Mkango Resources : Consolidated Financial Statements - May 30, 2024

Unaudited Condensed Interim Consolidated

Financial Statements

MKANGO RESOURCES LTD.

For the three months ended 31 March 2024 and 31 March 2023

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MKANGO RESOURCES LTD

Consolidated Statements of Financial Position

Reported in US dollars		As at		As at
	Notes	31 March 2024	31 December 2023
ASSETS
Current
Cash and cash equivalent		484,295	996,782
Government remittances receivable	7	59,242	107,578
Other receivables		30,760	27,041
Prepaid expenses and accrued income		71,024	195,012
Due from related parties	13	3,085	120,133
Total current assets		648,406	1,446,546
Non-current
Intangible assets	8	4,301,058	4,408,784
Goodwill	10	2,681,441	2,681,441
Property, plant and equipment	9	1,164,727	657,074
Government remittances receivable	7	97,020	99,526
Total non-current assets		8,244,246	7,846,825

TOTAL ASSETS		8,892,652	9,293,371
LIABILITIES
Current
Accounts payable and accrued liabilities	14	927,721	590,990
Short-term contingent consideration	12	1,407,069	1,382,358
Due to related parties	13	313,643	61,754
Total current liabilities		2,648,433	2,035,102
Non-current
Long-term contingent consideration	12	1,682,905	1,696,229
Deferred tax liability	18	965,119	1,000,734
Total non-current liabilities		2,648,024	2,696,963
TOTAL LIABILITIES		5,296,457	4,732,065
SHAREHOLDERS' EQUITY
Share capital	15	43,522,854	43,522,854
Contributed surplus		5,732,526	5,680,588
Accumulated other comprehensive loss		(62,205)	(70,414)
Retained deficit		(47,487,572)	(46,585,867)
Non-controlling interest		1,890,592	2,014,145
TOTAL EQUITY		3,596,195	4,561,306
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		8,892,652	9,293,371

The notes on pages 7 to 27 are an integral part of these consolidated financial statements.

The financial statements were approved and authorised for issue by the Board of Directors on 29 May 2024 and signed on its behalf by:

William Dawes, Chief Executive Officer, Director

Derek Linfield, Chairman, Director

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MKANGO RESOURCES LTD

Consolidated Statements of Comprehensive Loss

Reported in US dollars

		For the three months ended:
	Notes	31 March 2024		31 March 2023
Expenses
General and administrative		(977,390)	(808,835)
Mineral project expenditures		(40,889)	(104,958)
Total Expenses		(1,018,279)	(913,793)
Other items
Interest income		-	4
Finance expense		(35,712)	-
Share of associated company losses		-	(68,214)
Fair value losses		-	(862)
Foreign exchange gain/(loss)		(6,882)	104,457
Fair value adjustment - embedded derivative		-	318,420
Loss before tax		(1,060,873)	(559,988)
Income tax	18	35,615	-
Loss after tax		(1,025,258)	(559,988)
Loss attributable to
Common shareholders		(901,705)	(559,988)
Non-controlling interest		(123,553)	-
Attributable loss		(1,025,258)	(559,988)
Other comprehensive profit/(loss)
Items that may be reclassified subsequently to net loss:
Exchange difference on translating foreign operations		8,209	(9,691)
Total comprehensive loss		(1,017,049)	(569,679)
Total comprehensive loss attributable to
Common shareholders		(893,496)	(569,679)
Non-controlling interest	6	(123,553)	-
Attributable comprehensive loss		(1,017,049)	(569,679)
Loss per share - basic and diluted	19	(0.004)	(0.002)

The notes on pages 7 to 27 are an integral part of these consolidated financial statements.

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MKANGO RESOURCES LTD

Consolidated Statements of Cash Flows

Reported in US dollars

			For the three months ended:
	Notes	31 March 2024			31 March 2023
Cash flow used by operating activities
Loss for the period			(1,025,258)	(559,988)
Adjustments for:
Share based payments			51,938	86,870
Share of associated company losses			-	68,214
Fair value losses			-	862
Depreciation	9		42,594	2,177
Amortisation of intangible assets	8		132,733	-
Finance expense			35,712
Fair value adjustment - embedded derivative			-	(318,420)
Unrealised foreign exchange loss/(profit)			-	(18,633)
Deferred tax credit			(35,615)	-
Change in non-cash operating capital
Government remittances receivable and prepaid expens			288,161	59,610
Due to/from related parties			251,889	(144,888)
Accounts payable and accrued liabilities			(22,224)		(481,091)
Cash flow used by operating activities			(280,070)	(1,305,287)
Cash flow used by investing activities
Acquisition of intangible assets			(4,748)	(221,757)
Acquisition of property, plant and equipment			(222,874)	(15,887)
Cash flow used by investing activities			(227,622)	(237,644)
Cash flow generated by financing activities
Proceeds from CoTec advance note			-	517,019
Share issue proceeds	15		-	4,214,601
Share issue expenses	15		-	(283,708)
CoTec investment into Maginito			-	1,853,700
Cash flow generated by financing activities			-	6,301,612
Effect of exchange rate changes on cash			(4,795)	(889)
Change in cash			(512,487)	4,757,792
Cash at the beginning of the period			996,782	493,703
Cash at the end of the period			484,295	5,251,495

The notes on pages 7 to 27 are an integral part of these consolidated financial statements.

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MKANGO RESOURCES LTD

Consolidated Statement of Changes in Equity

(Unaudited) Reported in US dollars

		Accumulated
		Other
	Contributed	Comprehensive	Non-controlling
Share Capital	Surplus	Income	Retained Deficit interest ("NCI")	Total

Balance at 31 December 2022	38,376,817	5,120,801	(23,801)	(44,639,933)	-	(1,166,116)
Loss for the year	-	-	-	(4,057,025)	(122,926)	(4,179,951)
Other comprehensive income:
Foreign exchange losses	-	-	(46,613)	-	-	(46,613)
Total comprehensive loss	-	-	(46,613)	(4,057,025)	(122,926)	(4,226,564)
Transactions with owners:
Non-controlling interest on
acquisition of subsidiary	-	-	-	-	2,041,862	2,041,862
Conversion of convertible loan note
into Maginito shares	-	-	-	2,111,091	95,209	2,206,300
Issue of shares	5,429,024	-	-	-	-	5,429,024
Share issue expenses	(282,987)	-	-	-	-	(282,987)
Share-based payments	-	559,787	-	-	-	559,787
Total transactions with owners	228,546	963,988	-	-	-	961,431

Balance at 31 December 2023	43,522,854	5,680,588	(70,414)	(46,585,867)	2,014,145	4,561,306
Loss for the period	-	-	-	(901,705)	(123,553)	(1,025,258)
Other comprehensive income
Foreign exchange losses	-	-	8,209	-	-	8,209
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Total comprehensive loss	-	-	8,209	(901,705)	(123,553)	(1,017,049)
Transactions with owners:
Share based payments	-	51,938	-	-	-	51,938
Balance at 31 March 2024	43,522,854	5,732,526	(62,205)	(47,487,572)	1,890,592	3,596,195

The notes on pages 7 to 27 are an integral part of these consolidated financial statements.

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MKANGO RESOURCES LTD

Notes to the Financial Statements

For the three months ended 31 March 2024 and 31 March 2023

All figures in US dollars unless indicated otherwise

1. GENERAL INFORMATION

Mkango Resources Ltd ("Mkango") was originally incorporated under the name Alloy Capital Corp. ("Alloy") on

13 November 2007, under the laws of the Province of Alberta, Canada. On 10 December 2010, Alloy was acquired through a "reverse takeover" by Lancaster Exploration ("Lancaster BVI"). The articles of Mkango were amended to change its name from Alloy Capital Corp. to Mkango Resources Ltd. On 15 October 2018, Mkango discontinued its incorporation in Alberta, Canada and became incorporated in the province of British Columbia, Canada. Mkango's registered office is located at Suite 2900, 550 Burrard Street, Vancouver, British Columbia, Canada,

V6C 0A3.

Mkango's corporate strategy is to develop new sustainable primary and secondary sources of neodymium, praseodymium, dysprosium and terbium to supply accelerating demand from electric vehicles, wind turbines and other clean technologies.

On 3 August 2007, Lancaster BVI was incorporated by Memorandum and Articles of Association issued pursuant to the provisions of the British Virgin Islands Companies Act. Lancaster BVI is 100% owned by Mkango.

Lancaster BVI's registered office is located at Jayla Place, Wickhams Cay 1, P.O. Box 3190, Road Town, Tortola,

British Virgin Islands, VG1110.

On 19 May 2011, Lancaster Exploration Limited ("Lancaster Malawi") was incorporated under the laws of

Malawi. Lancaster Malawi is a wholly owned subsidiary of Lancaster BVI.

On 3 January 2018, Maginito Limited ("Maginito") was incorporated under the laws of the British Virgin Islands. Maginito is 79.4% owned by Mkango. Maginito's registered office is located at Jayla Place, Wickhams Cay 1,

P.O. Box 3190, Road Town, Tortola, British Virgin Islands, VG1110.

On 25 July 2018, MKA Exploration Limited ("MKA Exploration") was incorporated by Memorandum and

Articles of Association issued pursuant to the provisions of the British Virgin Islands Companies Act. MKA

Exploration is 100% owned by Mkango. MKA Exploration's registered office is located at Jayla Place, Wickhams

Cay 1, P.O. Box 3190, Road Town, Tortola, British Virgin Islands, VG1110.

On 6 May 2019, MKA Exploration Limited ("MKA Exploration Malawi") was incorporated under the laws of Malawi. MKA Exploration Malawi is 100% owned by MKA Exploration. MKA Exploration Malawi's registered office is located at Jayla Place, Wickhams Cay 1, P.O. Box 3190, Road Town, Tortola, British Virgin Islands, VG1110.

Mkango Polska Sp. z o.o. ("Mkango Polska") was incorporated under the laws of Poland and 100% ownership was acquired by Mkango on 22 March 2021. Mkango Polska is developing a rare earth separation plant at Pulawy in Poland, working with Grupa Azoty Pulawy, Poland's leading chemicals company and the second-largest manufacturer of nitrogen and compound fertilisers in the European Union. The Pulawy Separation Plant is expected to process the purified mixed rare earth carbonate derived from the Songwe Hill project in Malawi, separating it into rare earth oxides.

On 23 June 2021, Mkango Rare Earths UK Limited ("Mkango UK") was incorporated under the laws of England and Wales. Mkango UK was previously 100% owned by Mkango. On 16 March 2023, Mkango UK was restructured and it is now a 100% owned subsidiary of Maginito.

On 9 December 2022, Mkango ServiceCo UK Limited ("Mkango ServiceCo") was incorporated under the laws of England and Wales. Mkango ServiceCo is 100% owned by Mkango.

On 2 August 2023, Maginito completed the acquisition of the remaining 58.4% of the share capital of HyProMag

Limited ("HyProMag UK") to increase its ownership to 100% of the share capital in HyProMag UK.

HyProMag UK owns 80% of HyProMag GmbH ("HyProMag Germany").

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The consolidated financial statements were authorised for issuance by the Board of Directors of the Company on 29 May 2024.

2. GOING CONCERN

These financial statements hrave been prepared on the basis of accounting principles applicable to a going concern which assumes the Company will be able to continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

The Company's consolidated cash balance as at 31 March 2024 was $484,295 and the Company had net current liabilities of $2,000,026 (including current contingent consideration of $1,407,069 if certain milestones are met as disclosed in Note 12 relating to the HyProMag acquisition which can be settled through shares or cash at the election of the Company). On 10 April 2024, the Company raised gross proceeds of approximately $950,000 (£750,000) via a private placing totaling 15,000,000 new common shares without par value each in the Company at a price of 5 pence ("p") (approximately $0.06) per share (Note 21).

This placing has allowed the Company to acquire additional equipment to underpin HyProMag's transition to first commercial sales of recycled NdFeB at Tyseley Energy Park in Birmingham, UK which is targeted for the second half of 2024; and German recycling development including orders of long lead time equipment in Germany, unlocking additional grant funding.

Discussions are ongoing with potential strategic investors, project finance providers, grant funding bodies and on other sources to finance recycling scale-up opportunities and further technology roll-out.

The Company has completed a significant cost-cutting exercise in recent months, whilst streamlining operations to focus on recycling, which has enabled a 35% reduction in operating cost requirements for the business.

Mkango has launched a review of strategic options for its advanced stage Songwe Hill Rare Earth Project in Malawi and Pulawy Rare Earth Separation Project in Poland.

Management has prepared a detailed cash flow forecast for the period to 31 May 2025. The base case forecast demonstrates that the Company will require additional funding in Q4 of 2024 in order to have sufficient funds to meet its liabilities as they fall due. The base case forecast includes the following key assumptions:

• First commercial sales of recycled NdFeB at Tyseley Energy Park in Birmingham in H2 2024
• German recycling development to continue as planned with grant funding unlocked
• Minority shareholder to maintain their interest in Maginito through matching cash calls required for recycling businesses
• Any contingent consideration relating to the HyProMag acquisition will be settled through the issuing of shares as opposed to cash
• Additional funding in Q4 of 2024

The directors are confident that the Company will be able to raise funds through either equity investment or an alternative financing structure in order to have sufficient funding resources in order to meet its committed expenditure for at least the next 12 months from the date of approval of the financial statements and hence have prepared these consolidated financial statements on a going concern basis. However, risks to the cash flow forecast include: a delay in commencement of commercial sales, the risks of higher costs than anticipated and the risk of being unable to secure future funding in Q4 of 2024. The Company is dependent on raising funds through either equity investment or an alternative financing structure, which is not guaranteed. As at the date of the approval of these financial statements no such further funding has been raised and there can be no certainty that sufficient funds can be raised if required. These events and conditions indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern and therefore, it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not include adjustments that would result if the Company was unable to continue as a going concern. Having given due consideration to the cash requirements of the Company, the directors have a reasonable expectation that the Company will have adequate resources to continue in operational existence for a period of at least twelve months from the date of approval of these financial statements. For this reason, the Board continues to adopt the going concern basis in preparing these consolidated financial statements which assumes the Company will be able to meet its liabilities as they fall due for the foreseeable future.

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3. BASIS OF PRESENTATION

1. Statement of compliance
   These consolidated financial statements have been prepared in accordance with International Financial
   Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").
2. Basis of presentation and measurement
   These consolidated financial statements have been prepared using the historical cost convention, except for certain financial instruments and share-based payment transactions measured at fair value.
3. Functional and presentation currency and principles of consolidation
   The consolidated financial statements are presented in United States dollars ("US dollars"), which is the functional currency of Mkango. Below is a listing of ownership percentage and functional currency of
   Mkango's subsidiaries:

Entity Name	Functional	Ownership
	Currency	Percentage
Lancaster Exploration ("Lancaster BVI")	US Dollar	100% (2022: 100%)
Lancaster Exploration Limited ("Lancaster Malawi")	Malawi Kwacha	100% (2022: 100%)
Maginito Limited ("Maginito")	Pound Sterling	79.4%	(2022: 100%)
MKA Exploration Limited ("MKA Exploration")	Malawi Kwacha	100% (2022: 100%)
MKA Exploration Limited ("MKA Exploration Malawi")	Malawi Kwacha	100% (2022: 100%)
Mkango Rare Earths UK Limited ("Mkango UK")	Pound Sterling	79.4%	(2022: 100%)
Mkango Polska Sp. z o.o. ("Mkango Polska")	Euros	100% (2022: 100%)
Mkango ServiceCo UK Limited ("Mkango ServiceCo")	Pound Sterling	100% (2022: 100%)
HyProMag Limited ("HyProMag UK")	Pound Sterling	79.4%	(2022: 41.6%)
HyProMag GmbH ("HyProMag Germany")	Euros	63.5%	(2022: 33.3%)

The consolidated financial statements of the Company include the accounts of the Company and its eight subsidiaries listed above. All intercompany balances and transactions are eliminated upon consolidation.

1. Basis of consolidation
2. • 
     Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. De-facto control exists in situations where the company has the practical ability to direct the relevant activities of the investee without holding the majority of the voting rights. In determining whether de-facto control exists the company considers all relevant facts and circumstances, including:
   • The size of the company's voting rights relative to both the size and dispersion of other parties who hold voting rights
   • Substantive potential voting rights held by the company and by other parties
   • Other contractual arrangements
   • Historical patterns in voting

Subsidiaries are deconsolidated from the date control ceases. The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders' proportionate share of the acquiree's identifiable net assets (after any relevant fair value adjustments to the assets, liabilities and contingent liabilities recognised as part of the business combination).

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Changes in the Group's ownership interests that do not result in a loss of control are accounted for as equity transactions with the existing shareholder.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. The non-controlling interests' share of losses, where applicable, is attributed to the non- controlling interests irrespective of whether the non-controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

1. Use of estimates and judgments
   The preparation of the consolidated financial statements is in conformity with IFRS which requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
   Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future years affected.
   Key areas of judgment made in applying the Company's accounting policies are as follows:
2. 1. Carrying value of exploration and evaluation intangible assets
      The carrying value was $704,138 at 31 March 2024 (31 December 2023: $679,131). The group has
      determined that there are no indicators of impairment present in accordance with IFRS 6: Exploration for and evaluation of mineral interests. Management's conclusion required judgement based on the current status as outlined in the definitive feasibility completed on Songwe Hill in July 2022 and expected future progress of the exploration and evaluation intangible assets as well as forecast rare earth prices.
   2. Carrying value of technology intangible assets
      The carrying value was $3,596,920 at 31 March 2024 (31 December 2023: $3,729,653). The group has
      determined that there are no indicators of impairment present in accordance with IAS 6: Impairment of assets. Management's conclusion required judgement based on the fact that the value of the HPMS technology had not significantly declined from the date of the HyProMag acquisition and year end and that plans are on track to both the recycling projects in the UK and Germany that use the technology.
   3. Valuation of Goodwill
      The carrying value of goodwill arising from the HyProMag acquisition (Note 10) was $2,681,441 at 31 March 2024 (31 December 2023: $2,681,441). The recoverable amount of goodwill is assessed at each reporting date for impairment. The recoverable amount is based on the higher of the value in use and fair value less costs to dispose. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Key areas of judgement include estimates of scrap supply, commissioning timetables, product mix, pricing of magnets and operating cost estimates.
   4. Fair value of contingent consideration
      The fair value of the contingent consideration was estimated based on the Group's expectation of the future performance of the business which would result in milestones being met and milestone payments being made to the HyProMag sellers. These potential milestone payments have been discounted to reflect the timing of the expected payments.

Key areas of estimation where management has made difficult, complex or subjective assumptions, often as a result of matters inherently uncertain, are as follows:

1. Share options

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