With this week’s official opening of its Pforzheim facility in Germany, Mkango’s HyProMag has extended its rare earth magnet recycling and manufacturing capabilities into a second jurisdiction, Pforzheim joining the recently commissioned Tyseley facility in the UK as a commercial operator of the groundbreaking HPMS short-loop recycling technology.
We expect these operations to move Mkango into EBITDA positive territory by 2027, and with an investment decision imminent on a much larger-scale JV project in the US (which could open in H2 2027), we see a path towards c.$60m pa EBITDA potential at the Mkango level over the coming years. Future expansions are planned for all three assets – which if executed we think could more than triple our estimated steady-state annualised EBITDA over the longer term – while there is scope for the HPMS technology to be rolled out elsewhere.
- Pforzheim facility officially opened: Mkango’s HyProMag subsidiary has officially opened its rare earth magnet recycling and manufacturing facility in Pforzheim, Germany, at a ceremony presided over by Germany’s Federal Ministry for Economic Affairs and Energy. First commissioning runs of the key HPMS vessel were completed earlier this month and the jet mill for processing the high-grade NdFeB alloy powder product for subsequent magnet manufacturing has also been installed. As at Tyseley, NdFeB powder will constitute the early sales product, with value-added blocks and finished magnets taking a growing share of the product mix as powder processing, magnet pressing and finishing equipment is sequentially commissioned over the coming months (funding for which is in place following Mkango’s recently completed £12.5m equity fundraise). Once fully commissioned, the Pforzheim plant will have a minimum initial capacity of c.100t pa of NdFeB, increasing to c.350t pa with multiple shifts.
- Tyseley operational ramp up progressing: Meanwhile, HyProMag’s sister operation at the Tyseley Energy Park in Birmingham continues its operational ramp up, with over 9t of NdFeB produced since operations commenced late last year (of which over 7t has been shipped to customers). Sample magnets have been supplied to over 20 potential customers for qualification, for uses including in motors, medical devices and audio products. HyProMag is collaborating closely with customers such as Siemens AG, and qualification processes and offtake discussions will accelerate upon full commissioning of the remaining magnet manufacturing equipment at Tyseley over the coming months.
- Expansion options under evaluation: HyProMag is evaluating options to expand capacity at both the German and UK operations from its near-medium term targets of 100-350t pa at each to 750t at Pforzheim and c.1,000t pa at Tyseley over the longer term. Feasibility studies of both will firm up parameters. In the US, where a feasibility study of an initial 1,552t pa operation centred in Texas has already been completed by HyProMag USA (a 50:50 JV between Mkango’s Maginito subsidiary and CoTec Holdings), conceptual studies have demonstrated the potential to triple output within two years of start of initial operations through the development of replica HPMS hubs at the planned Nevada and South Carolina scrap pre-processing sites. CoTec is responsible for funding the US$142m capex for the initial phase, and last year announced that the US Export-Import Bank has expressed interest in participating up to US$92m. An investment decision on the US project is expected this half, with first production targeted for H2 2027.
- Valuation: After updating our risk-adjusted sum-of-the-parts valuation model for a slight relaxation of the risk ‘haircut’ applied to our NPV of HyProMag Germany following the major milestone of plant opening, and adjusting for Mkango’s recent £12.5m raise, our target valuation moves to 132p/sh. The latter comprises 55p for Mkango’s attributable share of the various HyProMag ventures (equating to a conservative 0.4x NPV) and 76p for Mkango’s interest in the to-be spun-out MKAR primary rare earths business (based on the US$400m valuation of its pro-forma initial shareholding prescribed under the proposed US SPAC transaction). We see scope for upwards rerating of Mkango’s shares towards our target as commerciality is demonstrated at HyProMag UK and Germany, as an investment decision is reached on HyProMag USA, and as the NASDAQ spin-out in the US of MKAR is completed over the coming months. We see considerable upside potential to our valuation if HyProMag expansion plans are progressed and de-risked, while we also note potential for the HMPS technology to be rolled out in other jurisdictions.
*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. Please read important disclaimers at the end of the attached document.
Nick Chalmers | Head of Research
T: +44 (0)20 4530 9179 | E: nchalmers@altrescap.com
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