We approached the board at Mkango Resources Ltd last week on behalf of shareholders who had a number of questions regarding their most recent RNS of 11 December 2017. We thank Will, Alex and Derek for their swift response. All questions submitted are answered below.
1. On your last RNS the first £2m is indicated as being in Escrow, can you confirm this is actually the case and if so will this still go to the company if Noble default?
Yes I can confirm the £2m (the Songwe first tranche) is in the escrow account. This is a separate bank account of Fasken Martineau LLP, which is acting as escrow agent. These funds will be released to Lancaster Exploration (the subsidiary of Mkango which holds the Songwe licence) within a period of two business days of Mkango notifying Fasken of final approval by the TSXV following receipt of minority shareholder approval of the transaction. These are the only conditions of releasing the funds.
2. How long after your GM will the rest of the money be released by Talixis/Noble?
Within a period of two business days of Mkango notifying Talaxis of final approval by the TSXV following receipt of minority shareholder approval, the Songwe Second Tranche (£3m) and Newco First Tranche (£1m) will be invested by Talaxis into Lancaster and Newco, respectively.
Subject to receipt of minority shareholder approval and making an assumption on the anticipated times to receive the required final regulatory confirmations from TSXV, the Songwe First Tranche (£2m in escrow), the Songwe Second Tranche (£3m) and Newco First Tranche (£1m), a total of £6m, is expected to be received by Lancaster Exploration (in the case of Songwe tranches) and Newco (in the case of the Newco tranche) by the end of January 2018.
3. Why the need for minority approval,and who are the minority holders indicated in the last RNS?
Talaxis is the holder of 13.9% of the shares of Mkango and also holds warrants in Mkango. Therefore it is a related party of Mkango in the context of the transaction between Mkango and Talaxis. Whilst Mkango is dual listed in the UK on AIM, it is a Canadian company and dual listed on the TSX Venture Exchange, so we are also subject to Canadian rules and regulations. Under the latter, we need the approval of greater than 50% of the Mkango shareholders that vote, excluding the Talaxis shareholding, which equates to greater than approximately 43% of the total number of shares in order to proceed with the transaction assuming everyone votes. Talaxis are not allowed to vote on the transaction as they are a party to the transaction i.e. a related party. The minority shareholders are simply those shareholders excluding Talaxis (ie the remaining 86.1% of the shares).
4. How long will it take to rework the PFS on the Ni-Co asset?
Significant historical exploration was completed, including pitting, drilling and metallurgical test work, by previous operators on the Ni-Co asset, and given that a lot has changed in Malawi since that work and the very positive outlook for the nickel/cobalt market in light of the electric vehicle growth, we saw an opportunity to evaluate the project in that context. Furthermore, our other projects in Malawi have advanced significantly over this period, opening up opportunities for synergies.
In terms of the work programme for Chimimbe Hill, Mkango will evaluate the deposit in the context of geophysical data produced by the recent World Bank airborne geophysical survey of Malawi, recent infrastructure developments in the region, potential synergies with the Company’s Songwe Hill rare earths project and Thambani uranium-tantalum-niobium project, both in Malawi, options relating to sulphuric acid and / or alternative reagents supply, potential by-products, as well as opportunities to produce nickel and cobalt products for the battery electric vehicle market. This work programme will be funded out of existing cash resources. We anticipate this work programme taking 3-6 months, following which a decision will be made with respect to moving into the drilling and scoping stages of development, then to the PFS stage.
5. Some shareholders are questioning whether the the Ni-Co asset is economic because of low grades. What is your opinion?
Grade is not the only driver of economics – metallurgy will play a key role as will infrastructure, reagent supply, potential synergies, expansion potential, product type, nickel, cobalt and chrome prices. It is too early to say what the economics will be, but what I would say is that we believe the electric vehicle market will have a very significant positive impact on the nickel – cobalt sector and this project is effectively an option on that opportunity, with a low entry cost and significant upside potential. The project will benefit from improving infrastructure in Malawi and potential synergies with our other projects in the country.
6. If Talaxis takes up its option to secure project finance for Songwe and MKA is left with a 25% free carry on a $100m+ pa EBITDA mine… What valuation would MKA receive?
I am not at liberty to give a specific valuation number on this – it will also depend on the results of the feasibility study and the financing structure for funding project development. However, if Talaxis exercises its option by arranging funding for project development, the valuation of Mkango’s 25% free carried interest could be implied from the amount of equity that would need to be invested by Talaxis to earn its additional 26% under the option arrangement- the amount invested will be the equity portion of the total capital expenditure.
7. Can you outline your plans and update for the Thambani project?
Our strategy for Thambani hasn’t changed – we have ongoing discussions with potential partners and will update the market as soon as we have some news. The outlook for the uranium market is looking more positive and this project is geared to future recovery of the sector.
We anticipate 2018 being a very exciting year for Mkango and its shareholders.
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