Mkango Resources Ltd. (TSX-V:MKA) is currently a Canadian listed mineral exploration and development company focused on rare earth elements (REE) and associated minerals in the Republic of Malawi. It holds through its wholly owned subsidiary Lancaster Exploration Limited a 100% interest in two exclusive prospecting licenses in southern Malawi.
LSE Share talk have the first exclusive Q&A Pre-IPO interview with Alex Lemon (co-founder, President), Derek Linfield (Non-Executive Chairman) and William Dawes (Chief Executive Officer). Mkango Resources Ltd will list on the Alternative Investment Market 15th June2016 (AIM:MKA)
1) With your market cap at 2.4m after float and your high NPV values I note the same Rare Earth companies trading at $30m cap in Canada & Auz. Can you tell me more about this and why you are so undervalued in the sector?
Mkango has been under the radar for quite a while and one of our objectives in dual listing in the UK is to increase profile of the company and of Malawi as an investment destination, broaden our investment reach and close the value gap versus our peer group. Over the last five years we have advanced our rare earths project in Malawi from an early stage exploration target to an updated pre-feasibility (NPV10 US$345m), whilst a large proportion of our peers have fallen by the wayside or refocused on other sectors. So there are now only a handful of companies with advanced stage rare earths projects globally that are still focused on moving forward, of which Mkango is one. As the only focused rare earth company listed in London, coupled with our listing on TSX-V, we will be well positioned, as the market’s focus on clean energy gathers momentum, to close the value gap. The higher growth drivers of the rare earth market are similar to the lithium sector, i.e. cleantech, the difference being that, whilst the size of the rare earth market is a similar order of magnitude, there are now a much smaller number of active explorers and developers in the rare earth space – the rare earth sector has already been through its shakeout and the survivors will reap the benefits.
2) Is it correct you are the only real Rare Earth play on the market?
That’s correct, Mkango will be the only LSE listed company with the majority of its focus on rare earths and importantly, Mkango has an advanced stage project with a pre-feasibility study. There are now only a handful of active listed rare earth companies globally with advanced stage projects, i.e. pre-feasibility study or feasibility study, and still focused on moving their projects forward – only two are in Africa of which Mkango is one. It takes time, capital, the right kind of project and, particularly for the rare earth sector, technical expertise, to get a rare earths project to this stage of development, so it was a major milestone to get the project to this stage, something we did more cheaply and quickly than the majority of our peers. Once capital flows back into the sector, there are a very few advanced stage realistic projects, with low capex, available for investment in the rare earth sector globally.
3) Can you tell me more about Rare Earth and where the price is going of the commodity?
Rare earths are used in a very broad range of applications with the high growth areas geared to clean energy and consumer electronic applications. Approximately 50% of global rare earth demand is attributable to clean technologies and in terms of other technology applications we anticipate China, India and other emerging economies to fuel a long-term surge in consumer technology demand growth.
A key growth area is their use in high strength permanent magnets, used in hybrid and electric vehicles, wind turbines, computer disk drives, smartphones, and in the future, maglev trains, new refrigeration technologies and other new technologies. Other applications include fuel cracking catalysts, catalytic convertors, glass manufacturing, energy storage, lighting and medical applications. We anticipate that the rare earths used in permanent magnets (neodymium, praseodymium, dysprosium and terbium, which I call the “big four” rare earths), have the most favourable price outlook – and these account for over 80% of Mkango’s rare earth mix by value.
4) We hear a lot about your Rare Earth assets but can you tell me more about your Uranium assets i believe they are vast and only a few listed on the uk market like BKY ?
We have been more focused on the rare earths assets over the last few years, but our uranium, niobium and tantalum project at Thambani has very interesting exploration potential, with extensive radiometric anomalies at surface and encouraging grades from follow up ground-truthing and surface sampling. We have been less focused on this project in the current environment, but are very excited about its prospects as the uranium outlook improves. A systematic ground radiometric survey completed by Mkango previously revealed two distinct uranium anomalies, one measuring approximately 3km by 1.5km and a second measuring approximately 1.5km by 0.4km. Assay results from 142 soil and rock chip samples returned uranium, niobium and tantalum values ranging up to 4.70% U308, 3.25% Nb2O5 in soil and up to 0.42% U308, 0.78% Nb2O5 and 972 ppm Ta2O5 in rock chips, notably higher than results from the previous surface geochemical sampling program.
5) Will the UK listing and raise enable you to progress news events in the short term?
Yes we will certainly keep the market updated on activities which will focus on a number of key areas being: optimisation of our processing flowsheet, research and development in collaboration with a number of major research programmes, developments in Malawi and potential new growth opportunities. The main objectives are to further demonstrate to the market, strategic investors and off-takers that our project has strong and realistic potential to be a future low capex, lowest cost quartile, sustainable producer of rare earths, thereby providing a strong foundation for entering into partnerships, marketing and offtake arrangements. Whilst the pre-feasibility announced in November 2015 yielded a very encouraging NPV10 of US$345 million, importantly it also identified a number of areas where we can potentially reduce operating costs, so this is a key area of focus for our research programmes and processing flow sheet optimisation. I believe the key determining factor for success going forward is going to be positioning on the cost curve, and certainly from the discussions we have had to date that seems to be the major focus for potential private equity, strategic investors and off-takers, as well having a relatively low initial capex number.
6) Is it correct you will not be taking any physical money as salaries and overall expenses are very low which is unique?
The priority is to continue to move the project forward, despite very tough market conditions, as we believe that is how we can best create long term value for shareholders. Our overheads are relatively low and the executive team are deferring their salaries to prioritise expenditure. Furthermore, as founding directors of the company and having worked in Malawi for almost 10 years, we want to see this project developed in the future – it would be a huge boost to Malawi and would transform the lives of people in the local area for future generations. We have received tremendous support from the people and Government of Malawi and it will strongly validate Malawi’s investment credentials by bringing this project to fruition.
7) I note Malawi has infastructure and is very safe as a country can you tell me some interesting facts.
Malawi is known as the “warm heart of Africa”. It is English speaking with a stable operating environment and no history of conflict. We have operated there for approximately 10 years and, having worked in a number of other jurisdictions in Africa, Middle East and Central Asia, believe it to be of the better countries to work in from an exploration perspective with a great future as an investment destination. Furthermore, I believe Malawi is uniquely positioned to be a major future sustainable producer of rare earths. Malawi was the first country in Africa where carbonatites, the host rock for rare earths, were identified (in the 1930’s) – and since then the country has been the subject of leading edge, pioneering research in the sector. We have been fortunate at Mkango to have benefited from that knowledge and to be working with some real experts in the field as well as collaborating on cutting edge research in the sector.
There are four major rare earth deposits in Malawi within about 120km of each other, all previously drilled by the Japanese groups, JICA/MMAJ in the late 1980s, of which Mkango’s project, Songwe, is the now most advanced. What sets this rare earths mineral province apart are the infrastructure developments in the areas encompassing rail (the new Tete – Nacala line runs through Malawi), a paved road network (to within 13km of the Mkango’s site, the balance a gravel /dirt road), a new dry port planned on the rail line (within about 2 hours’ drive of Mkango’s project) and a number of power projects in the region.
8) Can you tell me in your own words why you believe Mkango Resources is unique?
Mkango will be the only dual listed TSX-V / AIM rare earths focused company. The company has delineated a substantial open pittable resource with significant expansion potential, our mineralogy and local infrastructure translates into a competitive cost position, and as once of the few listed advanced stage rare earths projects globally, with a project in an emerging rare earths mineral province, we are well positioned to benefit from the new green economy, and growth in cleantech and technological innovations.
Pictured from left to right: Alex Lemon ( Co- founder -President) William Dawes (Co – founder -CEO), Derek Linfield (Non-Executive Chairman).
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