Mkango Resources : Consolidated Financial Statements - April 30, 2024

Consolidated Financial Statements

MKANGO RESOURCES LTD.

For the twelve months ended 31 December 2023 and 31 December 2022

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INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Mkango Resources Ltd

Opinion

We have audited the consolidated financial statements of Mkango Resources Ltd and its subsidiaries (the Group), which comprise the consolidated statements of financial position as at December 31, 2023 and 2022, and the consolidated statements of comprehensive loss, the consolidated statement of changes in equity, and the consolidated statements of cash flows for the years then ended, and notes to the financial statements, including material accounting policy information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2023 and 2022, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the consolidated financial statements, which indicates that the Company is dependent on raising funds through either equity investment or an alternative financing structure, which is not guaranteed. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matter described below to be the key audit matter to be communicated in our report.

1. Accounting for HyProMag Acquisition (Notes 3 and 10)

Description of the key audit matter	How the key audit matter was addressed in the audit
As disclosed in Note 10, the Group completed the	Our audit procedures included the following:
acquisition of the remaining 58.4% of the share capital	• Obtaining the acquisition agreement and management's
of HyProMag Limited (HyProMag) to increase its	paper on the accounting treatment of the HyProMag
ownership to 100% during the year.	acquisition and evaluating if the accounting treatment is
The HyProMag acquisition meets the definition of a	in line with the requirement of IFRS 3 Business
combination and supported by the agreement.
business combination under IFRS 3. The assets and	• Obtaining management's assessment of fair values and
liabilities acquired and the consideration transferred in	assessing management judgement involved in a number
a business combination are required to be measured at	of areas primarily: the fair value of the assets and
fair value as at the acquisition date.	liabilities acquired; the identification and valuation of
The valuation of the assets and liabilities, particularly	acquired intangibles and the fair value of the
consideration.
the identifiable intangible assets, goodwill, deferred	• Assessing the appropriateness of the fair value of the
tax, and consideration requires significant estimate	acquired intangibles and critically challenging the
and judgement.	appropriateness of estimates used in the valuation model
Given the estimation of the fair values of assets and	with reference to empirical data and external evidence
with specific emphasis on the following assumptions:
liabilities and fair value of consideration involve	prices, production profiles, tax rate, inflation and
significant judgement,	discount rates. As part of our assessment, we visited the
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we consider accounting for the acquisition of	short loop recycling facilities for NdFeB magnets at
HyProMag including the related disclosures to be a	Tyseley Energy Park in Birmingham.
key audit matter.	• Assessing management's external expert's work with
	respect to the appropriateness of the valuation technique,
	methodology and discount rate applied,
	with the assistance from our internal valuations experts.
	• Obtaining the deferred tax calculations and testing the
	calculation of deferred taxes related to the fair value
	adjustments.
	• Assessing the appropriateness of the fair value of the
	contingent consideration and critically challenging the
	appropriateness of estimates used in the valuation with
	reference to empirical data and external evidence with
	specific emphasis on the following assumptions: the
	Group's expectation of the future milestones being met,
	the timing of the expected payments and discount rates.
	• Assessing the mathematical accuracy of the goodwill
	calculation.
	• Reviewing the disclosures in the financial statements of
	the HyProMag acquisition and checking if it complies
	with the requirement of the applicable standard.

Other Information

Management is responsible for the other information. The other information comprises the information included in the Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained the management's discussion and analysis prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from

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fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of Management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Jill MacRae.

BDO LLP

Chartered Professional Accountants London, United Kingdom

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

30 April 2024

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MKANGO RESOURCES LTD

Consolidated Statements of Financial Position

Reported in US dollars		As at		As at
	Notes	31 December 2023	31 December 2022
ASSETS
Current
Cash and cash equivalent		996,782	493,703
Government remittances receivable	6	107,578	13,736
Other receivables		27,041	24,157
Prepaid expenses and accrued income		195,012	144,140
Due from related parties	12	120,133	4,646
Total current assets		1,446,546	680,382
Non-current
Intangible assets	7	4,408,784	273,763
Goodwill	10	2,681,441	-
Property, plant and equipment	8	657,074	48,199
Investment in associate	9	-	396,992
Government remittances receivable	6	99,526	127,565
Total non-current assets		7,846,825	846,519

TOTAL ASSETS		9,293,371	1,526,901
LIABILITIES
Current
Accounts payable and accrued liabilities	13	590,990	773,245
Short-term contingent consideration	11	1,382,358	-
Due to related parties	12	61,754	186,426
Total current liabilities		2,035,102	959,671
Non-current
Long-term contingent consideration	11	1,696,229	-
Convertible loan note	14	-	1,603,696
Embedded derivative liability	15	-	129,650
Deferred tax liability	20	1,000,734	-
Total non-current liabilities		2,696,963	1,733,346
TOTAL LIABILITIES		4,732,065	2,693,017
SHAREHOLDERS' EQUITY
Share capital	16	43,522,854	38,376,817
Contributed surplus		5,680,588	5,120,801
Accumulated other comprehensive loss		(70,414)	(23,801)
Retained deficit		(46,585,867)	(44,639,933)
Non-controlling interest		2,014,145	-
TOTAL EQUITY		4,561,306	(1,166,116)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		9,293,371	1,526,901

The notes on pages 10 to 34 are an integral part of these consolidated financial statements.

Going Concern (Note 2)

Commitments and contingencies (Note 19)

Subsequent Events (Note 23)

The financial statements were approved and authorised for issue by the Board of Directors on 29 April 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 twelve months ended:
	Notes	31 December 2023		31 December 2022
Expenses
General and administrative	5	(4,134,980)	(3,470,482)
Mineral project expenditures		(358,542)	(2,402,070)
Total Expenses		(4,493,522)	(5,872,552)
Other items
Interest income		53	25
Finance expense		(58,356)	-
Share of associated company losses	9	(79,202)	(77,338)
Fair value losses	9	(8,804)	(24,315)
Foreign exchange gain/(loss)		74,543	(134,567)
Fair value adjustment - embedded derivative	15	326,240	122,784
Loss before tax		(4,239,048)	(5,985,963)
Income tax	18	59,097	-
Loss after tax		(4,179,951)	(5,985,963)
Loss attributable to
Common shareholders		(4,057,025)	(5,985,963)
Non-controlling interest		(122,926)	-
Attributable loss		(4,179,951)	(5,985,963)
Other comprehensive profit/(loss)
Items that may be reclassified subsequently to net loss:
Exchange difference on translating foreign operations		(46,613)	(146,179)
Total comprehensive loss		(4,226,564)	(6,132,142)
Total comprehensive loss attributable to
Common shareholders		(4,103,638)	(6,132,142)
Non-controlling interest		(122,926)	-
Attributable comprehensive loss		(4,226,564)	(6,132,142)
Loss per share - basic and diluted	21	(0.017)	(0.028)

The notes on pages 10 to 34 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 twelve months ended:
	Notes	31 December 2023			31 December 2022
Cash flow used by operating activities
Loss for the period		(4,179,951)	(5,985,963)
Adjustments for:
Share based payments		559,787	963,988
Issue of shares in exchange for services		69,000	-
Share of associated company losses	9	79,202	77,338
Fair value losses	9	8,804	24,315
Depreciation	8	32,860	18,394
Amortisation of intangible assets	7	220,249	-
Fair value adjustment - embedded derivative		326,240	(122,784)
Unrealised foreign exchange loss/(profit)		(74,543)	176,857
Deferred tax credit		(59,097)	-
Change in non-cash operating capital
Government remittances receivable and prepaid expens		(235,047)	(95,182)
Due to/from related parties		(124,672)	172,292
Accounts payable and accrued liabilities			(181,273)		(367,776)
Cash flow used by operating activities		(3,558,441)	(5,138,521)
Cash flow used by investing activities
Acquisition of intangible assets	7	(481,401)	(170,351)
Acquisition of property, plant and equipment	8	(520,153)	(26,016)
Acquisition of HyProMag - cash consideration	10	(1,271,086)	-
Cash acquired as part of acquisition	10	231,029	-
Cash flow used by investing activities		(2,041,611)	(196,367)
Cash flow generated by financing activities
Proceeds from CoTec advance notes	14(b)	517,019	1,828,776
Share issue proceeds	16	4,214,600	-
Share issue expenses	16	(282,987)	(2,557)
CoTec investment into Maginito		2,041,862	-
Cash flow generated by financing activities		6,490,494	1,826,219
Effect of exchange rate changes on cash		(387,363)	(444,478)
Change in cash		503,079	(3,953,147)
Cash at the beginning of the period		493,703	4,446,850
Cash at the end of the period		996,782	493,703

The notes on pages 10 to 34 are an integral part of these consolidated financial statements.

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MKANGO RESOURCES LTD

Consolidated Statement of Changes in Equity

Reported in US dollars

				Accumulated
				Other
		Shares to be issued	Contributed	Comprehensive		Non-controlling
	Share Capital	reserve	Surplus	Income	Retained Deficit	interest ("NCI")	Total
Balance at 31 December 2021	38,148,271	231,103	4,156,813	122,378	(38,653,970)	-	4,004,595
Loss for the year	-	-	-	-	(5,985,963)	-	(5,985,963)
Other comprehensive income:
Foreign exchange losses	-	-	-	(146,179)	-	-	(146,179)
Total comprehensive loss	-	-	-	(146,179)	(5,985,963)	-	(6,132,142)
Transactions with owners:
Issue of shares	231,103	(231,103)	-	-	-	-	-
Share issue expenses	(2,557)	-	-	-	-	-	(2,557)
Share-based payments	-	-	963,988	-	-	-	963,988
Total transactions with owners	228,546	(231,103)	963,988	-	-	-	961,431
Balance at 31 December 2022	38,376,817	-	5,120,801	(23,801)	(44,639,933)	-	(1,166,116)
Loss for the period	-	-	-	-	(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:
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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
Balance at 31 December 2023	43,522,854	-	5,680,588	(70,414)	(46,585,867)	2,014,145	4,561,306

The notes on pages 10 to 34 are an integral part of these consolidated financial statements.

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MKANGO RESOURCES LTD

Notes to the Financial Statements

For the twelve months ended 31 December 2023 and 31 December 2022

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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