Mkango Resources (AIM/TSX-V:MKA) 8.8p, Mkt Cap £9.6m Broker Notes


Drilling programme to boost Songwe Hill Rare Earth Project green REOs



• Industry consolidation and broad upgrading of production quotas is cutting back illegal mining across China improving supply clarity, price stability and limiting environmental degradation.
• Drive for ethical metal sourcing highlights the substantial cost of rehabilitating unsanctioned activity, estimated at $30bn.
• Chinese government environmentally-focused legislation is restricting oversupply, drawing down swollen inventories and bringing the market into balance.
• Fundamental to green technology application, rare earth oxide consumption is benefiting expanding ‘high-tech’ markets.
• Weight-saving potential of permanent magnets (PMs) is creating the biggest blind spot in the raw metals EV supply chain for rare earth elements.
• Neodymium ‘NdPr’-based motors enable 15-20% battery capacity savings in Li-ion EVs to significantly enhance driving range and usability.
• Significant demand for new and upgraded wind turbines each using ~600kg of REO alloys per MW could raise wind power capacity to 1.9TW by 2050.
• Mkango NdPr production could represent >80% of sales for the new Songwe Hill REO mine.
• Talaxis’ funding gives a clear investment and development pathway to take Songwe Hill into production by end-2021.
• Phase 1 investment has rapidly advanced the most comprehensive drilling programme to date aimed enhancing geological, geotechnical and geophysical characteristics to maximise Songwe Hill resource potential and BFS.
• Joint R&D Venture with Metalysis aims to help Mkango to move further downstream to expand high-value sales.

Conclusion: Our longer-term target price of 27.9p is based on Mkango’s 25% interest in the project post the Talaxis investment for construction of the project due on the release of the Songwe Hill BFS in late 2019 or early 2020. Our target focuses on the Talaxis transaction valuation and their option to provide project finance upon a favourable BFS, which estimates a project valuation of $235m. We recognise there are risks achieving this target and apply a 50% discount to the valuation, which will be sequentially reduced as management hit development milestones and improve confidence towards first production. We look forward to the first target milestone of an updated resource statement by the end of 2018.


*SP Angel act as Nomad and broker to Mkango Resources. The analyst has visited the Songwe Hill exploration site.



John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

James Mills – 0203 470 0486

Sergey Raevskiy – 0203 470 0474

Phil Smith (Technology) – 0203 470 0475

Zac Phillips (Oil & Gas) – 0203 470 0481



Richard Parlons – 0203 470 0472

Jonathan Williams – 0203 470 0471


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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.



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