Cavendish has initiated coverage of Mkango Magnetic Materials (formerly known as Mkango Resources Ltd (AIM: MKA, TSX-V:MKA) with a ‘buy’ rating and a 110p target price, implying around 166% upside from the 41.4p share price used in the broker’s 29 September research note.
The broker’s central investment case centres on HyProMag, Mkango’s rare-earth magnet recycling business, which uses patented Hydrogen Processing of Magnet Scrap technology to recover reusable alloy powder from end-of-life neodymium-iron-boron magnets.
Cavendish expects Mkango’s UK and German operations to progress toward commercial-scale production in 2027, while the company’s US joint venture targets first magnet production in the first half of 2027 and integrated recycling operations from 2028.
The broker forecasts group revenue rising from $15.5 million in 2027 to $70.5 million in 2028 and $98.3 million in 2029 as production ramps across the recycling platform.
Adjusted EBITDA is forecast to move from a $2.8 million loss in 2027 to a $27.5 million profit in 2028 and $44.2 million in 2029.
By 2031, Cavendish estimates the three HyProMag ventures could generate more than $60 million of annualised EBITDA at base-case production capacity, based on an assumed margin of around 50%.
The broker expects Mkango to become free-cash-flow positive in 2028, following the ramp-up of its European operations.
However, the forecasts assume Mkango secures a further $20 million, or around £15 million, of funding by the end of 2026. Cavendish said the capital would be required to support working capital during commercialisation and the proposed acquisition of University of Birmingham-owned equipment and infrastructure at the UK facility.
Cavendish assigns approximately 60p per share to Mkango’s recycling businesses and a further 49p per share to its proposed interest in MKAR, the planned Nasdaq-listed vehicle containing the group’s Malawi and Poland assets.
The broker identified completion of the MKAR transaction, commercial ramp-up in Europe and funding for the US project as important potential catalysts.
For investors, the valuation case therefore depends heavily on execution and financing. Cavendish’s forecasts imply a rapid transition from development-stage losses to substantial cash generation, but that requires additional capital, successful commissioning and production growth across several jurisdictions. Rare-earth pricing and the commercial performance of the recycling facilities remain further material uncertainties.
