Member Info for kp123

Tyseley per 29th November RNS:

· Completion of infrastructure developments and first production from Tyseley targeted by the end of April 2025, with ongoing pilot production enabling delivery of products to customers in advance of this

Wouldn't be surprised if this slips a couple of months. However "delivery to customers in advance of this" is good

I think the complexity of MKAs proposition has presented almost an arbitrage opportunity here.

Whilst we are low on details, we can be piece together:

- Nasdaq required floor valuation: $100m (this figure has been confirmed to me. But I know management are aiming higher which I expect is why management couldn't say with outright certainty; but this is what they believed it to be).

- Actual valuation: I'm expecting an actual floor of $200m. One can create their own view of this based on management comments around the Cohen previous transactions (see RNS: smallest one mentioned was $493m).

- MKA to maintain 50-80% stake: I've believe MKA are targeting 80%. But we know it is at least a majority.

- New investors: there will therefore be new investors coming in for the remaining 20-50% stake.

- External capital: there will be capital raised at this valuation, which will help support the valuation.

- KEY POINT: US Development Finance Corporation (DFC) - will be one of the new investors and will put in money. This will be a big positive. The fact that the MKA twitter post this morning has @DFCgov (and they've repeatedly been doing this and mentioning them in RNS and conversations) makes me very confident on this.

Clearly all of today's conversation is on Songwe / Pulway. There is also the market's massive mispricing of the recycling business (Hypromag) but let's put that aside for today.

MKA now valued at £32m / 11p per share. MKA soon to own a $[160]m stake in a Nasdaq listing [$160m is my assumption].

I maintain the view that I can't see Mkango being valued lower than £100m / 32p per share in 6 months time. My hope is it is more like £250m+ / 80p+ per share.

Cyberbub - I believe at a minimum via DFC (they provide both debt & equity financing) - https://www.dfc.gov/. I suspect there's more to it than that but that's as far as I understand

Gallmat - completely accept your observation - honestly I had the same myself. I put this to management.

So to be clear: my understanding is that the DFS uses $156.8/kg increasing to $215.5/kg in year 3 and $266.0/kg in 2035+. Agree this is ahead of c.£100/kg spot today (btw I realise my $55/kg assumption relating to US JV revenue in post below is way too low so you can almost double that EBITDA figure I referenced).

The response I got from management was to go look at the other listings which have happened (e.g. in RNS). I was told that Songwe benchmarks very strongly. Apparently MSP / other players are very wary that they've lost recent projects to Chinese players and so there is likely a strategic premium. I believe US Govt / DFC are likely to be part the funding.

I do agree with you and find it hard to believe they'll achieve a $400m valuation. Even the level you suggest, $80-100m, would mean £55m - £65m shareholding for Mkango at 80% ownership. Share price surely more than doubles on that news

Cyberbub - Uni of Birmingham get a royalty from revenue streams (this was confirmed to me by management). In table 3 of the US Feasibility Study RNS you see a royalty cost.

My understanding is that when Mkango are more cash rich they will likely buy this patent off Uni of Birmingham (I am speculating but I believe this will be at an extremely discounted level vs the capital cost that the Uni of Birmingham have spent on development to date).

Re how long exclusivity is, my understanding is it is permanent exclusivity, but it might be something to re-confirm

Agreed Biffa re Cohen & Co

I'm confident they are preparing Lancaster (Songwe) for a $200m-$800m valuation & US listing (via SPAC). My strong suspicion is it will be $400m+ valuation with Mkango retaining c.80% shareholding. External capital being raised (and going into the SPAC) at that valuation. Ridiculous even to think that Mkango could soon hold 80% of a $400m liquid asset... and that's asset both management and shareholder value least (management have been clear they want to focus on recycling because that's the huge opportunity). I'm confident the above is playing out behind the scenes.

How will Mkango be valued if / when they have:

- A [£250]m shareholding in a US listed asset [replace with your own assumptions for Lancaster listing, but I'm confident it won't be much lower than this]

- US recycling JV at at free carry (40% non-dilutable equity) which is expected achieve $30+ annual EBITDA (assuming 750t at $55/kg and 65% gross margin, all conservative assumptions according to feasibility study)

- UK recycling almost at production

- Ger recycling close to production

- The various other recycling roll-out opportunities

With a load of upsides / newsflow in the coming 6 months including:

- It's been openly mentioned that HyProMag are in discussions with major OEMs (Microsoft, Tesla, Ebay etc). Offtake agreements to come through

- US JV economics likely to be improved in the coming 6 months. An interesting point management made to me was that the $125m initial capex assumption in the feasibility study is extremely conservative but the larger capex number actually helps them ensure maximum funding from US govt and other funders that they are in discussions with. They are anticipating reducing this to closer to $75m in this next phase.

My conclusion: I can't see Mkango being valued lower than £100m / 32p per share in 6 months time. My hope is it is more like £250m+ / 80p+ per share.

I can't see Mkango being valued lower than £500m / 150p+ per share in 3-5 years time.

Given the extraordinary setup they have (E.g.: 1. supported by Cotec, MSP, US govt, US DFC, OEMs, 2. management so aligned with investors for example not taking any salary payments (50% being accrued and 50% being paid in shares) because they believe so strongly in the business, 3. ownership of such strategic assets) I accept that the market might continue to amaze me in being slow to react. However it is surely a matter of time. There are so many reasons why the downside is so limited (e.g. see 1,2,3 above) and the upside so huge.

Accumulate and let it play out!

Olderandwiser - I get the logic, but I really don't think so. I think those involved are very strong believers in Mkango's opportunity (presumably Myles as much as anyone; his twitter posts certainly imply as much) over the next couple of years and so are accumulating not selling.

At the end of the day if you are right and warrant holders are dumping the underlying shares and holding onto warrants, all it does is create short term potential mispricing which subsequently corrects. I see it as opportunity!

Cyberbub - I spoke to someone who works with them who explained they were forced sellers running up to August (despite being part of the placing in March) but stopped (at c.3%). Something about having to wind down the fund. Interestingly they were then forced sellers in Rome Resources recently (at 0.25p despite placing at 0.3p only a couple of months prior, and very shortly after it shot up to 0.5p - a great example of how being forced sellers can be a great opportunity for others to buy). I'm making an educated guess that their remaining shareholding in Mkango has to be sold around now.

Esduk - I know where 11million of the 7p warrants sit and know they won't be converted any time soon. My understanding is all of the others involved in the raise were similarly sticky long term holders. It was a very tightly managed raise (as opposed to the one running up to March which was done very differently hence the level of leakage and share price decline).

For what it's worth, I think people should stop expecting warrants to be converted. I'm certain they won't be.

Selling pressure will most likely be Resource Early Stage Opportunities Company's forced selling (as was the case earlier in the year). It's an unfortunate situation that they have to liquidate, but it will not last.

This is one of those opportunities you just have to keep taking if you're able to make funds available.

There's a Cotec call at 3pm... don't rule out more info / buying on the back of that. If they mention offtake discussions with any of those big names this would surely lead to a rerate

Regarding the question about going full steam ahead and minimising dilution:

1. Management alignment: In addition to their significant shareholding, Will Dawes and Alex Lemon have stopped receiving salaries and instead are taking share payments. That's quite a remarkable form of alignment in SH interest. Can you imagine the conviction required to stop receiving a salary. Also says something about the now relatively short timeframe for major catalysts; they couldn't afford no salary if this remained a long journey. I think they are expecting a major turn in the share price.

2. Strategic investor / offtake discussions: I believe the strategic investor routes which are being looked at would be materially value enhancing. You can expect a strategic investor to enter at a valuation much higher than that implied by the share price sum of the parts, no matter the mechanism. Look at the Noble / Talaxis transaction for an example of what might be possible.

Bear in mind they are assessing strategic investor options on both Mine & Refine (Songwe & Pulawy) and Recycling (whether at the country plant level i.e. Hypromag UK / Hypromag Ger / other geographies or at Maginito level). There's a chance a strategic investor in Mine & Refine leads to turning down strategic investors on the Recycling side which is perhaps the greatest upside to SHs. Either outcome would be major catalysts to re-rates.

Also, separate to strategic investor options, there are offtake agreements / customer discussions. Any announcement on this would be a big catalyst.

Regarding Cotec investment vs Mka, I think the upside for an investor in Mka is far greater and the risk is lower. At a minimum Mka have Cotec who want to up their stake but management do not want to give away any more due to what that would mean for control.

I suspect people will be looking back on this in 6 months time, hopefully less, and thinking how ludicrous the share price was.

One could probably stop at point 1 (management's alignment and conviction given their large shareholdings and now no longer taking a salary in return for more shares) and get excited. But putting it all together (see GLR post at 09:50 today for a shortcut) and it's a phenomenal investment opportunity right now. My guess is I have a month or two to continue to buy before an announcement changes everything

Regarding recycling economics / profitability, whilst Mkango might not have put anything out in the public markets yet, Cotec are putting information out.

They "anticipate":

Revenue: $50m - $80m p.a.

Note: this is based on old pricing. Cotec and Mka management have repeatedly indicated they expect to achieve a pricing premium . I expect this figure increases as part of feasibility study findings

EBITDA margin: 35-40%

EBITDA: $18-32m

https://www.cotec.ca/_resources/presentations/corporate-presentation.pdf?v=090608

Remember the above (or 50% or 40% effective to Mka shareholders) is all free carry for Mka, no cost. That alone warrants a 10x + increase in share price as we get closer. Management could put all other sites on hold if they really needed to and reduce their costs to virtually nil, but they see how big the prize could be hence are going full steam ahead.

If you start modelling out the various sites you get to very large numbers. Also worth noting whilst Cotec have indicated 35-40% EBITDA margins, I understand Mka have indicated larger margins in conversations to private investors.

As a side point, interesting that Cotec put Mka / Hypromag very much front and centre of their Corporate Presentation, ahead of MagIron. This is despite MagIron currently being valued at double what Hypromag / US JV in their latest financial accounts. Says something about their view on value

One additional point regarding value of Songwe, perhaps obvious but worth re-iterating: Mkango owns an option to build an asset.

In the same way that an out-of-the-money option will have value because it gives the holder the option to strike if prices go higher....

If the NPV at current pricing were to not be profitable (which is unknown given cost optimisation & Pulway plant), the option would still have a value. You have to factor in the probability that the NPV becomes profitable at any time during ownership of the option. And all things being equal the more volatile the underlying value driver (in this case Nd price which is very volatile) the more positively skewed the option value will be.

A buyer might effectively apply a probability weighted valuation . A simple example:

Scenario 1 (in line with current DFS) = Nd $215.5/kg in 2025 and $266.0/kg in 2035, NPV = $559m

Probability = 10%

Scenario 2 (illustrative made up numbers) = Nd oxide $100/kg in 2025 and $120/kg in 2035, NPV = $10m

Probability = 60%

Scenario 3 (illustrative made up numbers) = Nd oxide $80/kg in 2025 and $80/kg in 2035, NPV = 0

Probability = 30%

Probability weighted valuation = 10% x $559m + 60% x $10m + 30% x $0m = $62m

For what it’s worth, that isn’t a buy / sell trade. It’s someone crossing the shares between accounts. Effectively an internal trade. It happens often after placings when some brokers (eg IG) restrict the type of account you can hold it in so you put it into 1 account then subsequently cross it (trade it, but only requires 1 print) into another account

I am of the opinion that this investment board is made better by the posts of those who do research, whether those posts are positive or negative.

A few thoughts:

- @Bonker: just because a share price falls it doesn't mean the CEO's investments at higher prices become fake. When you say "it doesn't stand up" because he is below cost - he takes the same risk as we do when buying shares. For what it's worth, I spoke at length to those who facilitated the recent raise and I don't have any doubts around the his investment being his actual cash.

- For those who claim this is stop losses causing the decline. Perhaps it has driven some of today's trades (although I doubt it based on the round number of many of the trades; I expect it is being shorted by those who actively short companies which are expected to raise money in the future). But the truth is, MKA need £5m+ to fund the UK and Ger operation expansion and the market knows this. Just ask management for their investor deck they shared during the last attempts to raise funds and you'll see for yourself. I don't believe it is possible to get this funded (e.g. grants / debt) without some form of equity investment (I like GLR's suggestion of selling a % of a subsidiary to a strategic investor e.g. Cotec or Envipro but ultimately I expect there to be a fundraise of some sort at MKA level).

The alternative option is they mothball these operations until US goes cash flow positive (2028?) and reduce all corporate costs to virtually nil. The reason I am invested is 1) I believe this investment case alone is worth many multiples more than the current market cap, and any funding on the UK and Ger operations would then be additive. Anything around Japan and other markets additionally so. 2) I believe this investment is somewhat unique in that there are many parties involved who I don't believe would let MKA go to nil. I think Cotec would step in for starters rather than see MKA go bust.

- For what it's worth, I think this is a brilliant case of the market being right and wrong at the same time. Right to hammer the share price because of expectation of requiring funds (I haven't sold anything on the way down but applaud anyone who foresaw this share price decline and was able to sell and buy back lower), but extremely wrong regarding ultimate valuation. As long as you're invested for the medium to long term I believe, no matter the expected dilution, once funding concerns are dealt with this will be worth a huge amount more than it is now. Therefore whether you buy at 20p / 15p / 10p / 5p / 3p (I've taken all those prices down to 5p and would love to buy at 3p) I think by 2027 this will be worth many multiples. I also expect the re-rate to be extremely fast when it does come.

- GLR - you raise an interesting idea moving money into Cotec. Ultimately returns will surely be lower in the long run given the size of the pie for MKA vs Cotec but an interesting way to lower risk (or increase

GLR - I don't think £3m would set the company up for 2 years. I think a minimum of £5m is required. My understanding is the UK plant scale up [to 100-300 tonnes p.a.] requires around $10m further capex of which something like 50-60% would need to be funded by MKA (I believe c.50% would be expected to be covered by government grants). There will also be significant working capital requirements. Even the government grant portion aren't received immediately - in UK the grants are claimed back via "depreciation" over the life of an asset and so would need to be funded initially by MKA. Perhaps the company can obtain facilities to cover this cash timing issue.

I believe there will be similar costs for Germany scale-up albeit if this is phased after UK scale-up then at some stage the profit engine can start kicking in (although these plants will be loss making in y1, slightly profitable in y2 and then very profitable y3+). Germany capex grants are paid 1-2 months after costs are incurred so better in that sense vs UK.

My preference is to raise / obtain the cash for Germany too rather than delay scale-up by 2 years, so more than £5m required I think

Profit-or-roll, where is that news from?

Anyone find a recording of the Cotect update?

Perhaps pointless, but my effort of theorising what the selling could be, I welcome if anyone has any other ideas or further research on the below:

1) Selling of HyproMag consideration shares?

9,742,031 shares issued as part of £1m share payment. Statutory hold period expired 3rd December so you'd have thought this would only explain selling after this point, but I don't think this stops them from forward selling or shorting in advance of this expiry and then offsetting the short with their holding. Whilst the RNS mentioned a 1 year lock-up until August 2024 I believe these lock-ups are very often ignored and aren't enforceable.

2) Talaxis?

Could be using it's shareholding to "make a market" or keep the share price where it is? It isn't uncommon for very large shareholders to use a portion of their holding to go against the direction of the market to avoid spikes. But the selling was initially bringing the share price down to 8p so if Talaxis perhaps it's more of an exiting or another strategy.

Does anyone know much about Talaxis? It's a subsidiary of Noble Holdings Group, which seems to be now called Noble Resources. Looking at their website / accounts, Mkango looks to be tiny compared to their core assets. So I doubt they have any need / interest to sell or make a market.

Appreciate Talaxis / Noble operates in China, but looking at the Board I doubt there's a sinister "China influence" at play.

3) Other shareholders selling?

Could it be 4.66% shareholder Steward Newton, who didn't participate in the latest fundraise (and hence notification of holdings RNS showing reduction in shareholding), selling down? From what I can see he bought in 2021/2022 at 25p so he wouldn't be taking profits.

Or Mr Michael Geoghegan who's initial notification was 4.04% in Nov'21 and MKA website shows 3.81% latest.

Again all rather pointless but interested to know if anyone has any other ideas on this

Julian Treger (Cotec CEO) once again very bullish about Maginito in their webinar update on Friday. Some of his words below:

- Already starting to generate revenues in the UK

- Very promising discussions with members of the US government recently

- Over the next couple of months we expect to progress the initial contacts we had with potential e-waste partners [highlights potential newsflow next year]

- All signs are that the US government are very keen on this

- There are lots of other industry players, OEMs, which are intrigued with the idea that we can bypass the Chinese restrictions and recycle the waste we already have within our economies to create new magnets

- Very confident and very excited about the way in which this business is going to develop in the next 12 months and the enormous value which we think we'll be able to create for Cotec shareholders through this investment

- Ultimately we think Maginito alone will result in a value many multiples of the current market cap of Cotec

- The US joint venture has the potential to be worth several hundred million dollars

For reference, the Cotec market cap is £23m. Cotec own 20.6% of Maginito and effectively 60% of the US joint venture.

His words say a lot about the undervaluation of MKA (£28m market cap) right now.