Mkango Resources – the case for investment? #MKA

Mkango Resources (MKA) are a rare earth element exploration and development company operating in Malawi.

  • The only rare  earth company listed on the London Stock Exchange.
  • French government funding geological survey of area covered by MKA licence.
  • Demand for the Rare Earth Element (REE) products increasing but supply declining.
  • Chinese control 85% of the market and are shutting down illegal REE mines (see here). In the past China has imposed taxes etc driving up prices. The following chart indicates how quickly China have dominated the REE market.

image

  • REE prices predicted to rise. The following graph for example indicates the price predictions for Neodymium (one of the 17 Rare earth elements).

image

Imagine what would happen to the share price of companies producing Uranium if China restricted exports again and prices again hit the peak of 2011.

  • Songwe Hill Project (MKA)
    • open pit
    • life of 18 years.
    • High uranium grades
  • Over 31% of MKA shares are not in public hands.
  • Worldwide licence for new processing treatment will reduce opex costs for processing REE. MKA potentially will also benefit from technology if used on other REE prospects.
  • Low capital and operating costs.

image

  • BOD invested. Why would they be happy not to take a salary and take stock instead?
  • IRR 37%, high when compared with other operations.image
  • NPV $345m
  • Malawi is one of the poorest countries in the world. Labour very cheap.
  • Rare earth elements are important for the Internet of Things. Demand for REE is going to increase.
  • Airborne survey indicates significant radiometric and magnetic anomalies in the  Thambani licence area (see here). The business now has the data to target drilling activity.
  • Survey identified Uranium anomaly 3km long. This is significant as currently 224  reactors planned or in construction around the world (see here), these will therefore when online significantly increase the demand for uranium.
  • Finance raised by MKA provides 18 months of working capital.

 

The negatives

1. Uranium prices at an 11 year low (Uranium prices).

2. Another nuclear disaster such as the Japanese Fukushima incident would impact Uranium sales.

3. Japan slow bringing reactors online  (slow reactor restarts ).

4. Possible corruption in Malawi mining department (mining scandal).

5. Potential environmental issues associated with uranium mining (see here). Mkango take their social and environmental responsibilities seriously as detailed in their social responsibilities document.

 

Conclusion

The airborne survey has found significant potential mineral prospects where Mkango resources are carrying out their exploration activities ( see here).

This information hasn’t yet been announced by the MKA BOD. This is a significant development.

Malawi has not been properly evaluated by the mining industry and we now have the US$25 million World Bank funded nationwide airborne survey. MKA are in the perfect position to utilise the survey work for their commercial gain as have first mover advantage.

We are at the start of the discovery phase in the life cycle of the business and therefore MKA is a high risk, high reward investment.

image

 

Malawi is also very supportive of the mining industry (see here). The mining industry of Malawi, has contributed 1% of the global production of uranium and this contributed to an increase of Malawi’s Gross Domestic Product (GDP) from 1% to 10%. It is estimated the sector’s contribution to GDP could be 20% by 2023. This highlights why Malawi are supportive of the mining industry.

MKA with licences in place,  working capital, Malawi’s political will, first mover advantage and timing of the predicted upswing in uranium and REE prices are in a position to potentially create significant value for shareholders.

Next step is to drill some of the areas identified, probably with a partner. News of drilling commencing or a JV partner should significantly increase the market capitalisation of the business.

 

 

———————————————————————

Notes:

  1. Rare Earth Elements (REE) used in magnets, industrial motors, hard disc drives, hybrid and electric vehicles, wind turbines, batteries, alloys, catalytic converters, polishing powders, fluorescent tubes, LCD panels, etc.
  2. Mkango CEO talking about MKA.
  3. Mkango Resources website.
  4. REE is a collective name for 17 elements: Cerium, Gadolinium, Europium,  Praseodymium, Terbium, Dysprosium, Neodymium, Promethium, Holmium, Yttrium, Samarium, Erbium, Thulium, Lutetium, Scandium, Ytterbium, Lanthanum
  5. LSEsharetalk article about MKA.
  6. The following elements are important for clean energy and are a potential supply risk and therefore of greater value: Yttrium, Europium, Terbium and Dysprosium.
  7. Malawi one of the 10 poorest counties in the world, others indicated on this map.

 

image

 

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s