Excellent write up as akways. Have decided to make a regular donation to your charity each time I follow one of your ideas and another (larger one I hope) each exit!
Any chance of a write-up on East Star Resources (EST)? I appreciate not much financial info but can not believe that given the value and location of Verkhuba alone plus BHP involvement with exploration, this is another incredible value play currently ignored by the market .
BTW, did you ever look at pat.l. this is a pet stock of mine. They will have a 1bn usd+ litigation claim announced early next year and trade at 20m usd. Similar litigation claims made 4x before the court decision was even announced
India have auctioned the mine. During this their own officials said in times of india is is worth 1bn plus. The resource is actually 7.2oz plus 0.8moz equivalent in by products. They drilled more after pat.l lost control and this was the headline for the auction.
You can also find the co head of the geological service saying 7.2m oz is understatement, he said if they drilled more and deeper you will find more ( on you tube). Exploration target from pat.l was 10m to 20m oz.
De grey, a deposit in scale with lower grade was taken out for 3.3bn usd ( more advanced project)
The scale of the project is tier1, and I think it is misunderstood. Claims when deemed illegal can reference the current gold price.
Vsa have an average note out with 40p price target
I also agree that the conclusions in mine and refining look too high.
The neodymium price in dfs was 2x+ todays price and the npv will be much lower. The company have recognised this on calls noting that the revenue fall is partially hedged by falls in reagents ( a primary cost driver)
Revising the analysis and focusing on something like 90m usd makes sense and does not change the buy recommendation IMHO.
The real point here is recycling works at the current price when many primary producers suffer.
The sale of mining assets even for 60m a bargain basement. Is 2x market cap and that might open up the ability to replicate the cotec operation with npv of 260m at current low prices.
The sale of the mine is also like an option. 60m would put a floor on the company valuation at 2x current level. If they can make recycling work it is huge. If for some reason there is an issue most likely you have a buffer to sell.
This is important as I remember zincox. Great story but went bust because the commercial scale did not.work. would have been massive if it took off
My perspective is that the mine is a 24+ month build. The forward 2027 forecast pricing for Neodymium is well ahead of the 2024 pricing, so the valuation isn't wholly unrealistic. That's before any retaliatiatory action from China to tariffs. But to adjust based on a range of future prices wouldn't be a bad idea to give people a better grasp on the range of possibilities.
Fair enough with forward curve. Being lowest quartile producer in mining is holy grail of commodity producers. You stay in business and make money in the spikes.
FyI, I was googling short loop recyclers and found another company at it,
MagREEsource. Seems to be hydrogen based tech ( french).
Nice writeup but I think there may be an error in your first section re the mine? The prices used in the DFS are based on the spike prices from 2022 when it was issued, rather than today's much lower prices...?
"The key revenue drivers for Songwe are neodymium and praseodymium. The base case basket value and MREC price forecasts reflect underlying neodymium oxide (Nd oxide) and praseodymium oxide (Pr oxide) price forecasts of US$165.0/kg and US$156.8/kg in 2022 increasing to US$215.5/kg and US$204.7/kg in 2025 and US$266.0/kg and US$252.7/kg in 2035."
The DFS is very confusing as it does also state the $32k/ton ($32/kg) that you state in your analysis.
Is this discrepancy why there is also a discrepancy over the NPV of the mine, as you say in your article?
Of course even at $95m and with a possible listing upcoming, that's almost 3x MKA's cap today.
I do take your point but the mine won’t be operational in 2024 so valuing at 2024 prices seems harsh. The outlook for future NdPr prices was much higher than today…. and that’s before the impact of the China restriction on metals.
This is part of what an investor or potential investor must weigh up so hopefully my article gives them the tools to do that.
Good write up Oak. There is a lot of value here at the current price, however one looks at Mkango.
- Hypromag seems to be in the books for c.£3m. This is now unrealistically low, given the deal flow now likely to follow. (BTW I thought Hypromag USA is 50% owned by MKA and 50% by COTEC)? Yep the structure is complicated I agree.
- Based on the PFS, let's say among friends that's worth £500m, that would indicate at least 10x upside from the current share price.
- OB might also have added that on a relative valuation basis, MKA is cheap vs other listed REE cos. without the technological advantage Hypromag brings. Plus by my calculations MKA has secured grants worth half its MCAP, an efficient way of project finance.
- Geopolitics. Also worth considering is the internal strife in Burma. The seizure of the mining area by rebels is disrupting global supply of REEs. Burma produces upwards of 50,000 metric tons p.a
- One area of consideration is Talexis' 25% stake in MKA. Talexis is apparently owned by Noble Group, but this was wound up after a fraud case. Don't know if this is relevant
Again, super write up and please feel free to correct misperceptions above. Imo this is incredible value and the PFS is among as good as a PFS can get, and that's saying something.
Excellent write up as akways. Have decided to make a regular donation to your charity each time I follow one of your ideas and another (larger one I hope) each exit!
Any chance of a write-up on East Star Resources (EST)? I appreciate not much financial info but can not believe that given the value and location of Verkhuba alone plus BHP involvement with exploration, this is another incredible value play currently ignored by the market .
BTW, did you ever look at pat.l. this is a pet stock of mine. They will have a 1bn usd+ litigation claim announced early next year and trade at 20m usd. Similar litigation claims made 4x before the court decision was even announced
Hi Mg, yes I wrote about PAT here: https://theoakbloke.substack.com/p/panthera
I speak to the ceo each month.
India have auctioned the mine. During this their own officials said in times of india is is worth 1bn plus. The resource is actually 7.2oz plus 0.8moz equivalent in by products. They drilled more after pat.l lost control and this was the headline for the auction.
You can also find the co head of the geological service saying 7.2m oz is understatement, he said if they drilled more and deeper you will find more ( on you tube). Exploration target from pat.l was 10m to 20m oz.
De grey, a deposit in scale with lower grade was taken out for 3.3bn usd ( more advanced project)
The scale of the project is tier1, and I think it is misunderstood. Claims when deemed illegal can reference the current gold price.
Vsa have an average note out with 40p price target
I also agree that the conclusions in mine and refining look too high.
The neodymium price in dfs was 2x+ todays price and the npv will be much lower. The company have recognised this on calls noting that the revenue fall is partially hedged by falls in reagents ( a primary cost driver)
Revising the analysis and focusing on something like 90m usd makes sense and does not change the buy recommendation IMHO.
The real point here is recycling works at the current price when many primary producers suffer.
The sale of mining assets even for 60m a bargain basement. Is 2x market cap and that might open up the ability to replicate the cotec operation with npv of 260m at current low prices.
The sale of the mine is also like an option. 60m would put a floor on the company valuation at 2x current level. If they can make recycling work it is huge. If for some reason there is an issue most likely you have a buffer to sell.
This is important as I remember zincox. Great story but went bust because the commercial scale did not.work. would have been massive if it took off
My perspective is that the mine is a 24+ month build. The forward 2027 forecast pricing for Neodymium is well ahead of the 2024 pricing, so the valuation isn't wholly unrealistic. That's before any retaliatiatory action from China to tariffs. But to adjust based on a range of future prices wouldn't be a bad idea to give people a better grasp on the range of possibilities.
Fair enough with forward curve. Being lowest quartile producer in mining is holy grail of commodity producers. You stay in business and make money in the spikes.
FyI, I was googling short loop recyclers and found another company at it,
MagREEsource. Seems to be hydrogen based tech ( french).
Always good to keep an eye out
I'm getting a 404 on their website
https://www.pm-review.com/magreesource-sees-e5-million-in-financing-and-announces-first-pilot-facility/
This might help if you track competition. I am starting to research their progress
Nice writeup but I think there may be an error in your first section re the mine? The prices used in the DFS are based on the spike prices from 2022 when it was issued, rather than today's much lower prices...?
"The key revenue drivers for Songwe are neodymium and praseodymium. The base case basket value and MREC price forecasts reflect underlying neodymium oxide (Nd oxide) and praseodymium oxide (Pr oxide) price forecasts of US$165.0/kg and US$156.8/kg in 2022 increasing to US$215.5/kg and US$204.7/kg in 2025 and US$266.0/kg and US$252.7/kg in 2035."
The DFS is very confusing as it does also state the $32k/ton ($32/kg) that you state in your analysis.
Is this discrepancy why there is also a discrepancy over the NPV of the mine, as you say in your article?
Of course even at $95m and with a possible listing upcoming, that's almost 3x MKA's cap today.
Any clarification appreciated.
I do take your point but the mine won’t be operational in 2024 so valuing at 2024 prices seems harsh. The outlook for future NdPr prices was much higher than today…. and that’s before the impact of the China restriction on metals.
This is part of what an investor or potential investor must weigh up so hopefully my article gives them the tools to do that.
OB
Good write up Oak. There is a lot of value here at the current price, however one looks at Mkango.
- Hypromag seems to be in the books for c.£3m. This is now unrealistically low, given the deal flow now likely to follow. (BTW I thought Hypromag USA is 50% owned by MKA and 50% by COTEC)? Yep the structure is complicated I agree.
- Based on the PFS, let's say among friends that's worth £500m, that would indicate at least 10x upside from the current share price.
- OB might also have added that on a relative valuation basis, MKA is cheap vs other listed REE cos. without the technological advantage Hypromag brings. Plus by my calculations MKA has secured grants worth half its MCAP, an efficient way of project finance.
- Geopolitics. Also worth considering is the internal strife in Burma. The seizure of the mining area by rebels is disrupting global supply of REEs. Burma produces upwards of 50,000 metric tons p.a
- One area of consideration is Talexis' 25% stake in MKA. Talexis is apparently owned by Noble Group, but this was wound up after a fraud case. Don't know if this is relevant
Again, super write up and please feel free to correct misperceptions above. Imo this is incredible value and the PFS is among as good as a PFS can get, and that's saying something.
https://x.com/MylesMcNulty/status/1862068416590360589?t=L5_U8Fn2wewXVFfHpAMgiQ&s=19
Myles McNulty's take.