Mkango Resources : Management Discussion and Analysis - May 30, 2023

MKANGO RESOURCES LTD.

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three months ended 31 March 2023

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Mkango Resources Ltd

Mine - Refine- Recycle

This Management's Discussion and Analysis ("MD&A") provides a review of the operational performance of Mkango Resources Ltd. ("Mkango", or the "Company"). The report was prepared in accordance with the requirements of National Instrument 51-102 - Continuous Disclosure Obligations, and it should be read in conjunction with the condensed interim consolidated financial statements for the three months ended 31 March 2023 and the audited consolidated financial statements for the year ended 31 December 2022 (the "Financial Statements"). The Financial Statements and the accompanying notes 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") in effect on 1 January 2023 and are prepared in United States dollars unless otherwise stated. This document is dated 29 May 2023.

The Board of Directors of the Company have reviewed and approved the information contained in this MD&A and the Financial Statements.

Readers are cautioned that this MD&A contains certain forward-looking statements. Please see the section concerning "Forward Looking Statements" below.

Additional information relating to the Company can be found on the Canadian System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com. (Please note these websites do not form part of this MD&A and only contain additional information.) The Company is listed on the TSX Venture Exchange (the "TSX-V") and holds an additional listing on the AIM Market of the London Stock Exchange ("AIM") under the symbol MKA.

FORWARD LOOKING STATEMENTS

Certain disclosures in this MD&A may constitute forward-looking statements concerning anticipated development of the Company's operations in future periods. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "believes", "budget", "continue", "could", "estimate", "forecast", "intends", "may", "plan", "predicts", "projects", should", "will" and other similar expressions. All estimates and statements that describe the Company's future, goals, or objectives, including management's assessment of future plans and operations, including statements regarding exploration results and budgets, mineral resource estimates, work programs, capital expenditures, timelines, strategic plans, market price of commodities or other statements that are not statement of fact may constitute forward-looking information under securities laws. Forward-looking information is based on reasonable assumptions that have been made by the Company as at the date of such information but, by their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond the Company's control, including the impact of general economic and political conditions, the impacts, direct and indirect, of the COVID-19 pandemic, industry conditions, volatility of commodity prices, currency fluctuations, accuracy of drilling and other exploration results, realization of mineral resource estimates, environmental risks, changes in environmental, tax and royalty legislation or other government regulation, the speculative nature of strategic metal exploration and development including the risks of contests over title to properties, the risks associated with obtaining necessary licences or permits, including and not limited to approval of any future mining licence applications and licence extensions, operating or technical difficulties in connection with development activities; personnel relations, competition from other industry participants, lack of availability of qualified personnel or management, availability of drilling equipment and access, stock market volatility and the ability to access sufficient capital from internal and external sources. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. Mkango's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. Mkango disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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Mkango Resources Ltd

Mine - Refine- Recycle

MKANGO OVERVIEW

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. This integrated 'Mine, Refine, Recycle' strategy differentiates Mkango from its peers, uniquely positioning the Company in the rare earths sector.

Mine

Mkango is developing the Songwe Hill rare earths project in the Phalombe district of Malawi ("Songwe Hill"), with a Definitive Feasibility Study ("DFS") completed in July 2022 and full Environmental, Social, Health Impact Assessment ("ESHIA") completed and approved in January 2023. Malawi is known as "The Warm Heart of Africa", a stable democracy with existing road, rail and power infrastructure, and new infrastructure developments underway. Electricity supply in the country is substantially sourced from renewables, primarily hydropower.

Highlights of the DFS include:

• US$559.0 million post-tax net present value (NPV), using a 10% nominal discount rate, with an internal rate of return (IRR) of 31.5%, payback period of 2.5 years from full production (5 years from start of capital expenditure) and post-taxlife-of-operations nominal cash flow of $2.1 billion.
• Long operating life of 18 years,
• Initial capital expenditure (capex) of US$277 million (excluding a US$34 million contingency)
• Songwe Hill is confirmed as one of the very few rare earths projects globally to have reached the DFS stage, with a full ESHIA also completed and approved by the Government of Malawi

Mkango also has an extensive exploration portfolio in Malawi, including the Mchinji rutile prospect ("Mchinji"), in addition to the Thambani uranium-tantalum-niobium-zircon prospect ("Thambani") and the Chimimbe nickel-cobalt prospect ("Chimimbe") as well as potential upside for Songwe Hill at Nkalonje Hill, a rare earths exploration target located near to Songwe Hill ("Nkalonje Hill").

Refine

In parallel, through Mkango's 100% subsidiary, Mkango Polska Sp. Z o.o., in Poland ("Mkango Polska"), Mkango is developing a rare earth separation plant at Pulawy in Poland (the "Pulway Separation Plant"), working with Grupa Azoty Zakłady Azotowe Pulawy S.A. ("Grupa Azoty PULAWY"), Poland's leading chemicals company and the second largest manufacturer of nitrogen and compound fertilizers in the European Union. The Pulawy Separation Plant is expected to process the purified mixed rare earth carbonate derived from Songwe Hill into separated rare earth oxides.

Recycle

Through its 90% ownership of Maginito Limited ("Maginito") (www.maginito.com), Mkango is also developing green technology opportunities in the rare earths supply chain in the UK, Germany and United States, encompassing neodymium (NdFeB) magnet recycling as well as innovative rare earth alloy, magnet and separation technologies.

Maginito has agreed to acquire 100% of HyProMag Limited ("HyProMag"), which is scaling-up Hydrogen Processing of Magnet Scrap ("HPMS") technology, licenced from the University of Birmingham ("UoB"), in the UK. HPMS extracts and demagnetises NdFeB (neodymium, iron and boron) magnets embedded in scrap and redundant equipment. Through HyProMag, and on conversion of a convertible loan (the "German Convertible Loan") provided by Maginito to HyProMag GmbH ("HyProMag Germany"), Maginito will also hold, directly and indirectly, 90% of HyProMag Germany, which is scaling-up HPMS technology in Germany. Maginito also holds 100% of Mkango Rare Earths Limited ("Mkango UK"), which is focused on chemical processing of magnet scrap. Initial production from HyProMag in the UK is targeted for Q4 2023 and in Germany during 2024. As part of its agreement with CoTec Holdings Corp ("CoTec"), the Company plans to progress the rollout of rare earth recycling technologies in the United States.

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Mkango Resources Ltd

Mine - Refine- Recycle

HIGHLIGHTS OF FIRST QUARTER 2023

In the first quarter of 2023, the Company continued to focus on advancing all aspects of its rare earths' Mine, Refine, Recycle strategy.

Financial

• Cash at 31 March 2023 of $5,251,495 compared to $493,703 at 31 December 2022
• Loss after tax for three months ended 31 March 2023 of $559,988 compared to $2,231,836 for the three months ended 31 March 2022 (restated), The decrease in the loss can be attributed to the fact that expenditures relating to the completion of the DFS for Songwe Hill finished in Q3 2022.

Financing Activities

• On 3 February 2023, CoTec invested a further £452,500 ($545,263), taking its total investment into Mkango to £2,000,000 ($2,410,000) by way of a convertible loan (the "Cotec Convertible Loan"), bearing 5% interest, compounded annually. The CoTec Convertible Loan can be converted into (i) common shares of Mkango ("Mkango Shares") at £0.27 per share or (ii) shares in Maginito ("Maginito Shares"), taking
  CoTec's position in Maginito to 20.6%.
• On 13 February 2023, Mkango raised gross proceeds of £3.5 million (approximately $4.2 million) via a placing and subscription totalling 28,000,000 placing shares at a price of 12.5p per share.
• On 16 March 2023, CoTec subscribed for shares in Maginito, equivalent to a post-issuance 10% equity stake, for an investment of £1.5 million ($1.8 million).

Operations & Corporate Development

• The Malawi Environmental Protection Agency approved the Environmental Social Health Impact Assessment ("ESHIA") for Songwe Hill.
• Discussions regarding the Mine Development Agreement ("MDA") for Songwe Hill are ongoing with the Government of Malawi.
• Maginito agreed to provide the €2.5 million German Convertible Loan to HyProMag Germany which will, if converted, result in Maginito holding (assuming the acquisition of HyProMag discussed below) a direct and indirect interest of 90% in HyProMag Germany.
• HyProMag is targeting first production from the UK in Q4 2023 and Germany in 2024, with parallel technology roll-out into the US.
• Maginito and CoTec have launched the roll-out of HPMS technology into the US with the following activities:
  o Evaluating the development of recycling, chemical processing, alloy and magnet manufacturing o Scoping studies and site selection ahead of feasibility studies
  o CoTec and Maginito to form 50/50 joint venture for US developments, with CoTec to fund feasibility study and project development costs
  o Engagement with US Government, potential customers and recycling partners

Subsequent Events

• Post quarter end, Maginito agreed to increase its ownership in HyProMag to 100% (the "HyProMag Acquisition") for £1 million in cash and £1 million in Mkango Shares, and a further £3 million payable in four tranches of Mkango Shares (or cash at Mkango's option) subject to certain production milestones in the UK, Germany and the US. The acquisition is expected to be complete in Q3 and remains subject to approval under the UK's National Security and Investment (NSI) Act and by the TSX-V
• CoTec has announced its intention to convert the CoTec Convertible Loan into 10.6% of the shares of Maginito upon the completion of the HyProMag Acquisition, taking its position in Maginito to 20.6%

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Mkango Resources Ltd

Mine - Refine- Recycle

• ESG specialist Philipa Varris was appointed as Non-Executive Director and Chair of the new Sustainability Committee.

SUMMARY OF FIRST QUARTER 2023 PERFORMANCE

Financial

CoTec Convertible Loan

On 3 February 2023, CoTec invested a further £452,500 ($545,263), taking its total investment in Mkango to £2,000,000 ($2,410,000) by way of the CoTec Convertible Loan, bearing 5% interest and compounded annually. The CoTec Convertible Loan is secured over the shares held by Mkango in Maginito and the terms supersede all previous convertible notes issued by Mkango to CoTec. The CoTec Convertible Loan is convertible (both principal and interest) by CoTec at any time prior to the maturity, which is 60 days following the earliest of:

1. two years following the date of the CoTec Convertible Loan;
2. the execution of definitive documentation providing for the financing of the development of Songwe Hill;
3. the sale of all, or any, material portion of Songwe Hill;
4. the execution of any agreement with a party pursuant to which such party is entitled to acquire greater than 50% of Songwe Hill; or
5. the date on which any party acquires greater than 50% of the shares of Mkango.

The principal amount of £2,000,000 ($2,410,000) may be converted at 27p per share in Mkango Shares with interest to be converted at the higher of 27p per Mkango Share and the market price of a Mkango Share at the time of conversion. The conversion price is subject to customary anti-dilution adjustments.

The CoTec Convertible Loan may also be converted, at CoTec's option, into 10.6% of the Maginito Shares. If Maginito completes the HyProMag Acquisition, CoTec will be required to convert, at its option, into Mkango Shares or shares of Maginito, and the CoTec Convertible Loan will no longer be repayable. Since quarter end, CoTec has announced that upon completion of the HyProMag Acquisition, it will convert the CoTec Convertible Loan into shares of Maginito taking its holding in Maginito to 20.6%.

Placing

On 13 February 2023, Mkango raised gross proceeds of approximately $4.2 million (£3.5 million) via a placing and subscription totalling 28,000,000 Mkango Shares at a price of 12.5p per Mkango Share (the "Placing"). The net proceeds of the Placing was approximately $4 million (£3.3million). The Company intends to use the net proceeds of the Placing to fund (through Maginito) Mkango's share of the German Convertible Loan and covers costs associated with finalising the MDA and Mining Licence for Songwe Hill, as well as working capital requirements.

CoTec Investment in Maginito

On 16 March 2023, CoTec subscribed for shares in Maginito, equivalent to a post-issuance 10% equity stake, for an investment of £1.5 million ($1.8 million).

Mine

On 26 January 2023, the Malawi Environmental Protection Agency ("MEPA") approved the ESHIA for Songwe Hill. The approval of the ESHIA is a significant achievement as it is a key milestone in the MDA approval process and is a precursor requirement for the granting of a mining licence. It is expected to unlock significant stakeholder value and future investment for the development of Songwe Hill.

The Company is currently negotiating an MDA with the Government of Malawi to provide, amongst other things, a stable fiscal regime in which the Company can operate and be attractive to financial partners. In the fourth quarter of

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Mkango Resources Ltd

Mine - Refine- Recycle