Rare earth permanent magnets are critical to enabling the green transition given their prominent role in prevailing wind turbine motor and EV drivetrain technologies. Keen to reduce reliance on imports from China – the world’s dominant supplier – Western governments are encouraging the development of alternative, secure rare earth materials and magnet supply chains.
However, rare earth prices are languishing well below the levels needed to incentivise the development of new primary projects of scale.
Recycling presents an alternative, but how to overcome the challenge of commercially and sustainably liberating magnets in scrap from products that were not designed with end-of-life recycling in mind? Mkango’s HyProMag business offers a solution via an exclusive licence to commercially roll-out the novel Hydrogen Processing of Magnet Scrap (HPMS) recycling technology that enables NdFeB magnets to be demagnetised and extracted as powder directly from scrap feed without the need for costly and energy-intensive dismantling and thermal treatment.
Moreover, HPMS facilitates the shortest available recycling loop, as the resulting powders can be fabricated back into commercial-grade magnets. Mkango is targeting commercial start-up at HyProMag’s UK operations in Q1 2025, and scaling up thereafter.
A similar plan is being rolled out in Germany, where first production is also targeted next year, while a 50:50 JV (in which Mkango is carried through funding) is evaluating a larger ‘hub-and-spoke’ development in the US. The next 12 months thus look set to be transformational for Mkango as it emerges as a market-leading recycler of vital rare earth magnetic components.
- UK operations targeting commerciality in Q1 2025: Underpinned by c.US$100m of historic R&D investment, including extensive piloting over the past two years at the University of Birmingham (UoB), Mkango’s HyProMag UK subsidiary – exclusive licensee of the HPMS technology patented by UoB – is co-developing a commercial-scale HPMS operation at the Tyseley Energy Park in Birmingham. Designed with a minimum capacity of over 100t pa NdFeB output, commercial production is targeted for Q1 2025 based on an initial 20% capacity utilisation. Subject to acquiring full-ownership of the largely grant-funded equipment, Mkango plans to scale up thereafter, eyeing ultimate production capabilities of over 300t pa NdFeB products.
- German and US roll out to follow: A similar scale development is underway in Germany, the €6m project c.60% backed by EU grants. Orders for key equipment have been placed, and first production is targeted for 2025. Mkango is also rolling out HyProMag’s recycling technology in the US via a 50:50 JV with ESG-focussed critical minerals group CoTec Holdings. A feasibility study is underway for a >500t pa modular ‘hub-and-spoke’ operating model, whereby initially three HPMS recycling ‘spoke’ operations will feed a central NdFeB magnet and alloy manufacturing ‘hub’ in Texas. Completion is expected by year end, with a development decision following in 2025. Mkango is carried through study and subsequent development funding.
- Strong governmental backing: HyProMag’s recycling technology has been selected as a key project to support by Minerals Security Partnership, a pan-government group (including the UK, US and EU) established to support the development of secure supply chains of minerals critical to meeting net zero-carbon targets. Alongside the UK and German grant funding, this underscores the considerable state backing for HyProMag’s potentially revolutionary HPMS technology.
- Valuation: With the caveat that our forecasts are speculative in nature at this stage given uncertainty on scrap and product pricing variables ahead of commercial production (and on funding uncertainty), our preliminary analysis of the HyProMag businesses indicates potential for EBITDA to Mkango of >US$50m pa by 2028, when all three ventures could be operating at full scale (with upside potential on expansion and/or roll out in new markets). Our heavily risk-adjusted NPV of 18p implies c.3x upside – we think operational progress over the next 12 months and demonstration of sustainable commerciality should be catalysts for a material market re-rate.
*Mkango Resources is a corporate broking client of Alternative Resource Capital, a trading name of Shard Capital Partners LLP which is authorised and regulated by the Financial Conduct Authority (FRN: 538762). This is a marketing communication, intended for qualified and professional investors only, and has not been prepared in accordance with legal requirements to promote the independence of investment research.
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Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN: 538762). Shard Capital AIFM LLP is authorised and regulated by the Financial Conduct Authority (FRN: 615463). Shard Credit Partners Limited (FRN: 702785) is an appointed representative of Shard Capital AIFM LLP. This can be verified on the FCA’s Register at their website, https://register.fca.org.uk. Shard Capital Limited is a service company to Shard Capital Partners LLP and Shard Capital AIFM LLP.
