Mkango’s 75.5%-owned Maginito downstream R&D venture has, via its 25% interest in HyProMag Ltd (a private group with patented technology for recycling REE alloys from scrap magnets) indirect exposure to the launch of an innovative UK project to develop the use of recycled rare earth magnets in electric vehicle ancillary motors.
The part grant-funded project has drawn the participation of several notable technology and motor groups, and marks tangible progress of Maginito’s ambitions in the downstream REE market. This is consistent with Mkango’s wider REE strategy, which remains based on progressing its Songwe Hill primary REE project in Malawi to feasibility study completion next year.
- REE magnet recycling partnership launched: HyProMag is a key partner in ‘Rare-Earth Recycling for E-Machines’ (RaRE), a UK grant-aided project to establish, for the first time, an ‘end-to-end’ supply chain to incorporate recycled rare earth magnets into new ancillary motor suites for electric vehicles. The project will utilise HyProMag’s licenced Hydrogen Processing of Magnet Scrap technology for extracting and demagnetising neodymium iron boron alloy powders from magnets embedded in scrap and redundant equipment. HyProMag will look to scale up HPMS and re-process the product back into new magnetic materials at a pilot scale to demonstrate the quality (magnetic behaviour, mechanical performance and corrosion resistance) of material which can be produced. Other project partners will be responsible for the scrap sorting process (Intelligent Lifecycle Solutions), incorporating the recycled magnets into custom-designed ancillary electric motors (Advanced Electric Machines Research, using Bentley Motors specifications) and subsequently developing a flexible assembly line suitable for producing 100,000 units per annum (Unipart).
- No funding call on Maginito: Innovate UK will grant-fund £1.9 m of the £2.6m project, with the balance to be funded by the various project partners. HyProMag’s £0.3m obligation is fully funded under the previously announced (January 2020) investment by Maginito, whereby Maginito invested £0.3m for a 25% stake in HyProMag and provided a £0.2m convertible loan facility (now fully drawn). Maginito has an option to increase its stake in HyProMag up to 49% and has first right to future supply of primary REE raw materials for blending with HyProMag’s recycled materials and to market the magnetic end products.
- Strategic fit with Songwe Hill: The launch of RaRE marks rapid progress under Maginito’s partnership with HyProMag and furthers Mkango’s ambition of developing sustainable REE material supply chains for the growing electric vehicles market. This strategy is underpinned by the Songwe Hill rare earths project in Malawi, which Mkango is advancing to feasibility study completion in H2 2021 using earn-in funding from Talaxis, a subsidiary of the Noble Group. We believe potential synergies could include blending of future primary REE product from Songwe Hill with HyProMag’s recycled material; enhanced access to downstream REE permanent magnet markets; and wider product offerings.
- Valuation: Mkango is trading below its current cash position, and is at a massive discount to the 12p of attributable value ascribed by Talaxis’ investment to date. We view the latter a minimum valuation benchmark – our risk-adjusted NPV of what would be Mkango’s eventual 25% share of our estimate of future cash flows if Talaxis exercises its option to project-finance Songwe Hill is c20p today, rising to over 4x this level at production (assuming magnet REE prices rise to a level we think will be required to incentivise sustainable new sources of supply).
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