Mkango Resources (MKA.V) is chasing one of my favorite things - rare earth elements. Their CEO has an analyst and transactional background in the mining sector but is not a geologist or miner himself. Uh-oh, that's not good for a junior explorer. The non-executive director with the professional background at Randgold was there long enough to take it from exploration into full production. That is invaluable experience but the team needs more people like that.
Their Songwe project in Malawi has a 43-101 report. Good for them but I would like to see a final report with 2P reserves. Photos of the site show a scratched-out dirt road but it's unclear whether it connects to the nation's larger transportation network. They need C$1.6M to complete the next phase of drilling, modeling, and economic estimation.
It's hard to tell whether they have the financial strength to move forward with that plan. The most recent financial statement they show on their website was for a company previously named "Alloy Capital." Searching SEDAR reveals interim financial statements for Mkango dated September 30, 2012. These statements reveal C$645k in cash on hand at the end of September, and with a burn rate of over C$100k/month they'll run out of cash by March 2013 unless they raise capital. Shareholders can thus expect serious dilution unless Mkango is willing to option out part of the 100% ownership of its Songwe property.
Management deserves kudos for keeping expectations realistic, and I'm not about to compare them to Mountain Pass until they have a firmer understanding of their ores. Since they only have one key leader who has gone all the way to production, they don't have the bench strength to go it alone in this corner of the world. The driver of Mkango's future valuation will be the quality of whichever strategic partner they bring in prior to a production decision. That uncertainty, plus the lack of clarity for their financial health, makes them too risky for me.
Full disclosure: No position in MKA.V at this time.
