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Mkango Resources Announces Results of Updated Pre-Feasibility Study for the Songwe Hill Rare Earth Project in Malawi

CALGARY, ALBERTA -- (Marketwired) -- 11/09/15 -- Mkango Resources Ltd. (TSX VENTURE: MKA) (the "Corporation" or "Mkango") is pleased to announce the results of the updated Pre-feasibility Study (the Study) for the Songwe Hill Rare Earth Project. Capital expenditure (Capex) and operating costs (Opex) in the Study have been updated to reflect movements in equipment, reagent and other costs, in addition to exchange rates. Furthermore, for the purposes of the Study, the Corporation commissioned a rare earth market review from Adamas Intelligence (Adamas) to evaluate the future rare earth market in the context of Mkango's potential development timeframe. The results of the updated Study are as follows:

--  After-tax net present value (NPV10%) of US$345 million and after-tax
    internal rate of return (IRR) of 37% based on a long term rare earth
    basket value of US$59.8 per kg rare earth oxide (REO).

--  Initial Capex of US$216 million, including a contingency of US$20
    million, remains among the lowest in the rare earth sector.

--  Cash operating costs average US$13.0 per kg REO for the first 5 years of
    production and US$16.4 per kg REO for the life of mine with an
    additional cost of US$10.0 per kg REO to account for the cost or
    discount associated with tolling or the sale of a chemical concentrate.

--  Production of 2,841 tonnes of REO in mixed chemical concentrate per year
    over an 18 year mine life.

--  A large proportion of the cerium is removed during the
    hydrometallurgical process, significantly enhancing the basket value of
    production.

--  Over 80% of basket value is attributable to rare earths used in high
    growth permanent magnet applications, comprising over 65% attributable
    to neodymium and praseodymium, and over 15% to the heavy rare earths,
    dysprosium and terbium.

William Dawes, Chief Executive Officer of Mkango stated: "The market review, completed in conjunction with the updated Pre-feasibility study, validates our strategy and focus on the "big four" magnet rare earths, which have a strong market outlook, geared to China's emerging green economy and growing consumer demand, and make up over 80% of our potential future revenue.

 

Benchmarking analyses completed internally by Mkango and independently by Adamas Intelligence indicates that Mkango is favourably positioned with a combination of low capex and opex versus its peer group of advanced stage rare earth projects at the Pre-feasibility or Feasibility stage."

Market Review

Adamas forecasted three different scenarios for future global REO production from 2015 through 2020:

1.  "Business as Usual" scenario (Base Case)


    --  China's Ministry of Land and Resources (MLR) holds production quotas
        steady at 2015 levels through 2020
    --  Illegal/unregulated REO production in China will decrease by 56%
        over the same period
    --  Australian production reaches 22,000 tonnes of total rare earth
        oxide (TREO) per annum by 2018 and flat thereafter
    --  Production from all other nations combined will remain flat at 2015
        levels through 2020


2.  "Low Production" scenario (Scenario 2)


    --  MLR will hold the nation's production quotas steady at 2015 levels
        through 2020
    --  Illegal/unregulated REO production in China fully eliminated by 2020
    --  Australian production reaches 22,000 tonnes of TREO per annum by
        2018 and flat thereafter
    --  Production from all other nations combined will remain flat at 2015
        levels through 2020


3.  "High Production" scenario (Scenario 3)


    --  MLR will increase national production quota levels by 4,000 tonnes
        in 2017 (versus 2015), and by an additional 4,000 tonnes in 2019,
        thereafter holding steady through 2020
    --  Illegal/unregulated REO production in China fully eliminated by 2020
    --  Australian production reaches 22,000 tonnes of TREO per annum by
        2018 and flat thereafter
    --  Production from all other nations combined will remain flat at 2015
        levels through 2020
    --  One new light rare earth producer and one new heavy rare earth
        producer come into production in 2018

Adamas forecasts that global TREO demand will total approximately 125,000 tonnes in 2015 and will increase for individual REOs by 1% to 13% annually through 2020. In 2020, Adamas forecasts that global TREO demand will conservatively amount to approximately 150,750 tonnes.

Global TREO demand growth is forecasted to be driven heavily by strong demand growth for neodymium oxide, praseodymium oxide, dysprosium oxide, lanthanum oxide, and others from 2015 through the end of the decade, with the permanent magnet and fuel cracking catalyst sectors the key drivers. In all three supply-demand scenarios considered from 2015 through 2020, Adamas forecasts that global demand for oxides of neodymium, praseodymium, dysprosium, terbium, lanthanum, and yttrium will significantly exceed global annual production in the year 2020 implying significantly higher prices versus those currently in 2015.

     Forecasted per-REO contribution to Songwe Hill basket value in 2020

----------------------------------------------------------------------------
                         Adamas 2020 Price Scenarios
                --------------------------------------------
                 November 2015 November 2015  November 2015
                 "Business as      "High           "Low      September 2014
                    Usual"      Production"    Production"   Pre-feasibility
                   Base Case     Scenario 3     Scenario 2        Study
Rare earth oxide    US$/kg         US$/kg         US$/kg         US$/kg
----------------------------------------------------------------------------
Lanthanum            3.12           2.35           3.61           2.91
Cerium               0.42           0.33           0.43           0.71
Praseodymium         8.62           7.52           8.98           7.31
Neodymium            31.56         28.19          33.24           20.58
Samarium             0.18           0.15           0.18           0.32
Europium             4.52           3.49           4.67           10.04
Gadolinium           1.17           1.02           1.23           1.07
Terbium              1.94           1.69           2.12           2.35
Dysprosium           7.22           6.37           7.87           7.81
Yttrium              1.00           0.84           1.41           1.91
Holmium(1)
Erbium(1)
Thulium(1)
Ytterbium(1)
Lutetium(1)
----------------------------------------------------------------------------
Basket value
 (US$/kg)            59.76         51.95          63.75           55.01
% "Magnet" rare
 earths(2)           82.6%         84.3%          81.9%           69.2%
----------------------------------------------------------------------------
(1) No value currently attributed to these
 rare earths in the financial evaluation
(2) "Magnet" rare earths assumed to be neodymium, praseodymium, dysprosium
 and terbium

Economic Analysis

A detailed financial model was constructed based on input parameters from the updated Study. Free cash flows were modelled in both real and nominal terms for a range of discount rates, and on a debt free basis. Long term rare earth price assumptions were based on the Adamas Base Case pricing scenario, resulting in the equivalent price for a total rare earth basket for Songwe Hill of US$59.8 per kg REO. Prices are assumed to remain flat in real terms over the life of the mine.

----------------------------------------------------------------------------
                                November    November    November
                                    2015        2015        2015   September
                                    Pre-        Pre-        Pre-        2014
                             feasibility feasibility feasibility        Pre-
                                   Study       Study       Study feasibility
                               Base Case  Scenario 3  Scenario 2       Study
            Nominal     Real     Pricing     Pricing     Pricing
Financial  discount discount    Post tax    Post tax    Post tax    Post tax
 evaluation rate(1)     rate    NPV US$m    NPV US$m    NPV US$m    NPV US$m
----------------------------------------------------------------------------
               9.0%     6.3%         385         258         446         326
----------------------------------------------------------------------------
Base case     10.0%     7.3%         345         228         400         293
----------------------------------------------------------------------------
              11.0%     8.3%         308         201         359         262
              12.0%     9.3%         276         177         323         234
              13.0%    10.2%         248         156         290         210
              14.0%    11.2%         222         137         261         188

    Nominal internal rate of
                      return         37%         29%         40%         36%
Real internal rare of return         33%         26%         36%         32%

      Long term basket value
         assumption (US$/kg)        59.8        52.0        63.8        55.0
           % of basket value
    attributable to "Magnet"
             rare earths (2)         83%         84%         82%         69%
----------------------------------------------------------------------------
(1)Includes inflation at 2.5% (2) "Magnet" rare earths are assumed to
 neodymium, praseodymium, dysprosium and terbium

The main revenue drivers are neodymium (53%), praseodymium (14%) and dysprosium (12%) as illustrated below.

----------------------------------------------------------------------------
                                                                      REO in
                                     REO in     REO in     REO in       conc
Rare earth oxide                    conc(1)       conc       conc   split by
                                     tonnes      split     US$/kg      value
----------------------------------------------------------------------------

Lanthanum              La2O3          1,075      37.8%        3.1       5.2%
Cerium                 CeO2             341      12.0%        0.4       0.7%
Praseodymium           Pr6O11           227       8.0%        8.6      14.4%
Neodymium              Nd2O3            756      26.6%       31.6      52.8%
Samarium               Sm2O3            114       4.0%        0.2       0.3%
Europium               Eu2O3             27       0.9%        4.5       7.6%
Gadolinium             Gd2O3             62       2.2%        1.2       2.0%
Terbium                Tb4O7              7       0.3%        1.9       3.3%
Dysprosium             Dy2O3             35       1.2%        7.2      12.1%
Yttrium                Y2O3             165       5.8%        1.0       1.7%
Holmium(2)             Ho2O3              6       0.2%
Erbium(2)              Er2O3             13       0.5%
Thulium(2)             Tm2O3              2       0.1%
Ytterbium(2)           Yb2O3             10       0.3%
Lutetium(2)            Lu2O3              1       0.0%

Average annual production REO in
 concentrate                          2,841     100.0%       59.8     100.0%

Average "magnet" REO production
 in concentrate (3)                   1,026      36.1%       49.3      82.6%
----------------------------------------------------------------------------
(1) Average annual at full capacity excluding first and last years
(2) No value currently attributed to these rare earths in the financial
evaluation
(3) "Magnet" rare earths assumed to be neodymium, praseodymium, dysprosium
and terbium

Project Overview

The Study is based on a conventional open pit operation using contract mining, a mine life of 18 years with targeted first production in 2018, and is focused on the Probable Mineral Reserve Estimate. Based on the input parameters in the updated Study the Probable Mineral Reserve Estimate remains unchanged at 8.5 million tonnes grading 1.60% TREO using a cut-off grade of 1.0% TREO as reported in September 2014. The annual processing capacity was assumed at 500,000 tonnes per year of ore with a view to producing an average of approximately 2,840 tonnes of REO in mixed chemical concentrate per year.

Operating costs

Cash operating costs include the costs of contract mining, milling, flotation, leaching, purification and precipitation in addition to other costs associated with the operation. The Study also assumes an additional cost of US$10.0 per kg REO to account for the cost or implied discount associated with toll separation or the sale of a mixed chemical concentrate.

----------------------------------------------------------------------------
                         Life of    Life of mine                   2018-2022
Real operating              mine           US$/t   2018-2022           US$/t
 costs                US$/kg REO       processed      US$/kg       processed
----------------------------------------------------------------------------
Mining                       4.1            23.5         3.0            21.1
Beneficiation                3.7            21.2         3.0            21.0
Hydrometallurgical           7.1            40.4         5.7            40.3
G & A / other                1.5             8.6         1.3             8.6
Cash operating
 costs                      16.4            93.6        13.0            91.1
Tolling / conc sale         10.0            56.9        10.0            70.9
Total cash costs            26.4           150.5        23.0           162.0
----------------------------------------------------------------------------

Capital expenditure

The largest Capex component is an integrated processing plant comprising a mill, flotation plant, hydrometallurgical plant, and a sulphuric acid plant with power co-generation capacity. The capex estimate for the integrated processing plant was completed by SNC-Lavalin (Pty) Ltd. and is to an accuracy defined as (-20 % +25 %) covering the design, engineering, procurement, supply/manufacture, construction and pre-commissioning of the proposed new processing facility and associated plant complex infrastructure. Other major capex items include the cost of a lined tailings storage facility provided by Epoch Resources (Pty) Ltd.

----------------------------------------------------------------------------
Initial capital expenditure                                             US$m

----------------------------------------------------------------------------
Site facilities and infrastructure                                      21.8
Power supply                                                            14.5
Mining                                                                   1.7
Beneficiation plant                                                     43.0
Hydrometallurgical plant                                                54.4
Sulphuric acid plant                                                    34.7
Tailings storage facility                                               12.7
Other costs                                                             14.0
Total initial capital expenditure                                      196.6
Contingency                                                             19.7
Total initial capital expenditure including contingency                216.3
----------------------------------------------------------------------------

Total initial capital expenditure is US$216.3m including a contingency of US$19.7m.

Capital expenditure after initial Project development costs are estimated to be US$1m per year for sustaining capital. The costs of future reclamation are assumed to be provided for by Mkango on an annual basis for the life of the mine and are included in operating costs (G&A/other).

Qualified Persons

An updated NI 43-101 Technical Report supporting the Study is being prepared by The MSA Group (Pty) Ltd. under the guidance of Rob Croll, Principal Consultant for The MSA Group (Pty) Ltd., who is a "Qualified Person" in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

The Mineral Reserve calculation was completed by The MSA Group (Pty) Ltd. under the supervision of Clive Brown, who is a "Qualified Person" in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

The process design and cost estimation for the integrated processing plant for the Study was completed by SNC-Lavalin (Pty) Ltd. under the supervision of Nick Dempers who is a "Qualified Person" in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

The design and cost estimation for the infrastructure associated with the integrated processing plant for the Study was completed by SNC-Lavalin (Pty) Ltd. under the supervision of Craig de Jager who is a "Qualified Person" in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects.

The NI 43-101 compliant Technical Report in respect of the results of the Study described herein will be filed on SEDAR within the next 45 days.

Independence of Qualified Persons

All of the Qualified Persons referred to in this press release are independent of Mkango Resources Limited.

The Songwe Hill Rare Earth Project

The Songwe Hill Rare Earth Project is located within the 100% owned Exclusive Exploration Licence 0284/10R in southeast Malawi. The Project is accessible by road from Zomba, the former capital, and Blantyre, the principal commercial town of Malawi. Total travel time from Blantyre is approximately 2 hours, which will reduce as infrastructure continues to be upgraded in the area.

About Mkango Resources Ltd.

Mkango's primary business is the exploration for rare earth elements and associated minerals in the Republic of Malawi, a country whose hospitable people have earned it a reputation as "the warm heart of Africa". Mkango holds, through its wholly owned subsidiary Lancaster Exploration Limited, a 100% interest in two exclusive prospecting licenses in southern Malawi. The main exploration target is the Songwe Hill rare earth deposit, which features carbonatite hosted rare earth mineralisation and was subject to previous exploration in the late 1980s.

The Corporation's corporate strategy is to further develop the Songwe Hill rare earth deposit and secure additional rare earth element and other mineral opportunities in Malawi and elsewhere in Africa.

On behalf of the Board of Mkango Resources Ltd.,

William Dawes, Chief Executive Officer

Cautionary Note Regarding Forward-Looking Statements

This news release may contain forward-looking statements relating to the Corporation. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward- looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. Such factors and risks include, among others, the interpretation and actual results of current exploration activities; uncertainty of estimates of mineral resources, changes in project parameters as plans continue to be refined; future commodity prices; possible variations in grade or recovery rates; failure of equipment or processes to operate as anticipated; labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of exploration. The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, the Corporation disclaims any intention and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities law. Additionally, the Corporation undertakes no obligation to comment on the expectations of, or statements made, by third parties in respect of the matters discussed above.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contacts:
Mkango Resources Ltd.
William Dawes
Chief Executive Officer
Office: +44 207 3722 744
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Mkango Resources Ltd.
Alexander Lemon
President
Office: +44 207 3722 744
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
www.mkango.ca

Newgate
Tim Thompson / Adam Lloyd / Helena Bogle
Office: +44 207 653 9850
This e-mail address is being protected from spambots. You need JavaScript enabled to view it

November 09, 2015 at 09:30 AM EST
 

Prices Are Up for Magnet Rare Earths

Critical metals investors will no doubt have noticed reports that rare earths export prices from China fell last year relative to 2013. Although China reported increasing its exports for the year, the total value of rare earths shipped out of the country fell by about 35 percent, according to The Australian.

However, in conversation with Resource Investing News, Jon Hykawy, president and director of Stormcrow Capital, noted that prices for materials used in rare earth magnets have actually risen, shedding a little more positivity on the sector.

Though he doesn’t follow small day-to-day movements in rare earths prices, Hykawy said that a recent look at freight-on-board (FOB) rare earths prices from China revealed that “for the first time since the first quarter of 2011, the prices for magnet materials have moved up over the last three months.”

 

Magnet materials include rare earths used to make rare earth magnets — the strongest type of magnet available in terms of weight and volume. These rare earths include neodymium, praseodymium, terbium, dysprosium and didymium, which is a blend of praseodymium and neodymium.

Prices for some magnet rare earths are up as much as 20 percent from last year, according to Hykawy, who noted that dysprosium and terbium in particular have gained fairly strongly. “That doesn’t put them at all-time highs, but it’s at least a positive change,” he said. Certainly, a positive change is welcome, as he also stated that prices for the rest of the rare earth elements have dropped 5 to 6 percent over the same period.

“It’s an indication that somebody, somewhere outside of China is starting to use magnet materials again … in reasonable quantities,” Hykawy added. “I think there’s some reason for the companies that have gotten this far and have the right level of scale to attract … that level of strategic support that I’ve talked about in the past. I think there’s reason to be optimistic.”

To be sure, a recent report from Shanghai Metals Market cites improved manufacturing activity in the US as a driver behind the growth in exports. However, it also suggests that Chinese firms started aggressively exporting after quotas were raised and that “sluggish demand downstream” hasn’t been enough to keep up with rising supply.

China scrapped its export quotas for rare earths earlier this year following last year’s ruling from the World Trade Organization against the practice. However, Hykawy has previously said that the ruling won’t have much of an effect, except to reduce transparency for exports.

That means less security of supply for end users, and the analyst believes some manufacturers could “have a vested interest in finding a source of non-Chinese supply.” Certainly, that sounds like good news for rare earths companies outside of the country.

Moving forward, Hykawy has a reasonably positive outlook for rare earths prices in 2015. “My base case scenario was that prices were going to go up slightly this year, across the board, with the possible exception of cerium and lanthanum,” he said. “[It's] starting to look like that might be moving in the right direction.”

Certainly, rare earths investors will be watching prices closely through the coming year.

For more of what Jon Hykawy has to say on the rare earths market, check out our video interview from last month’s Vancouver Resource Investment Conference.

Source: http://rareearthinvestingnews.com

   

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