Mkango is a rare earths (and other metals) explorer with three licences in Malawi
Songwe Hill (Phalombe) is the flagship project and is being developed in collaboration with Noble Group division Talaxis
Rare earths come overwhelmingly from China at present
New sources are required as demand elsewhere is predicted to soar as new application using super magnets grow
How is it doing
A significant investment at the project level from major commodities trader Talaxis is helping it along.
So far, Talaxis has committed £12mln at the project level, but with a feasiblity study well underway the presence of a major player in the world of commodities is providing investors with some food for thought when it comes to thinking about future funding.
The Talaxis investment as it stands will net out at a 49% interest for Talaxis once the project is taken through the bankable feasibility stage.
Once that study is published, Talaxis can take its stake up to 75% by arranging the finance to take Songwe Hill through to production and an arrangement that gives Mkango a 25% free carried interest.
A 60 tonne bulk sample was taken and shipped to Australia for analysis and arrived in August. Tests are ongoing. Meanwhile, the company has also appointed Senet as lead engineer.
The mineral resource for Songwe stands at 8mln tonnes grading 1.50% TREO (rare earth metals) measured, 12.2 Mt grading 1.35% indicated and 27.5 Mt grading 1.33% inferred.
Talaxis also made an investment totalling £2m in Mkango’s downstream arm Maginito, which has a collaboration in place with powder alloy pioneer Metalysis into permanent magnet manufacturing.
Permanent magnets are critical materials for most electric vehicles, direct drive wind turbines and many other high growth applications.
At Thambani, also in Malawi, Mkango has an agreement with MetalNRG for it to spend US$2mln on exploration for a 75% interest.
Uranium indications at Thambani were confirmed by a World Bank funded nationwide airborne geophysical programme.
Grab samples have also returned high-grade uranium, tantalum and niobium values, and Mkango continues to carry out detailed exploration work on the project.
What it’s worth
Broker SP Angel has suggested that when an additional investment into a downstream processing operation with Metalysis is taken into consideration, the overall implied valuation for Songwe Hill runs to a tidy enough £28.6mln.
And that, in turn, means that the interest in Songwe Hills that Mkango retains is worth 13.4p per share, according to calculations made by broker SP Angel.
The broker reckons that gives Mkango a 25% free carry on a 500,000 tonnes per year operation with a net present value between US$137mln and more than US$440mln
SP Angel though, reckons that if it exercises its option, Talaxis’s total commitment would amount to £176mln, and that the valuation read-across for Songwe Hill, allowing for the 25% that Mkango would retain, amounts to £235mln.
That, in turn, nets out at a total valuation of £58.7mln for Mkango’s stake compared to a market value of £9.75mln at 7.25p currently.
Metallurgical optimisation is underway for ore at Songwe Hill focused on flotation, hydrometallurgy and acid regeneration
Feasibility study at Songwe Hill expected in 2020, triggering production decision by Talaxis
Results from exploration at Thambani
The funds invested in Maginito by Talaxis will be used to advance complementary downstream opportunities in the rare earths supply chain, in particular new rare earth alloy, magnet and other technologies geared to accelerating growth in the electric vehicle market, including the Metalysis Joint Venture, says SP Angel.