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A third idea for research – I never intended to highlight so many pre-memo ideas and this is likely the last one for a while as I focus on additional memos as Mr Market offers up more compelling opportunities. However, with the announcement this morning of the Definitive Feasibility Study (“DFS”), I wanted to put Mkango Resources on your radar screens (Canada based but with a UK listing) until clarity on some of the issues noted below allow a full memo to be published
This really is a very early stage, pre revenue, pre mine construction idea and so is right up there on the high risk, small investment meter. Rare earth metals are key elements in ‘green’ technology and national defence technology. Most of the rare earths capacity globally is currently based in China, so this is potentially a highly strategic asset for the UK, Europe and the US with one of just a small number of rare earth mines that is construction ready worldwide.
The key risks remain around confirmation of the Mining Development Agreement with the Government of Malawi and the mine construction financing package (US$277m capex requirement), either of which will stop the mine development if they aren’t concluded satisfactorily. The company is also finalising the Pulawy separation plant feasibility study which could have significant valuation impact. Additionally, the market is concerned about a potentially large and dilutive equity raise as part of the financing, for a project that won’t start generating revenues until 2025
However, some key points as a case for review:
– The DFS highlights a mine post-tax NPV of US$559m vs. a current market cap of c.£45m, excluding upside from the separation plant to be constructed in Pulawy in Poland
– Announced a new CFO last week with highly relevant experience to lead the financing effort. During the week of 27th June 2022, the company hosted site visits for a number of major commercial and development banks
– Holds a minority stake in HyProMag, which is a UK based business leading the development of rare earth magnet recycling
– Recently announced funding at 27p via a convertible loan (a 29% premium to the current price) from CoTec Holdings Corp. (“CoTec”), an ESG-focused company investing in innovative technologies, securing £2m that should see the company through to securing project financing
– Owns further exploration assets for rutile, uranium and other metals
– Given the strategic nature of the asset, there’s a reasonable probability that the Songwe asset or the company will simply be acquired
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