Kibaran Resources secures binding off-take deal with European Graphite Trader
Kibaran Resources (ASX: KNL) has achieved a major milestone in signing a binding offtake
agreement with a sophisticated European graphite trader (EGT), which
significantly de-risks the development of the company's Tanzanian
project.
Kibaran is the first ASX listed company to sign a binding off-take agreement for graphite sales.
The
off-take agreement to purchase 10,000 tonnes of flake graphite
concentrate per year, over a 5 plus 5 year period, provides an
independent endorsement of the quality and commercial appeal of graphite
at the Epanko deposit.
The pricing of graphite sales is related
to flake size, with key attributes of Epanko graphite its distribution
and quality, including large and very large flake sizes.
Kibaran
wholly-owns the Epanko deposit which currently has an Inferred JORC
Resource of 14.9 million tonnes at 10.5% TGC, for 1.56 million tonnes of
contained graphite. The deposit is located within the Mahenge Graphite
Project.
Highlighting the potential to expand the resource, the
initial estimate only covers 20% of the project area. Metallurgy has
found Epanko graphite to be large flake and expandable in nature.
Under
the terms of the binding off-take agreement, the EGT guarantees the
purchase of 10,000 tonnes of graphite concentrate per year from Kibaran,
for an initial period of five years with the option to renew for a
further five years, on a market based pricing mechanism. This is a
contractual provision and not a production target.
Andrew Spinks
Andrew
Spinks, executive director, commented: “Kibaran is the first ASX-listed
company to sign a binding graphite off-take agreement, and the first
company globally to sign a graphite off-take that provides a solid entry
position into the sophisticated European market."
Importantly,
the off-take deal is a strong endorsement of the quality and commercial
appeal of the large flake graphite identified at Epanko.
Spinks
added, “Furthermore, the potential 10-year length of the contract
underpins the strong long-term outlook for graphite demand, particularly
for large flakes that are extremely sought after for value-add,
high-technology carbon products.”
The importance of graphite size in the sales process
The
pricing of graphite sales is related to flake size. Key attributes of
Epanko graphite are its distribution and quality, including large and
very large flake sizes.
This includes large and very large flake
sizes – favourable distribution with 73.8% in the +106 micron fraction
and 21.6% in the +300 micron fraction, which is the high value graphite.
The project's graphite also has a very low percentage of fines, which is the low value graphite (26.2% in the -106 micron).
There is ‘expansion’ capacity – as the graphite is considered suitable for the 'expanded' graphite market.
Flake graphite shortage looms
Flake
graphite output is set to endure a significant cut next year after one
of China's biggest flake graphite producing regions was ordered by the
local government to halt production activities on environmental grounds.
This means 20% of the country's supply will be put on hold, equating to 10% of global supply, or 60,000 tonnes per year.
Pindgu is China’s oldest flake graphite producing region and has a capacity of 100,000 tonnes.
It
is only second to Heilongjiang province in China in terms of production
power which has a capacity of 280,000 tonnes and produced 120,000 to
140,000 tonnes in 2013.
The closures are expected to last until at least June of next year
European graphite trader acquiring shares
Adding
to a further vote of confidence in Kibaran's Epanko deposit, the
agreement with the European graphite trader also entitles it to acquire 5
million Kibaran shares at $0.10, a 25% premium to the closing price on
Friday.
The EGT will also have the right to participate in any
future capital raisings by Kibaran to maintain its equity level in the
company.
Analysis
The agreement
provides Kibaran with a significant partner in the graphite industry to
jointly market and sell graphite with the security of an overriding
off-take guarantee from the EGT.
It provides Kibaran with a significant advantage in gaining a foothold in the tightly controlled graphite market.
Tanzania has a stable and supportive Government – committed to mining industry growth and development.
Kibaran
could also benefit from significant cuts to flake graphite output in
China, after one of the country's biggest flake graphite producing
regions was ordered by the local government to halt production
activities on environmental grounds.
Near-term catalysts for
Kibaran include progressing additional strategic, long-term partnerships
that will help the company to potentially become a major producer of
graphite in Tanzania.
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