REG-Pensana Plc: Update on Finance for the Longonjo and Saltend Projects

PensanaAnnouncement

31/10/2023 07:30

31 October 2023

 

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

Pensana Plc ("Pensana" or the "Company")

 

Update on Finance for the Longonjo and Saltend Projects

 

The Company is pleased to provide the following update on the financing of
both the Longonjo and Saltend projects.

 

Highlights

 
* The engineering team has successfully completed a modular redesign of the
Longonjo mine and processing facility, with a total Capex of US$200 million.
* The technical and economic due diligence review of the redesign by South
African mining consultants, The Mineral Corporation, on behalf of ABSA Bank,
is scheduled for completion in November.
* ABSA which has been mandated as the lead arranger for a US$120 million loan
facility has provided high level commercial debt terms which include South
African export credit agency support. 
* FSDEA and a pan-African Multilateral Development Financial Institution are
working to provide the US$80 million equity investment required to support the
debt facility. 
* FSDEA has provided a $15 million bridging loan facility towards the US$80
million investment, which is available to meet operating cash flow
requirements to facilitate early-stage development and the route to main
finance.
* The Company is aiming to fully-fund the Longonjo project at the subsidiary
level, Ozango Minerais (84% Pensana), which owns 100% of the Longonjo
project and as a result the Company's holding in Ozango Minerais is expected
to reduce from 84% to ~64% at a read-through valuation of 66 pence per share. 
* An updated MIC is currently being worked on, which could potentially include
various additional tax incentives as a result of amendments to the private
investment legislation in Angola, including a reduction in the rate and
deferral in the payment of Corporate Income Tax rate along with a reduction in
the tax applicable to the distribution of profits and dividends.
* The Company is in advanced discussion with a number of parties for the
offtake of the highly marketable, radionuclide-free mixed rare earth carbonate
(MREC) and expects to be in a position to sign up to 100% of the production of
the high value, clean MREC from the Longonjo Processing facility.
* The proposed funding arrangements for the Saltend rare earth separation
facility remain largely as previously advised, with ABG Sundal Collier
recently confirming that it will place a bond for circa US$150 million and are
independent of the Longonjo financing.
* The Company is in early discussions with the UKIB and with other potential
equity partners for the balance of the funding, namely circa US$100 million
equity requirement at the subsidiary level and has received a UK Government
grant of up to £4,000,000 towards the funding requirement.
 

Paul Atherley Chairman commented: "The completion of the engineering redesign
together with the technical and economic sign off by The Mineral Corporation
during November is a very important step towards the execution of the
financing.

 

We are grateful for the ongoing support from FSDEA which is working closely
with us and the team at ABSA to secure the funding to allow the commencement
of construction at Longonjo in the first quarter of next year.

 

We have been pleased with the strong interest in the high value
radionuclide-free MREC product from Longonjo and are advancing a number of
offtake agreements as part of the financing.

 

We continue to progress the financing for the Saltend project which will be
independent of the Longonjo financing and as previously advised will be a bond
finance, however now with support from the UK Government."

 

Longonjo

 

The engineering team has successfully completed a modular redesign of the
processing facility, with a total Capex of US$200 million.

 

The redesign has been led by Project Manager Kevin Botha working with a team
of contractors including ADP, part of Lycopodium group and specialist in
modular minerals processing unit installation, with extensive experience in
Angola, ProProcess a hydrometallurgical specialist with extensive expertise in
modular processing plants throughout Africa and mining consultant Practara
which has completed the detailed mine redesign and scheduling.

 

South African mining consultants, The Mineral Corporation, is undertaking a
technical and economic review of the redesign on behalf of ABSA, which is
scheduled to be completed in November.

As previously announced ABSA Bank, the South African based multinational
banking and financial services conglomerate has been mandated as the lead
arranger for a US$120 million loan facility.

ABSA which has existing exposure to Angola's oil and gas sector and is looking
to expand its interest in the country has identified the Longonjo project as
an opportunity to gain exposure to the green energy sector.

High level commercial debt terms have been drafted which include South African
export credit agency support. These terms are expected to be finalised once
the sign off from independent consultants The Minerals Corporation has been
received.

The Company continues to work closely with major shareholder, the Angola
Sovereign Wealth Fund FSDEA. FSDEA is working with a pan-African Multilateral
Development Financial Institution to provide the US$80 million equity
investment required to support the debt facility.

 

FSDEA has provided a $15 million bridging loan facility towards the US$80
million investment, which is available to meet operating cash flow
requirements to facilitate early-stage development and route to main finance.

 

The Company is aiming to fully-fund the Longonjo project at the subsidiary
level Ozango Minerais (84% PRE) which owns 100% of the Longonjo project.

 

It is intended that the US$80 million equity will be invested
at the Ozango Minerais level by FSDEA and an African multilateral agency
and as a result Pensana's holding in Ozango Minerais will reduce from 84% to
~64% at a read-through valuation of 66 p per share at the Pensana level.

 

The valuation has been based on the independent third-party valuation prepared
in March of this year at the time of the proposed US$220 million strategic
equity investment by a multinational mining company.

 

Further tax incentives

 

The current Fiscal Terms currently in place under the Mining Investment
Contract (MIC) include:

·         2% royalty on revenue;

·         20% Corporate Income Tax rate and a 5% municipal tax on
taxable net profits following an initial six-year tax holiday;

·         Custom duties exemption on imported equipment;

·         Full 5-year capital repayment allowance;

·         Dividend tax exemption for 3 years.

 

An updated MIC is currently being worked on, which is potentially expected to
include various additional tax incentives as a result of amendments to the
private investment legislation in Angola most notably:

 

·         Reduction in the Corporate Income Tax rate, applicable for
a period of up to fifteen years;

·         Deferral of the payment of taxes for a period of up to six
years;

·         Investment Tax reduction applicable to the distribution of
profits and dividends, for a period of fifteen years;

·         An Investment premium (uplift) corresponding to the cost
recoverable and tax deductible in terms of the investment to be made for
mining and product marketing.

 

Offtake

 

The global market for radionuclide-free mixed rare earth carbonate (MREC) is
increasing. Demand from the rest of the world ex China is increasing due to
the expansion plans of existing downstream facilities in Europe, India and
Asia and the establishment of new separation capacity in the US and Australia.

 

To meet this increased demand the Company is in advanced discussion with a
number of parties for the offtake of the highly marketable, radionuclide-free
mixed rare earth carbonate (MREC) and has signed letters of intent for up to
100% of the Longonjo offtake.

 

Site based activities

 

Approximately 25% of the US$15 million FSDEA loan has been deployed over the
past three months on the following site-based activities:

 
* the continuation of onsite activities with earthworks contractors Grupo Nov
and electrical contractor, Elektra in preparation of commencement of main
construction;
 
* finalization of the preferred vendor re-pricing for the revised equipment
schedule;
 
* finalization of redesign of the monthly mine schedule and Run-of-Mine
blending strategy for years 1-5 to meet the redesign throughput rates;
 
* finalization of the optimized Tailings Storage Facility re-design;
 
* finalization of execution of the Livelihood Restoration Programme with the
local community under the Relocation Action Plan.
 

Saltend Update

 

Whilst the immediate focus is on the financing of the Longonjo project,
progress continues with the financing for the Saltend rare earth separation
facility. Rather than financing both projects contemporaneously as previously
proposed the Saltend financing will follow the Longonjo financing. The
financings are independent of each other with no financier in common between
the two projects.

 

The capital cost for the Saltend facility has been revised up to US$250
million from the previous estimate of US$195 million in May 2022. The increase
in the estimate is primarily due to the impact of inflation and a number of
design changes.

 

The engineering design has been completed, the site cleared, the preparatory
infrastructure works completed and the early-works contractors identified. The
project is ready to commence construction once the finance has been arranged.

 

The proposed funding arrangements remain largely as previously advised, with
ABG Sundal Collier recently confirming that it will place a bond for circa
US$150 million with its institutional investor clients for which the Company
has received green bond accreditation by Shades of Green (formerly part of
CICERO, now a part of S&P Global).

 

The Company is in early discussions with UKIB and with other potential equity
partners for the balance of the funding, namely circa US$ 100 million equity
requirement.

 

As with the Longonjo financing, it is intended to finance the Saltend project
at the subsidiary level as a stand-alone business with its own feedstock and
offtake arrangements rather than at the Pensana corporate level.

 

To this end and as previously announced Pensana has entered into an MOU with
offtake partners for 30% of the Saltend NdPr oxide production. These
arrangements recognize that Longonjo will initially be producing MREC and
allow for the ability to convert MREC offtake to oxide offtake in the future.
The Company is also in direct discussions with OEM's in the automotive and
wind sectors including Siemens, JLR, Volvo, Mercedes, GE and tier 1 suppliers
to the automotive sectors.

 

UK Government Support

 

By 2030 the UK is expected to transition from a being a major producer of
internal combustion engines to a world leader in electric drive units (EDUs),
producing three million EDUs annually, with a large proportion for export.
Without a secure magnet metal supply chain this is under threat.

 

As recently announced Nusrat Ghani, Minister of State at the Department for
Business and Trade and Cabinet Office, highlighted that the Saltend project
would be an important step in supporting the UK automotive industry which
employs 780,000 people and has offered the Company a Grant of up to
£4,000,000 towards the funding required to build a rare earth oxide
separation facility in the `Humber Freeport' at Saltend.

 

Pensana has been nominated by the UK Government as a partner under the
Minerals Security Partnership (MSP) between the US and its international
allies.

 

The information contained within this announcement is considered by the
Company to constitute inside information as stipulated under the Market Abuse
Regulations (EU) No.596/2014. Upon the publication of this announcement via a
Regulatory Information Service, this inside information will be considered to
be in the public domain. The person responsible for arranging for the release
of this announcement on behalf of the Company is Paul Atherley, Chairman.

 

- ENDS -

 

For further information, please contact: Shareholder/analyst enquiries:

Pensana Plc

Paul Atherley, Chairman

IR@pensana.co.uk

Tim George, Chief Executive Officer

Rob Kaplan, Chief Financial Officer



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