Mkango resources – silly enterprise value makes easy buy and hold #MKA

Mkango resources – silly enterprise value makes easy buy and hold #MKA

Since I covered Mkango (MKA) in late November last year, the share price hasn’t appreciated as I hoped, and so the undervaluation which I perceived continues (latest share price 8p ask, market cap £9 million).

Its primary asset is the Songwe Hill Rare Earth Element project in the Republic of Malawai.

(Source: Google Finance)

The latest reasons why I believe Mkango to be materially undervalued:

1. 60% increase in resource including at a higher confidence levels.

The Songwe project had an NPV10 of $345m before the 60% upgrade. It now must be higher and both higher production levels and a longer life of mine are possible. CEO William Dawes stated:

“Based on the larger Measured and Indicated Resource, the feasibility study will evaluate opportunities to include more tonnes into the mine plan, expand operations, extend the mine life, reduce the strip ratio and therefore reduce mining costs”.

2. £7 million of cash

Mkango has received £7 million of cash from Talaxis to fund the completion of the feasibility study in return for another 29% of Songwe.

Once cash is stripped out, Mkango’s 51% stake in Songwe and all other assets are valued at £2 million.

3. Agreement with MetaNRG

Mkango has entered into an earn-in agreement where MetalNRG can earn up to 75% of the Thambani Uranium licence. MetalNRG must spend $500,000 within 12 months to earn 25% of the licence. This provides upside for Mkango shareholders without dilution at the plc level.

Small-cap AIM companies are illiquid and many ‘investors’ act more like day traders, unable to wait 6 – 12 months for value to arrive. Mkango doesn’t necessarily have any ‘game-changing’ news due, and so despite the apparent undervaluation, there is little appetite for the shares.

I remain a happy shareholder in Mkango: the company is delivering at the PLC level and I’ve even bought a few shares for my newly opened SIPP to go alongside those in my ISA. For patient investors, I think Mkango offers a very attractive entry price although I’m not expecting any short-term movement in the share price.

 

At the time of publication, the author holds a long position in MKA.

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