Mkango Resources (MKA.TSX.L) Vertical integration ambitions gather momentum

The formalisation of plans to develop downstream processing in Europe is a major milestone for Mkango as it advances its vertically integrated ‘mine-refine-recycle’ strategy.

Development of the proposed REE separation facility in Poland will enable Mkango to add value to the purified mixed REE-enriched carbonate that it plans to produce from its Songwe Hill mining project in Malawi, increasing margins and enhancing marketing flexibility through the production of separated oxides attractive to a broader range of potential customers.

The site benefits from excellent existing infrastructure, a skilled local workforce and direct access to key processing reagents from its Polish partner’s existing chemicals facility. This should ensure favourable operating costs, while the central European location provides good access to international markets.
 

 
The latter is of great strategic significance given growing demand for diversified (non-China) secure supply chains from REE-dependent developers of ‘green’ technologies and other strategic applications. Complementing both Songwe Hill and Mkango’s rare-earth magnet recycling initiatives in the UK, development of the plant will thus uniquely position Mkango as a supplier of sustainably sourced REE products across the full REE life cycle.

  • Downstream processing plans evolve: Following extensive due diligence, Mkango has entered into a strategic alliance with Polish chemicals group Grupa Azoty Pulawy (GAP) to collaborate on the development of a REE separation plant in Poland to further process purified mixed REE carbonate from Mkango’s planned Songwe Hill mine in Malawi. An exclusive lease option over a site adjacent to GAP’s large-scale fertiliser and chemicals complex at Pulawy has been signed. Located in a special economic zone, the site offers potential tax incentives and excellent access to key European and international markets.
  • Targeting 2kt pa NdPr oxides: The plan envisages an initial production rate of c2,000tpa of separated neodymium/praseodymium (NdPr) oxides – the key ‘magnet’ light REEs crucial to many ‘green’ technologies – but also a heavy REE enriched carbonate containing c50tpa of dysprosium and terbium oxides. Though principally envisaged as a hub for further processing of Songwe’s REE carbonates, Mkango will also assess the potential to process third-party feed.
  • Low operating cost structure expected: The plant will utilise best-in-class conventional and proven technology, benefiting from excellent existing rail and road infrastructure, a skilled local workforce, on-site engineering/project development expertise and, crucially, direct supply of key processing reagents from GAP. Mkango expects that this will yield a “highly competitive” operating cost structure, a conclusion corroborated by scoping studies undertaken to date.

Next steps: A feasibility study will now be rolled out, running in parallel with the ongoing feasibility study of Songwe (scheduled for completion by the end of this year). Technical consultants (including REE separation experts Carester) will be supported by GAP and Mkango’s Chief Technical Advisor Mike Vaisey (formerly of Lynas Corp). Mkango has also appointed an experienced Polish in-country director to oversee its newly established subsidiary, and has begun engaging financial institutions with a view to accelerating development of the plant.

Valuation: We await more detailed guidance on the expected cost structure of the planned facility and completion of the Songwe Hill feasibility to refine our cash flow model. However, our preliminary analysis points to operational EBITDA potential of over US$150m pa (100% basis) from such an integrated development, and read-through equity-attributable value for Mkango today of at least 40p/share, rising to well over 100p once full-scale production is attained.

*Mkango Resources is a 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 | Partner

T: +44 (0)20 7186 9003 | M: +44 (0) 7559 910 874 | E: nchalmers@altrescap.com

www.altrescap.com

Valuing your data privacy:

To ensure we comply with the EU-wide General Data Protection Regulation (GDPR), we need notify you that we will be processing your personal data in light of the legitimate interest we have in providing you with our relevant research reports. If you’d like to know more, take a minute to read our Privacy Notice and Cookie Policy to explain how we collect, store and handle your personal data. Our detailed Privacy Policy is also available on request.You can opt out now, or at any time in the future, by replying OPT-OUT.

Disclaimer:
Disclaimer: The Shard Capital Group consists of Shard Capital Partners LLP (trading names: Shard Capital, Shard Capital ECM, Shard Capital Stockbrokers, Shard Capital Investor Visa, Alternative Resource Capital, LeifBridge and Tennyson Securities), Shard Capital AIFM LLP and Shard Capital Limited.

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.

This communication and any attachments are confidential and may contain personal information. It is intended for the addressee(s) only. Any unauthorised use, dissemination of the information, or unauthorised copying/forwarding of this message is prohibited. If you are not the intended addressee, please notify the sender immediately by return e-mail and delete this message. Any views expressed in this message are those of the individual sender, except where the message states otherwise and the sender is authorised to state them. Internet communications cannot be guaranteed to be secure or error free as information may be intercepted, corrupted, lost, arrive late or contain viruses. Shard Capital does not accept liability for any errors, admission or losses which arise from this internet transmission. For more information about how and why we use personal information and who to contact with any queries about this, please see our privacy notice: https://www.shardcapital.com/privacy-cookies-policy/

Company information for entities registered in England & Wales: Shard Capital Partners LLP (Company number: OC360394); Shard Capital AIFM LLP (Company number: OC390417); Shard Credit Partners Limited (Company number: 09594110); Shard Capital Limited (Company number: 07462262).


Linking Shareholders and Executives :Share Talk

If anyone reads this article found it useful, helpful? Then please subscribe www.share-talk.com or follow SHARE TALK on our Twitter page for future updates. Terms of Website Use All information is provided on an as-is basis. Where we allow Bloggers to publish articles on our platform please note these are not our opinions or views and we have no affiliation with the companies mentioned
Share Talk
Share via
Copy link
Malcare WordPress Security