29Jun 2016

A brief overview of Mkango and the sector

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Mkango is a rare earth element (REE) company based in Malawi which is a proven area in the resources market, the area has good working relationships with other countries and has good political and local amenities for the mining sector such as transport and energy needs and requirements. Mkango has been listed on the TSX exchange for a number of years and has recently listed on the London Alternative Investment Market, 15 Jun 2016 http://www.investegate.co.uk/mkango-resources-ltd–mka-/rns/mkango-resources-announces-first-day-of-trading/201606150700092060B/

Raising gross proceeds of £1 million (approximately C$1.8 million) (the “Placing”). Under the terms of the Placing, the Corporation has issued 30,303,030 units (the “Units”) at a price of 3.3 pence per Unit with a Market Cap of £2.3 Million, Mkango trades on AIM market under the ticker symbol MKA.


Sitting from left to right: Derek Linfield (Non-Executive Chairman) Alex Lemon (Co- founder -President) William Dawes (Co – founder -CEO) speak to Share Talk about Mkango Resources admission to the London Alternative Investment Market 15th June 2016.

With an oversubscription, Mkango is now one of the very few listed rare earth companies globally with an advanced stage rare earth project, and the only focused rare earth company listed on the London Stock Exchange.

Following the company listing the French government announced a further funding of 10.2 million Euros to aid in the Malawi Geological Survey new airborne geophysical data.

“On 15th June 2016, Hon Bright Msaka SC, Malawi’s Minister for Natural Resources, Energy and Mining launched the five-year Geological Mapping and Mineral Assessment Project (GEMMAP) in Lilongwe, which encompasses ground truthing of the aforementioned airborne geophysical survey”.

The nationwide airborne geophysical survey was part of a US$25 million World Bank funded project. The airborne geophysical component of the project comprised the following:

  • High resolution airborne geophysics flown at 250-meter spacing
  • Uranium, potassium and thorium radiometric surveys
  • Magnetic survey
  • Gravity survey
  • Raw data production

Malawi was last mapped in the 1950s and 1960s using aerial photography with very limited follow up ground work. GEMMAP will be implemented by a consortium of the Malawian Geological Survey, French Geological Survey (BRGM), Council for Geosciences of South Africa and the Geological Survey of Finland (GTK).

Quote Alexander Lemon, President of Mkango, stated:

“We believe GEMMAP will significantly enhance Malawi’s credentials as an investment destination for exploration and mining and we look forward to spearheading development of the sector, working closely with the Government of Malawi. Auspiciously, GEMMAP was launched on the same day as Mkango’s very successful listing on AIM.”

Furthermore, we are excited to be acquiring the new airborne geophysical data covering the majority of the Phalombe and Thambani licences in Malawi, which have excellent potential for rare earths and uranium, respectively. We look forward to providing the market with further updates.”

With the mining resource sector having been in decline for the past 4-5 years, we may be seeing the cycle reversing with the sectors looks to be turning bullish. Over the same time period the demand for the REE products has increased but supply has been in decline, the Chinese has been shutting down illegal mines so thus the products Mkango has to offer to the world market are being sought after with a lot of scope for future growth.

So what are Rare Earth Elements…

Simply put they are technology metals and are divided into two groups: light elements and heavy elements based on their atomic weights. A further grouping termed critical rare earths (CRE) has been established due their importance to clean energy and potential low supply risks. This is due to them being used in the high strength permanent magnet sector (which currently has the most favourable supply demand outlook). They are used in Because of their unique magnetic, luminescent, and electrochemical properties, these elements help make many technologies perform with reduced weight, emissions, and energy consumption, and give them greater efficiency, performance, speed, durability and thermal stability.

Rare earth elements are used extensively in these industries:

  • Aerospace and Defense used in various equipment to varied to list
  • Health Care MRI and scanning machinery, laser for non-evasive surgery
  • Clean Energy such as wind turbines, wave and tidal energy capture

Electronics Mobile phones and computer hard drives, colour displays devices such as televisions, computer screens, and other display devices. They are also important for optical fibers, smartphones, and tablet computers.

Transportation and Vehicles Rare earth magnets have many uses especially in new generation vehicles designed to reduce energy consumption. For instance, they are used in the electric motors of many hybrid cars and electric vehicles and in batteries that power them. They are found in catalytic converters in cars and help reduce harmful air pollutants.

Chemicals, Oil Refining and Manufacturing They make the refining of crude oil into gasoline more efficient and are used in many specialty metal alloys. They are critical to these industries worldwide.

So where does Mkango fit in…

The technologies sector has grown immensely over the last decade and the worlds environmental concerns are changing as are the ways we view the world, until recently there were several mines operating worldwide, the Chinese over the last few years have shut down illegal activities in country, in the USA they suspended operations at Molycorp’s Mountain Pass mine in California in August 2015.

These element metals are rare in nature within a tight enough area to mine or the concentrates they are found in mean they are too expensive to mine, process and then sell at anywhere near a profit. Mkango have two projects the REE project is at Songwe hill and the second project is located at Thambani and has a high grade of Uranium in place over a large area.

Mkango currently are at the Pre-Feasibility Stage of their development but looking at all available information looks promising in regards to its peers before they have done the full assessment of grades and mineable elements. The study highlighted that the main areas of growth expansion and supply demand was high in the sectors that Mkango had the most recoverable quantities of. The forecasts highlighted that global annual demand for neodymium, praseodymium, dysprosium, terbium, and lanthanum oxide will exceed global annual production in the year 2020 by multiples of Songwe Hill’s proposed annual production, this is highlighted on the company’s website, low capital expenditure for these high grades of resources and the highest internal rate of return (IRR) make for an interesting prospect at this stage.

Songwe Hill Project

Mkango completed a Pre-Feasibility Study for the Songwe Hill Project in September 2014, which was subsequently updated in November 2015. The Pre-Feasibility Study is based on a conventional open pit operation using contract mining, a mine life of 18 years and is focused only on the Probable Mineral Reserve Estimate, this normally will be updated as it is an “estimate”.

The Songwe Hill Project features mineralisation on the northern slopes of a steep sided hill.

A summary of the key outputs of the Pre-Feasibility Study is presented in the tables below:

 

Total ore mined and processed

tonnes

8,482,603

Average strip ratio

x

4.5
Total waste mined

tonnes

38,441,726

Average life of mine TREO grade

%

1.60%

Mine life

years

18

Total REO recovered to concentrate

tonnes

48,275

Annual ore processed

tonnes

500,000

 

Project Owner CAPEX (US$m) Post Tax NPV (US$m) Post Tax IRR
Songwe Hill MKA CN 217 345 37.0%
Browns Range NTU AU 337 400 34.0%
Ngualla PEK AU 367 1,005 39.0%
Kipawa MAT CN 374 100 16.8%
Norra Karr TSM CN 378 313 20.0%
Bear Lodge RES CN 460 330 28.6%
Kvanefjeld GGG AU 1,631 1,400 21.8%

Thambani

High uranium grades in comparison to lots of producing mines over a large area measuring approximately 3km by 1.5km, this occurs along the length of the Thambani East ridge, with a north-south trend, and a second uranium anomaly, measuring approximately 1.5km by 0.4km is located nearby.

Mkango has completed a trenching program across the Thambani area. An initial set of 9 trenches, selected on the basis of initial test results were examined and samples from soil/overburden into bedrock taken.

The first set of assay results of these 142 soil and rock chip samples returned variably anomalous Uranium, Niobium and Tantalum values in most trenches, ranging up to 4.70%. these grades are invariably high when looking at other mines and their grades. A grade around 0.2% is normally considered a good find.

With the studies that have been done at this stage it looks like the cheaper cost open pit mining will be taken to bring the mine into production initially, will be interesting to see how this asset is developed.

Other considerations

Shares in issue are only 71,055,348 as of 15th June 2016 listing, the company’s website states that 31.5 % are not in public hands.

Fully funded for the next stages of the projects, with a Pre-Feasibility Study in November 2015, Mkango announced the results of an updated Pre-feasibility study for the Songwe Hill rare earth project:

  • After-tax net present value (NPV10%) of US$345 million and after-tax internal rate of return (IRR) of 37%
  • Initial Capex of US$216 million, including a contingency of US$20 million, remains among the lowest in the rare earth sector

Mine life is based on indicated resource only. They have drilled just enough areas to get the mine life needed for the pfs (for which you can only use indicated not inferred) so there is significant potential upside as well. Inferred resource would add substantially to mine life and this would also lower the strip ratio and costs – currently inferred resource in the proposed pit is treated as waste in the mine plan but in reality would likely be processed due to the high grades of recoverable elements.

There are areas of outcropping mineralisation which has yet to be drilled but know it is mineralised from surface sampling having only drilled a portion of the outcrop. There are a couple of slides in the presentation which show this. To the south they have yet to drill from the top of the hill where instinctively there should be good potential. I think they would have sufficient open pittable resources for a much longer mine life, probably well over 25 years with higher recoverable quantities as well.

Summary Highlights

  • A deliverable low capital / low operating cost advanced rare earth project at Songwe Hill in Malawi.
  • After Tax IRR of 37% among the highest of advanced rare earth development projects is generated from the lowest pre-production capex.
  • Uncomplicated, quarry style, mine development underpins the project’s low cost structure.
  • Independent market analysis shows the potential for the basket price of the prospective output from Songwe Hill to double by 2020.
  • In a market dominated by China, there is speculative upside on costs and demand due to them stopping illegal mining activities.
  • Rare earths’ key role in high-tech defense, industrial and renewable energy technology leads a number of countries to consider them strategic raw materials. Uranium grades at Thambani are compelling.
  • Demand for the main rare earth elements used in high intensity magnets represent around 80% of the value at Songwe.

On a closing note a refreshing high for a AIM listed company today is the board and directors investing in their own product.  With Mkango the directors have not taken a salary for the past year and will not take any financial remuneration for the coming year. Now that does make us sit up and pay attention.

We will let Derek Linfield (Non – Executive Chairman) explain Mkango’s take on their choose to reinvest in their own company!

LSE ST Article

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