Mkango – Noble International Noble Group (SGX: N21) – China Investment Corporation (CIC) Q&A
Share Talk last covered Mkango Resources LON:MKA on the 19th December 2016 when they updated the markets with the following announcement.
Noble is one of world’s largest commodity traders and the largest in Asia, with a presence throughout the region. It is listed on the Singapore Stock Exchange with a market capitalization of approximately US$1.5 billion.
Before we proceed to the Q&A we looked more closely at the RNS’s on the 19/12/16 and the two specialist institutional funds, the Rare Earth Elements Fund and Metals Exploration Fund, as major new investors in the Company.
Below we have put two links and we will let investors carry out their own due diligence.
This is the official site of the Rare Earth Elements Fund, which is a niche fund under Swiss law* that invests worldwide in companies with activity in mining, refining and manufacturing of Rare Earth Elements. By respecting a Mine to Market concept the fund promises to benefit from the whole value chain.
Going forward, we anticipate tremendous corporate activities in the very fragmented Explorer market. Takeovers, merger and joint-ventures combined with a inherent high leverage to the underlying metal prices should offer above average investment returns for Explorer shares over the next decade.
Question & Answers
1/ In the RNS there was no specific details as to what the joint venture will bring to Mkango apart from a route to market – can you give further details on this as any production joint venture partner (that we still need) would have an established route surely?
A financial or strategic partner is the most likely route to fund development of the project. A financial partner would not necessarily have the marketing expertise – a route to market is critical for success in the rare earths sector – Noble brings that expertise to the table through the collaboration with Mkango. In terms of a strategic partner, i.e. a partner also interested in the project for strategic reasons such as offtake or to increase market share or to diversify supply, the biggest market for rare earths and therefore the most likely location of a strategic partner is Asia, a region where Noble has significant presence and network of relationships – Noble is the largest commodity trader in Asia.
So in both these cases, Noble brings a lot to the table and significantly enhances Mkango’s potential to advance the asset. Specific services to be provided by Noble to Mkango are as follows:
- Identifying the optimal markets and counterparties for Mkango’s future rare earths production from the Songwe Hill rare earths project in Malawi, during the bankable feasibility study and in advance of mine development;
- Identifying the best strategy for the Project’s product mix given the international market for different rare earths concentrates and separated rare earths oxides, and advising Mkango on the way forward;
- Identifying the optimal logistics route to take the Project’s production to market;
- Introductions to potential strategic partners to finance development of the Project; and
- Assistance in market-related discussions with key stakeholders, including Mkango’s financial, technical and legal advisers, prospective investors and lenders and relevant government agencies associated with the Project.
2/ What other joint venture parties/options were there? Why the Noble group?
Noble is the largest commodity trader in Asia and has an excellent network of relationships in the region. Asia is the biggest market for rare earths. Noble is also active in Africa. So Noble was the preferred option.
3/ No fee from Noble and taking warrants at 6.6p sounds like a good structure and as you say ‘aligns Noble with shareholders’. Why was the transaction structured in this way?
The transaction was a win-win result for both parties. Through the warrants, Noble is aligned with shareholders and will participate in the upside as the project advances. From Mkango’s perspective, the services provided by Noble put us in a very strong position to advance the project and by providing Noble with equity incentivisation as opposed to cash, we preserve our current cash position as much as possible with potential future cash injection from the warrants.
4/ With the news of the Joint Venture came a fund raising to the sum of £450,000 at a premium to the share price, what will the funds be used for?
The main uses of proceeds from the Placing include optimisation of the processing flow sheet and evaluation of product marketing options to facilitate further marketing, offtake and partnership discussions, as well as evaluation of additional opportunities. So the use of proceeds are aligned with the objectives of the Noble transaction.
5/ Why the specific involvement of China Investment Corporation (CIC), China’s sovereign wealth fund?
CIC is a significant shareholder of Noble, a reflection of Noble’s credentials in the region.
6/ The rare earth element fund and metals exploration fund each holding 3.6% of the shares in the company, what was their due diligence process? who are they and what other projects have they got ongoing?
We have known these funds for some time and they have been following Mkango and progress with the project over the last 6 years. We are very pleased to have them on board as major shareholders, particularly given their specialist knowledge of the sector.
7/ It seems that the joint venture news was somewhat muted with the placing, why did Mkango not raise after the news with a higher share price and thus less dilution?
The placing was complementary to the Noble deal, hence announcing it at the same time, and was at a premium to the then share price. In our view, the way it was structured was in the best interests of shareholders, providing certainty of execution on good terms without the market volatility and discount normally associated with a placing in the UK market.
8/ In your quarterly report you announced a cash injection of €150,000 from the European unions Horizon 2020 will that be used as working capital or is there a specific use for that money?
This funding will be used for expenditures in relation to the HiTech AlkCarb Project. The HiTech AlkCarb project is funded under the European Union’s Horizon 2020 Research and Innovation programme, to develop new geomodels and sustainable exploration methods for alkaline igneous rocks and carbonatites. It has four main objectives.
- Develop new geomodels to explore for ‘hi-tech’ raw materials (such as the rare earth elements, scandium, niobium, tantalum, zirconium, hafnium and fluorspar) associated with alkaline rocks and carbonatites.
- Improve and develop interpretation of geophysical and downhole data in order to understand alkaline rock and carbonatite systems down to depths of approximately one kilometre.
- Build exploration expertise in hi-tech raw materials, and to ensure knowledge exchange between Europe and Africa.
- Assess environmental and socio-economic impacts of mining for these raw materials, and develop best practice.
This project has received funding from the European Union’s Horizon 2020 research and innovation programme.
9/ With the radiometric survey and recent visits from HiTech AlkCarb and SoS Rare, there were other targets highlighted in the Phalombe licence area – what are the plans for these areas?
The additional rare earth targets highlighted in the Phalombe licence area are exciting areas of exploration, which could potentially increase the company’s future rare earth resources. However our current priority is to advance the Songwe project through the feasibility stage to the development stage. These additional prospective areas give future blue sky prospectivity for the company and increase the long term strategic significance of the opportunity.
10/ With the rare earth aspects seeming to be starting their news flow what is the plan for your uranium asset? Is there a plan that you are working towards?
Our preferred option for Thambani is to bring in a partner to move the project forward, however we will look at all options and opportunities to create value for shareholders with respect to this project.
11/ What is the expected newsflow for the near and midterm and what steps will be taken to achieve these?
Mkango will continue to work towards a number of objectives over the next 6 months and to update the market as we make progress on these milestones:
- Continue to explore strategic partnership, funding and marketing / offtake opportunities for Songwe in collaboration with Noble
- Joint venture or similar value adding transaction for Thambani
- Flotation optimization for Songwe in conjunction with SoS Rare and other parties
- Evaluation of alternative flowsheets for Songwe in advance of bankable feasibility study
- Further R&D in conjunction with HiTech AlkCarb
- Evaluation of new opportunities
Following the transaction with Noble and recent placing, we are very well positioned to advance the project and deliver on these milestones.
12/ Why raise funds when you said you didn’t need to, what was the reason to change your minds?
In common with most exploration companies, Mkango has an opportunistic strategy, and if we see an opportunity to create value for shareholders via an opportunity or transaction which requires additional funding outside existing requirements then we obviously consider it. This applies to the recent transaction with Noble and placing, and will remain the future strategy of the company.
The placing was complementary to the Noble deal. Two new institutional funds invested. The placing was at a premium, contrary to what normally happens in the UK. There was no warrant attached, contrary to what normally happens in Canada.
We are not currently planning a further placing and have working capital for the foreseeable future.
13/ Do you see Noble group delivering on today’s agreement as they are a big commodity company that are not very hands on.
Thank you to all the people who submitted their questions and to Mkango Resources LON:MKA management team for answering all the questions Share Talk submitted.