme was successful in sampling
the underlying saprolite. Detailed mineralogical work has also commenced on a selection
of Coola rock types.

A total of 750 individual samples were taken and dispatched to Nagrom in Australia
for analysis. Seven selected rock samples were sent for mineralogical studies. Analytical
results and mineralogical studies are expected to be completed by late Q1 2022. 
Assay results received from the soil sampling programme at Monte Verde alkaline 
complex identified an area of roughly 5 km2 of > 0.5% TREO (max 2.0%) corresponding
with mapped outcrops of carbonatite breccia in which up to 1% TREO was encountered.
The REE mineralisation is accompanied by highly elevated levels of phosphorous, 
barium, iron, tantalum, manganese, niobium and strontium.

At the Sulima alkaline complex, extensive trenching was identified from satellite
imagery corresponding with a well-defined radiometric anomaly. Fieldwork confirmed
the presence of five one to seven metre deep, NE-SW trenches of roughly 90 m length
and 500 m apart, excavated over a strike of 2200 m. Material in and around the trenches
comprises predominantly secondary iron and manganese oxides and hydroxides. Handheld
XRF analysis of material from the trenches indicated elevated iron, manganese, titanium,
chromium, zinc and barite. Rock chip samples from various trenches and outcrops 
in the area were taken and have been submitted for whole rock geochemistry. Various
other geophysical anomalies identified within the Coola License remain to be followed
up with stream sediment sampling, mapping and rock chip sampling.

**Environmental, Social and Governance**

Progress continues to be made towards ensuring Pensana upholds the highest standards
of ESG throughout. The ESG Committee, under the Chair of non-executive director,
Baroness Northover, continued to refine the Committee’s terms of reference to oversee
effectiveness of our framework, policies and systems for ESG management and integration
across the Group. To demonstrate this, Pensana became a signatory to the United 
National Global Compact, a partner of the Taskforce for Climate-related Financial
Disclosure (TCFD) and a launch partner of the _Oh Yes! Net Zero_ campaign to promote
net zero and climate action across the Humber region. These actions underline the
Company’s commitment to transparency and further efforts have included testing the
robustness of the Group’s strategy under future climate scenarios.

Pensana remains focused on climate risk. In addition to becoming a partner of the
TCFD, a comprehensive transitional climate risk and opportunity assessment was completed
over the period, including testing the business strategy against external climate
models. HCV Africa have been instructed to carry out a physical climate risk assessment
for Longonjo and have included a specialist climate hydrologist in their team to
ensure any future climate impacts on water supply are assessed.

At the Longonjo site, the Environment and Social Impact Assessment (ESIA) has almost
completed under the leadership of independent experts HCV Africa and Groupo Simples.
These independent organisations have ensured adherence to the International Finance
Corporation (IFC) Environmental and Social Performance Standards has been achieved.
The ESIA will provide a framework against which Pensana will manage and monitor 
its ESG performance at Longonjo.  Once completed, this document will be submitted
to the Angolan government for mutual agreement.

As part of the resettlement action plan (RAP), mapping of all land in the affected
area has been completed. As a result, minor changes have been made to the project
boundary to minimise impact on the local communities. This has been a key area of
focus for the team, and we are pleased to report, there will be zero displacement
of the local community from their physical residences.

**Agreement with Equinor to recycle end-of-life wind turbine nacelles using innovative
Hydrogen process**

In January, it was announced that Pensana had signed a cooperation agreement with
leading energy provider, Equinor, to form a working group to share technical and
commercial information to develop a low energy method for recycling of end-of-life
magnets at Saltend. The partnership with Equinor supports Pensana’s commitment to
the circular economy as it looks to recycle an addressable annual market of 4,000
tonnes of end-of-life permanent magnets.

Recycling permanent magnets utilising hydrogen not as fuel, but as a reductant, 
whilst benefitting from the decarbonised power supply within Saltend, offers a clean
alternative using 88% less energy than virgin magnet manufacture and aligns with
Pensana’s continued efforts to produce a sustainable supply chain for these critical
materials. Equinor has submitted plans for its ‘Hydrogen to Humber (H2H) Saltend’
hydrogen production facility into phase two of the Government’s Cluster Sequencing
Process. The facility will be supported by the potential supply of hydrogen to Pensana
and other regional hydrogen users, which could be a world first and a catalyst for
the Humber to achieve net zero.

**Conflict in Ukraine**

Russia’s invasion of Ukraine has added increased concerns to an already constrained
global supply chain and rising inflationary pressures. The Group has no direct exposure
to the region, nor do we anticipate sourcing any equipment or materials from the
area, however we continue to monitor the situation in the context of the contagion
effect it is having on Europe and the global economy.  The Board has agreed to incorporate
specific measures around procurement, the awarding of contracts and any associated
workstreams involving external third-party service providers so as to ensure the
Group is in no way exposed to countries on the sanctions list.

**Operating and Financial Review**

During the period the consolidated entity incurred a comprehensive loss for the 
period of $4,235,572 (31 December 2020: $1,717,491).

Administration expenses increased to $3,670,738 (31 December 2020: $2,010,316) as
a result of increases in PR fees, consultancy fees and increased employee costs 
due to an increase in staff members driven by a ramp-up to construction at Longonjo
and Saltend.

The foreign currency exchange loss decreased from $621,652 to $410, 204 for the 
six months ended 31 December 2021. These losses arise from the settlement of invoices
in currencies other than the functional currencies (USD, GBP, AUD), as well as the
translation of balances denominated in currencies such as the pound, Australian 
dollar, etc. to the US dollar rate where the balances are held in currencies other
than the functional currency of the relevant company and reflect the movements in
these currencies during the respective periods. 

Group net assets decreased in the period to $31,968,192 from $36,168,634. This was
primarily driven by a decrease in cash and cash equivalents of $12,251,234, as well
as a decrease in trade and other receivables of $3,449,092.  These decreases were
partially offset by an increase in property, plant and equipment of $11,216,164.
The loss of $4,080,914 incurred during the period further contributed to the decrease
in net assets.

The decrease in cash was due to cash spent on the Longonjo and Saltend projects 
of $11,407,614. Similarly, the increase in property, plant and equipment was the
result of the capitalisation to the Longonjo Project development asset of $7,677,072,
as well as the capitalization of assets under construction at the Saltend facility
of $3,555,777.

The decrease in trade and other receivables was due to the receipt of funds following
the equity raise in FY21.

The Group experienced net cash outflows from operating activities of $4,204,325 (
31 December 2020: $1,971,930). 

Net cash outflows from operating activities increased due to an increase in operating
losses.  Net cash outflows from investing activities of $11,407,586 increased from
cash outflows of $3,172,186 at 31 December 2020 due to cash spent on the additions
to the Longonjo and Saltend projects as noted above.  The decrease in the cash inflows
from financing activities from $8,576,685 for the six months ended 31 December 2020
to $3,360,677 for the six months ended31 December 2021 was due to the decrease in
the proceeds from the issuance of equity.

The Directors have prepared a cash flow forecast for the period ended 30 June 2023.
The forecast indicates that whilst the Group has sufficient funding to meet its 
corporate and general operating costs, the Group will require additional funding
over the next twelve months to meet its committed and planned exploration and development
expenditure related to the Saltend and Longonjo Projects. Please refer note 3 to
the financial statements for more detail on the going concern statement.

Accordingly, the Directors have resolved to undertake certain mitigating actions
including actively engaging with institutional investors and financing institutions
in the United Kingdom and Europe to discuss opportunities around potential future
financing in anticipation of key project investment milestones as part of the business
plan being reached and the associated funding requirements attached thereto. Such
additional funding will be required to meet the Group’s committed and planned development
expenditure across the forthcoming year.

The ability of the Group to continue as a going concern is dependent on securing
such additional funding given its forecast expenditure above. These conditions indicate
a material uncertainty which may cast significant doubt as to the Group’s ability
to continue as a going concern and therefore it may be unable to realise its assets
and discharge its liabilities in the normal course of business.

**Principal Business Risks**

The Group is exposed to a number of risks and uncertainties which could have a material
impact on its long-term development, and performance and management of these risks
is an integral part of the management of the Group. An overview of the key risks
which could affect the Group’s operational and financial performance was included
in the Company’s 2021 Annual Report, which can be accessed at [www.pensana.co.uk](http://www.pensana.co.uk/).
These may impact the Group over the medium to long term; however, the following 
key risks have been identified which may impact the Group over the short term.

**Financing and liquidity**

The Company is of the opinion that the Group has sufficient cash to meet its day
to day corporate and operational working capital requirements and currently committed
exploration and development expenditure, however post announcement of FEED and final
investment decision expected by Q3 FY 2022, the Group will furthermore need to raise
additional capital based on the forecasted exploration and development expenditures
costs related to rollout of the Longonjo and Saltend projects and the Coola exploration.
The Group has no history of NdPr oxide production at its planned Saltend facility
nor mineral production at the Longonjo Project and accordingly has no revenues from
operations and negative cash flows and will require additional future capital in
the short term to continue its exploration activities and to commence development
of the Saltend and Longonjo Project.

**COVID-19 pandemic and Ukraine-Russia conflict**

The outbreak of the COVID-19 pandemic has had an impact on the Group’s businesses.
The government lockdown in Angola led to a temporary suspension of work at the Longonjo
Project albeit that work has now resumed. Further escalation of the COVID-19 pandemic,
and the implementation of any additional government-regulated restrictions which
delays the Group in carrying out its business activities at the Longonjo and Saltend
Projects (such as preparatory works) ultimately delays the Group’s ability to reach
production and start to generate cash and so could have a material adverse impact
on the Group’s operations and financial results. Additionally, the recent Ukraine-
Russia conflict has created increased uncertainty and volatility in debt and equity
markets alongside increased inflationary pressures, supply chain constraints and
increased FX volatility which may make the requisite funding for the Longonjo and
Saltend Projects more difficult to secure or affect the terms available.

Mr. Tim George

Chief Executive Officer

29 March 2022

**INDEPENDENT REVIEW REPORT TO** **PENSANA PLC**

**Conclusion**

Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial report
for the six months ended 31 December 2021 is not prepared, in all material respects,
in accordance with UK adopted International Accounting Standard 34 and the Disclosure
Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.

We have been engaged by the company to review the condensed set of financial statements
in the half-yearly financial report for the six months ended 31 December 2021 which
comprises the condensed consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed consolidated statement of
changes in equity, the condensed consolidated statement of cash flows and the related
notes.

**Basis for conclusion**

We conducted our review in accordance with International Standard on Review Engagements(
UK) 2410, “Review of Interim Financial Information Performed by the Independent 
Auditor of the Entity” (“ISRE (UK) 2410”). A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review
is substantially less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 3, the annual financial statements of the group are prepared
in accordance with UK adopted International Financial Reporting Standards (IFRSs).
The condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International Accounting 
Standard 34, “Interim Financial Reporting”.

**Material uncertainty related to Going Concern**

We draw attention to note 3 to the half-yearly financial report concerning the Group’s
ability to continue as a going concern. The matters explained in note 3 indicate
that the Group will require additional funding to meet its planned expenditures,
that the required capital has not been secured at the date of this report and the
availability of such funding is not guaranteed. As stated in note 3, these conditions
indicate the existence of a material uncertainty which may cast significant doubt
over the Group’s ability to continue as a going concern. Our opinion is not modified
in respect of this matter.

Based on our review procedures, which are less extensive than those performed in
an audit as described in the Basis for conclusion section of this report, nothing
has come to our attention to suggest that the directors have inappropriately adopted
the going concern basis of accounting.

This conclusion is based on the review procedures performed in accordance with ISRE(
UK) 2410, however future events or conditions may cause the group to cease to continue
as a going concern.

**Responsibilities of directors**

The directors are responsible for preparing the half-yearly financial report in 
accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom’s
Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for
assessing the company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of accounting
unless the directors either intend to liquidate the company or to cease operations,
or have no realistic alternative but to do so.

**Auditor’s responsibilities for the review of the financial information**

In reviewing the half-yearly report, we are responsible for expressing to the Company
a conclusion on the condensed set of financial statement in the half-yearly financial
report. Our conclusions, including our conclusions in the Material Uncertainty related
to Going Concern section, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.

**Use of our report**

Our report has been prepared in accordance with the terms of our engagement to assist
the Company in meeting the requirements of the Disclosure Guidance and Transparency
Rules of the United Kingdom’s Financial Conduct Authority and for no other purpose.
No person is entitled to rely on this report unless such a person is a person entitled
to rely upon this report by virtue of and for the purpose of our terms of engagement
or has been expressly authorised to do so by our prior written consent.  Save as
above, we do not accept responsibility for this report to any other person or for
any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

London, UK

29 March 2022

BDO LLP is a limited liability partnership registered in England and Wales (with
registered number OC305127).

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