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Songwe Hill

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 Location
Songwe Hill is located in southeastern Malawi, between Lake Chilwa and the Mulanje Massif. It lies within exclusive prospecting licence EPL 0284/10 which Mkango refers to as the 'Phalombe Licence'. The EPL lies entirely within the Southern Region of Malawi and Songwe Hill is within the Phalombe administrative district. It is approximately 70km from the former capital, Zomba and approximately 90km from the commercial centre of Blantyre (which has an international airport and a railhead). The national highway S145 passes within 15km of Songwe Hill and is being upgraded. Secondary gravel and dirt roads provide vehicle access to the exploration camp.

Location of the Songwe Hill REE Project

The deposit lies on the north-facing slopes of Songwe Hill, a steep-sided conical hill with a diameter of approximately 800m that rises to a summit elevation of 990m. Songwe Hill abuts onto the slopes of the adjacent and larger Mauze Hill which rises above the alluvial plains south of Lake Chilwa and straddles the border with Mozambique. The slopes of Songwe Hill are densely vegetated with elephant grass following the rainy season but, in other times of the year, vegetation does not hinder access.

Climate
The Songwe Hill area has a sub-tropical climate. Maximum monthly rainfall is between 125cm and 218cm during the rainy season of December to March. The project area is warm from September to April with average daytime maximum temperature of around 26°C. The monthly average temperature ranges from 22°C in August to 27°C in December. The monthly minimum average temperature ranges from 11.4°C in August to almost 21°C in October. The climatic conditions are not expected to impact on the operation of the proposed mine, which has been planned to operate all year round.

Geology and mineralisation
Songwe Hill is interpreted as a volcanic vent that is expressed as a steep-sided hill approximately 800m in diameter. Information from surface mapping and drill core indicates that the vent complex consists of a multi-phase intrusion characterised by diverse carbonatites and breccias. The carbonatite is best exposed along the north-eastern slope of Songwe Hill. The vent complex cuts the western end of the large Mauze nepheline syenite intrusion, but the external contacts on the western and northwestern sides of the vent are hidden beneath recent surficial eluvial deposits.

The principal lithologies that comprise the Songwe Hill vent complex are carbonatite, fenite and breccia. The carbonatites are dominantly grey calcic carbonatites, although subordinate ferro-carbonatites are present. The fenites comprise dominantly K-feldspar rocks and appear to form an aureole around the carbonatite. They are interpreted to have formed through metasomatism related to the carbonatite intrusion. The breccias range from clearly abraded pebble-sized fragments (pebble dykes) to angular blocks that are metres in diameter and include significant volumes of breccia in which the fragments appear to have undergone little or no movement.

The principal zone of REE mineralisation outcrops along the northeastern slope of Songwe Hill. REE mineralisation is present in carbonatites, fenites and breccias, which are exposed intermittently over a surface area of approximately 350m by 100m. The REE mineralisation is untested to the northeast and southwest beyond the limits of the present drilling and below the deepest vertical intersection of approximately 350m below the surface of Songwe Hill and there is additional regional exploration potential in the Songwe and other carbonatites. The mineralised body is interpreted to be a carbonatite plug with essentially sub-vertical margins. In plan view, it is elongated in a northeast-southwest direction.

The dominant REE-bearing minerals are synchysite and apatite. The apatite is anomalously enriched in the HREO's compared to apatites in most carbonatite deposits. The REE mineralisation is closely associated with strontianite and baryte and is interpreted to have formed through sub-solidus hydrothermal alteration following the carbonatite intrusion.

Project Overview
Mkango completed a Pre-Feasibility Study for the Songwe Hill Project in September 2014, which was subsequently updated in November 2015. The Pre-Feasibility Study is based on a conventional open pit operation using contract mining, a mine life of 18 years and is focused only on the Probable Mineral Reserve Estimate.

The Songwe Hill Project features broad zones of outcropping REE mineralisation on the northern slopes of a steep sided hill. The annual processing capacity was assumed at 500,000 tonnes per year of ore with a view to producing an average of approximately 2,840 tonnes of REO in mixed chemical concentrate per year with a large proportion of the cerium removed during the hydrometallurgical process. Cerium is currently considered to have challenging market fundamentals and, under Mkango's current strategy to produce a concentrate, there is a strong economic rationale to remove as much as possible of the cerium from the final concentrate.

A summary of the key outputs of the Pre-Feasibility Study is presented in the tables below:

Total ore mined and processed tonnes 8,482,603
Average strip ratio x 4.5
Total waste mined tonnes 38,441,726
Average life of mine TREO grade % 1.60%
Mine life years 18
Total REO recovered to concentrate tonnes 48,275
Annual ore processed2 tonnes 500,000

Rare earth oxide   Overall recovery
to concentrate
REO production
in concentrate
Lanthanum La2O3 55% 1,075
Cerium1 CeO2 9% 341
Praseodymium4 Pr6O11 57% 227
Neodymium4 Nd2O3 57% 756
Samarium Sm2O3 60% 114
Europium Eu2O3 59% 27
Gadolinium Gd2O3 58% 62
Terbium4 Tb4O7 56% 7
Dysprosium4 Dy2O3 58% 35
Yttrium Y2O3 58% 165
Holmium3 Ho2O3 57% 6
Erbium3 Er2O3 57% 13
Thulium3 Tm2O3 56% 2
Ytterbium3 Yb2O3 56% 10
Lutetium3 Lu2O3 53% 1
Average annual production REO in concentrate tonnes   2,841
Average “magnet” REO production in concentrate4 tonnes   1,026
  1. A large proportion of the cerium will be selectively removed during the hydrometallurgical process
  2. Average annual at full capacity excluding first and last years
  3. No value currently attributed to these rare earths in the financial evaluation
  4. "Magnet" rare earths are assumed to be neodymium, praseodymium, dysprosium and terbium
It is currently anticipated that the product of the Songwe Hill Project in Malawi will be a high grade, purified chemical concentrate. The project is connected by road to Blantyre, the largest commercial centre in Malawi located approximately 70km away, and which has a rail head and international airport. For the purposes of import of reagents and export of product, it is assumed that the project will utilise the existing road and rail network, in addition to the new railway being completed through Malawi to the Nacala port in Mozambique and a proposed new dry port facility near Liwonde.

Economic Analysis
A detailed f inancial model has been constructed based on input parameters from the Pre-Feasibility Study. Free cash flows were modelled in both real and nominal terms for a range of discount rates, and on a debt free basis.

Long term rare earth price assumptions are based on the 2020 Base Case pricing scenario prepared by Adamas Intelligence, resulting in the equivalent price for a total rare earth basket for Songwe Hill of US$59.8 per kg REO. Prices are assumed to remain flat in real terms over the life of the mine.

The outcomes of the financial model are summarised below:

Financial Evaluation Nominal discount rate1 Real discount rate November 2015
Pre-Feasibility Study
Base Case
Pricing Post tax
NPV US$m
November 2015
Pre-Feasibility Study
Scenario 3
Pricing Post tax
NPV US$m
November 2015
Pre-Feasibility Study
Scenario 2
Pricing Post tax
NPV US$m
Base case 9.0% 6.3% 385 258 446
10.0% 7.3% 345 228 400
11.0% 8.3% 308 201 359
12.0% 9.3% 276 177 323
13.0% 10.2% 248 156 290
14.0% 11.2% 222 137 261
Nominal internal rate of return 37% 29%
Real internal rate of return 33% 26% 36%
Long term basket value assumption (US$/kg) 59.8 52.0 63.8
% of basket value attributable to “Magnet” rare earths2 83% 84% 82%
  1. Includes inflation at 2.5 per cent.
  2. "Magnet" rare earths are assumed to neodymium, praseodymium, dysprosium and terbium
The main revenue drivers are neodymium (53 per cent.), praseodymium (14 per cent.) and dysprosium (12 per cent.) as illustrated below.

Rare earth oxide   REO in conc1
tonnes
REO in conc
split
REO in conc
US$/kg
REO in conc
split by value
Lanthanum La2O3 1,075 37.8% 3.1 5.2%
Cerium CeO2 341 12.0% 0.4 0.7%
Praseodymium2 Pr6O11 227 8.0% 8.6 14.4%
Neodymium3 Nd2O3 756 26.6% 31.6 52.8%
Samarium Sm2O3 114 4.0% 0.2 0.3%
Europium Eu2O3 27 0.9% 4.5 7.6%
Gadolinium Gd2O3 62 2.2% 1.2 2.0%
Terbium Tb4O7 7 0.3% 1.9 3.3%
Dysprosium3 Dy2O3 35 1.2% 7.2 12.1%
Yttrium Y2O3 165 5.8% 1.0 1.7%
Holmium2 Ho2O3 6 0.2%  
Erbium2 Er2O3 13 0.5%  
Thulium3 Tm2O3 2 0.1%  
Ytterbium2 Yb2O3 10 0.3%  
Lutetium2 Lu2O3 1 0.0%    
Average annual production REO in concentrate 2,841 100.0% 59.8 100.0%
Average "magnet" REO production in concentrate3 1,026 36.1% 49.3 82.6%
  1. Average annual at full capacity excluding first and last years
  2. No value currently attributed to these rare earths in the financial evaluation
  3. "Magnet" rare earths assumed to be neodymium, praseodymium, dysprosium and terbium
Operating costs
Cash operating costs include the costs of contract mining, milling, flotation, leaching, purification and precipitation in addition to other costs associated with the operation. The Pre-Feasibility Study also assumes an additional cost of US$10.0 per kg REO to account for the cost or implied discount associated with toll separation or the sale of a mixed chemical concentrate.

Real operating costs Life of mine
US$/kg REO
Life of mine
US$/t processed
  2018-2022
US$/kg
2018-2022
US$/t processed
Mining 4.1 23.5   3.0 21.1
Beneficiation 3.7 21.2   3.0 21.0
Hydrometallurgical 7.1 40.4   5.7 40.3
G&A/other 1.5 8.6   1.3 8.6
Cash operating costs 16.4 93.6   13.0 91.1
Tolling/conc sale 10.0 56.9   10.0 70.9
Total cash costs 26.4 150.5   23.0 162.0

Capital expenditure
The largest capital expenditure ("capex") component is an integrated processing plant comprising a mill, flotation plant, hydrometallurgical plant, and a sulphuric acid plant with power co-generation capacity. The capex estimate for the integrated processing plant was completed by SNC-Lavalin (Pty) Ltd. and is to an accuracy defined as (20 per cent. + 25 per cent.) covering the design, engineering, procurement, supply/manufacture, construction and pre-commissioning of the proposed new processing facility and associated plant complex infrastructure. Other major capex items include the cost of a lined tailings storage facility provided by Epoch Resources (Pty) Ltd.

Initial capital expenditure US$m
Site facilities and infrastructure 21.8
Power supply 14.5
Mining 1.7
Beneficiation plant 43.0
Hydrometallurgical plant 54.4
Sulphuric acid plant 34.7
Tailings storage facility 12.7
Other costs 14.0
Total initial capital expenditure 196.6
Contingency 19.7
Total initial capital expenditure including contingency 216.3

Capital expenditure after initial project development costs are estimated to be US$1m per year for sustaining capital. The costs of future reclamation are assumed to be provided for by Mkango on an annual basis for the life of the mine and are included in operating costs (G&A/other).

Mineral Resource and Mineral Reserve Estimates
The Pre-Feasibility Study is based on the NI 43-101 Mineral Resource estimate in the technical report (the "Report") entitled "NI 43-101 Technical Report and Mineral Resource Estimate for the Songwe Hill REE Project, Phalombe District, and Republic of Malawi" filed on 22 November 2012 and authored by Scott Swinden, Ph.D, P.Geo. and Michael Hall, Pr.Sci.Nat., MAusIMM (who are independent "Qualified Persons" in accordance with National Instrument 43-101 - Standards of Disclosure for Mineral projects) and prepared by The MSA Group (Pty) Ltd. The Report's Mineral Resource Estimates, as previously announced, are summarised below.

Cut-off grade Indicated Mineral Resource Estimate Inferred Mineral Resource Estimate
1.0% TREO
1.5% TREO
13.2 mt grading 1.62% TREO
6.2 mt grading 2.05% TREO
18.6 mt grading 1.38% TREO
5.1 mt grading 1.83% TREO
TREO - total rare earth oxides including yttrium. In-situ - no geological losses applied. mt - million tonnes

The Pre-Feasibility Study supports the declaration of a Mineral Reserve Estimate for the project as summarised below.

Cut-off grade Probable Mineral Reserve Estimate
1.0% TREO 8.5 mt grading 1.60% TREO
TREO - total rare earth oxides including yttrium.

The following Modifying Factors were used to convert the Mineral Resource Estimate to the Mineral Reserve Estimate:

Modifying Factors used in Mineral Reserve Estimate
Factor Unit Quantity Comment
Cut-off grade % TREO 1% Higher than pay limit of 0.51%
Mining recovery % 95% 5% ore loss expected during mining
Mining Dilution % 5% Dilution assumed to carry zero grade
Plant recovery % 34% Accounts for the portion of Cerium which is removed by the metallurgical process and is not sold
Product price US$/kg 59.76 Average recovered basket price per kg of recovered rare earth oxides
Operating Cost US$/tonne processed 93.55 Average Life of Mine operating cost per tonne processed
Operating Cost US$/kg 16.94 Average Life of Mine operating cost per kg of REO recovered

The economic parameters used for calculating the Mineral Reserve Estimate may vary from those used in the economic model for the Pre-Feasibility Study.

Indicated Mineral Resources are inclusive of Mineral Reserves. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. For further details of the Mineral Resource estimates, including the breakdowns thereof, please refer to the Report which is available at www.sedar.com.

Mining
The mine design was completed by The MSA Group (Pty) Ltd. It is based on a conventional open mining operation and assumed the use of a contract miner. The mine plan incorporates the use of stockpiles to manage the grade profile and maximize returns. As part of the Pre-Feasibility Study, a contract mining company visited the Songwe Hill site and was integrally involved in the estimation process.

Processing and Metallurgical Testwork
A comprehensive three year program of mineralogical studies formed the basis for the metallurgical testwork. Mineralogical work included investigations by High Def inition Mineralogy incorporating QEMSCANTM completed by SGS Minerals Services and Camborne School of Mines, scanning electron microscope (SEM), electron microprobe and Laser Ablation Inductively Coupled Plasma Mass Spectrometry (LA-ICP-MS) analyses completed at the Natural History Museum in London, Aberystwyth University, Camborne School of Mines and the British Geological Survey. Further mineralogical work (SEM) on mineral concentrate was completed at Mintek and the Camborne School of Mines. The mineralogical program identif ied the fluorocarbonate mineral, synchysite, and the phosphate mineral, apatite, as the most important rare earth bearing minerals, and conf irmed that the apatite contained signif icantly higher concentrations of heavy rare earths and yttrium relative to apatite in other carbonatites worldwide.

Songwe Hill's favourable mineralogy means that high capital and energy intensive kilns will not be required in the flow sheet. This contrasts to projects dominated by monazite, xenotime or other refractory REE minerals. Plant design comprises conventional technology largely comprised of tanks, pumps and filters, and will be modular, facilitating the potential for future expansions, the latter underpinned by a significant Mineral Resource base. The use of low strength acid enables the use of plastics or composite materials for tanks and pipework.

The design of the integrated processing plant and associated infrastructure was completed by SNC-Lavalin (Pty) Ltd. The metallurgical testwork was completed by Mintek, South Africa and Nagrom Laboratories, Australia.

A number of potential flow sheets were evaluated at Mintek and Nagrom Laboratories. Based on this testwork, a flowsheet was developed incorporating flotation, two stage leaching and acid regeneration.

The flotation process was largely developed at Mintek and then reproduced and verif ied at Nagrom Laboratories. This work demonstrated that flotation can be used to upgrade the mineralised material. In the flow sheet, this concentrate is then treated in the hydrometallurgical plant.

In the first leach step (gangue leach), dilute hydrochloric acid (HCl) is used to remove largely calcite, with minimal rare earth losses. A solution amenable for recycling HCl using sulphuric acid is thereby produced. This process has considerable merit in that sulphuric acid is considerably cheaper to produce versus the cost of importing HCl. Solid sulphur will be transported to site and used to produce concentrated sulphuric acid along with co-generation of power from a combined sulphur burner and steam turbine plant. HCl lost during the process will be replaced by importing solid calcium chloride.

The residue from the gangue leach is then subjected to a second, more intensive HCl leach during which the majority of the rare earths are solubilised. In addition, caustic conversion followed by HCl dissolution is completed on the rare earth leach residue to maximise overall rare earth leach recovery. The resultant pregnant liquor solution reports to the purification stage, during which impurities are removed and cerium is selectively precipitated for stockpiling and potential future sale.

Environmental, social and health impact studies
Pre-Feasibility environmental and social baseline studies were conducted during 2013 by Digby Wells Environmental in consultation with Malawian environmental specialists, based on the requirements of the Equator Principles, International Finance Corporation (IFC) Performance Standards as well as specif ic requirements and interpretations of Malawian Legislation as provided by their Department of Environmental Affairs (DEA). A project Brief for the proposed environmental and social studies for the Environmental, Social and Health Impact Assessment (ESHIA) was submitted to the DEA in the fourth quarter of 2013. The DEA has responded with a suggested Terms of Reference which will be addressed in the ESHIA for the Def initive Feasibility Study. Following completion of the PFS in September 2014, the f irst round of stakeholder consultation meetings took place and were completed during November 2014. Base line studies continue at the exploration site, including collection of monthly dust and climate data.