Rare earths shortage creates perfect backdrop for Mkango Resources

We are moving into a pivotal period for rare earth metals – one in which demand for these 17 sought-after elements, used in products as diverse as iPods and hybrid cars, finally outstrips supply.

China controls 97 per cent of the production and has imposed strict export controls.

The problem is so acute the US is desperately scrabbling around to secure its own domestic source of rare earths.

For manufacturers outside the People's Republic, such as Toyota - which makes the Prius electric car - or consumer goods giants such as Apple, the impending shortage is a major threat to business.

However it represents a massive opportunity for companies exploring for rare earths such as Mkango Resources (CVE:MKA), which listed on the Toronto Venture Exchange in January at 50 cents a share.

It owns two projects in Malawi – Thambani and the Songwe Hill carbonatite vent some 70 kilometres from Blantyre, the country’s commercial hub.

Songwe is the most advanced of the two and has an interesting history. During the 1980s it was drilled by the Japan International Cooperation Agency, or JICA and the Metals and Mining Agency in Japan (MMAJ). 

They actually got as far as establishing a historical estimate of 1.4 million tonnes at 1.74 per cent rare earths including lanthanum, cerium, neodymium, yttrium and europium, but didn’t assay for the full suite of rare earths. Furthermore, it was based on limited holes drilling only to 50 metres.

The work of JICA and MMAJ, although interesting, will be mostly be used as an exploration guide to direct Mkango’s first drilling campaign, according to the company’s chief executive William Dawes.

The initial drilling phase is for a minimum of 2,000 metres diamond drilling at Songwe. “In reality we may drill significantly more than this over the next 12 months,” Dawes told Proactive Investors. 

“We are targeting extensions of the zones that the previous programmes outlined. These are the programmes of the late 1980s by JICA and MMA in which they defined a number of carbonatite zones exposed at surface. 

 “We are assaying for the full suite of rare earths including those not assayed in the historical drilling programmes, which included dysprosium, one of the most important rare earths. 

“We know it’s there, because surface sampling at Songwe yielded elevated dysprosium in the carbonatite ranging up to approximately 300ppm.” 

The previous drilling only extended to a vertical depth of 50 metres, whereas the current rig can extend to at least 300 metres.

So Mkango will look for potential extensions at depth as well as laterally. As Dawes said, it is initially concentrating on ground that has already been mapped by JICA and MMAJ.

The explorer is working with Dr Alan Woolley of London’s Natural History Museum as a consultant who is helping with the remapping of the area and formulating the geological model.

He carried out pioneering work in Malawi during the 1960s on carbonatite rock formations containing rare earths.

Almost by accident the company has been provided with additional evidence of carbonatites at surface as it has moved top-soil for the drilling pads and cut the ground to create roads in the area. 

All of the information – drilling, road samples et al – will be important as Mkango re-assesses Songwe. 

Once the results of the current phase of drilling have been analysed, the chief executive reckons the second phase of drilling could get underway in the autumn before Malawi’s rainy season kicks in. And the aim is to compile a maiden resource estimate. 

Mkango has said very little publicly about the other Malawi project, Thambani, a zircon, niobium, uranium and rare earth target.

“We have started initial work at Thambani which will form the basis of more detailed sampling and mapping - and we would obviously want to drill it as well if the results are encouraging.”

Mkango’s exclusive exploration licences last for an initial three years with the option to extend for another four years (in two tranches).

According to Mkango’s President, Alex Lemon, who has spent significant time in Malawi over the last few years, the political backdrop to Malawi is stable and the investor environment for mineral exploration very attractive. 

“We are strong supporters of Malawi as an investment destination,” he adds. T

“There is significant development potential in this part of Africa with Malawi at the cross roads – rail, road and port developments are underway in the country, gas discoveries off the east African coast, coal mine development in neighbouring Mozambique. 

“And Malawi has a proven track record in terms of mine development.”

 Lemon is well versed to operating in challenging environments - he previously ran a mining and exploration venture in Central Asia for “Black Jack” Dellal, the property entrepreneur. .

The company may also have been given some credit for sticking around during the financial crisis when others scarpered.

“Through 2008 and 2009, we continued to evaluate both our existing projects and also assessed a number of new opportunities including Songwe, Thambani and other natural resource opportunities in Malawi,” Lemon says. 

The January float brought in C$7.8 million of cash, which according to the listing documents is enough to fund the group for at least 18 months.

The assets come from Leominex, a private company which owns just over 50 per cent of Mkango.

Dawes and Lemon, own around 40 per cent of Leominex, though there are about 50 shareholders in total.

Some of them are former colleagues of Dawes from his time at the merchant bank Robert Fleming & Co, which was taken over by Chase Manhattan and is now part of the JP Morgan empire.

These co-workers were instrumental in bringing the Malawi conglomerate Press Corporation to the market over a decade ago “so they like the country and understand the risks.”

“We have also enjoyed significant support from Canada over the last few years, in particular from Haywood Securities in Vancouver.”

There is a bedrock of Canadian investors in Mkango who came in as part of the float, but Mkango also has significant European support, both institutional and private investors, particularly in the UK and Switzerland. 

And for those who subscribed to the IPO Mkango is already a profitable investment with shares up around 20 per cent on the float price at 60 cents.

“From a European perspective, investors have found the story really interesting,” Dawes concludes.  “There aren’t many (companies) over here that have meaningful assets in the rare earth space.”