Kibaran Resources is first ASX listed graphite company to sign off-take agreement
Kibaran Resources (ASX:KNL) is an ASX listed explorer and developer of the Epanko Graphite Deposit within the Mahenge Graphite Project, the Merelani – Arusha Graphite Project, and Kagera Nickel Project, which are all located in Tanzania.
Recommendation: Speculative Buy
ASX Code: KNL
Share Price: $0.13
52 Week High: $0.28 Low: $0.04
Issued Ordinary Shares: 67.1M
Market Cap: $8.7M
Enterprise Value: $7.6M
- Kibaran Resources (ASX: KNL) is an emerging graphite developer that is fast tracking the Epanko Graphite Deposit in Tanzania into production by 2015.
- Epanko has a major economic advantage over competitor projects as a high grade asset with an Inferred JORC resource of 14.9 million tonnes at 10.5% Total Graphitic Carbon.
- The resource hosts highly valued and sought large flake sized carbon with 73.8% greater than 106µm, 21.6% greater than 300µm, and with a low component of lesser valued fines at 26.2%.
- Current resource estimate only covers 20% of the known footprint of Epanko. This provides very strong potential for further growth in the resource and underpins long term development aims and valuation parameters for investors.
- Large flake carbon is an essential component of lithium ion batteries for portable devices, and electric vehicles. Additional growth areas include heat sinks for portable electronic devices, fuel cells, solar energy, pebble bed reactors and development of new markets for graphene, which is a chemically processed form of large flake graphite that is the strongest and thinnest material ever developed.
- China currently produces 75% of the global supply of graphite, and is now restricting exports for economic, strategic and environmental reasons.
- The strategic and long term economic value of large flake graphite at Epanko has led a major European Graphite Trader “EGT” to complete due diligence at Epanko and sign a long term offtake agreement. The EGT will purchase 10,000 tonnes of graphite concentrate per year for a term of 5 years, and holds an option for a further 5 years at the same offtake rate.
- The offtake agreement underwrites the development credentials of Epanko, as well as demonstrating Kibaran is undervalued against peers such as: Valence Industries and Canadian listed Focus Graphite. Our contingent valuation for Kibaran is $0.39 per share (see valuation).
Kibaran Resources is an ASX listed explorer and developer of the Epanko Graphite Deposit within the Mahenge Graphite Project, the Merelani – Arusha Graphite Project, and Kagera Nickel Project, which are all located in Tanzania.
Kibaran Resources GRAPHITE AND NICKEL PROJECTS IN TANZANIA
The Mahenge Graphite Project is 100% owned by Kibaran and encompasses the Epanko Deposit. Mahenge is located 245 kilometres south-west of Morogoro, and 120 kilometres from a rail link that runs to the port and coastal city of Dar Es Salaam.
Development focus is on Epanko where an eastern and western zone of graphite mineralisation has been identified. Reverse circulation and diamond drilling, along with trenching activity has defined a conceptual exploration target of 60 to 110 million tonnes of graphitic schist carrying 8% to 11% Total Graphitic Carbon.
GSA Global Pty Ltd completed a maiden JORC compliant Inferred Resource of 14.9 million tonnes at 10.5% Total Graphitic Carbon, at a cut-off grade of 8% that contains 1.56 million tonnes of graphite. The maiden JORC resource estimate only covers 20% of the known footprint of the Epanko Project area, with mineralisation open in all directions.
Epanko is the highest grade graphitic resource defined in Tanzania and carries a comparable or better grade to other historical graphite producers located in East Africa.
MINERALISED TRENDS AT EPANKO REMAIN OPEN IN ALL DIRECTIONS
The Merelani-Arusha Graphite Project is 100% owned by Kibaran, and includes 7 tenements that cover 973.4 square kilometres and are located 55 kilometres south-east of Arusha, in northern Tanzania. The project area is considered highly prospective for the discovery of large flake graphite mineralisation.
Kibaran has mapped graphitic schist over a length of 1,500 metres and widths of up to 200 metres. Rock chip samples have assayed up to 8.1% Total Graphitic Carbon, and a metallurgical head grade of 17.1% Total Graphitic Carbon. A Reverse circulation drill program is planned.
The Company is now in discussions with neighbouring tenement holders with the view to consolidating the tenement position.
The Kagera Nickel Project is 100% owned by Kibaran, and covers an area of 864 square kilometres along the western border of Tanzania. The project is located 10 kilometres along strike from the Kabanga Nickel Project owned by Xstrata Nickel and Barrick Gold. Kabanga is the world’s largest undeveloped high-grade nickel sulphide occurrence.
Kagera is located within the Karagwe- Ankole Belt that hosts similar geological and geophysical characteristics to other nickeliferous Proterozoic orogenic belts around the world. The project area is underexplored compared to other prospective nickel regions, with several early stage nickel targets identified by Kibaran at Ruiza East and Shanga.
Kagera is considered a secondary project that may provide long term growth and diversification after the graphite resources are placed into production.
Current Status at Epanko - testwork confirms positive metallurgy
The company has completed three independent metallurgical test work programs that included Mintek of South Africa, and were followed by testwork at a leading European manufacturer of carbon based products and a large European Graphite Trader.
Testwork confirmed that floatation achieved a recovery of graphitic carbon that exceeded 96%, and produced a concentrate grade of 93% fixed carbon. Results confirmed that Large Flake graphite constituted 73.8% of the recovery that exceeded 106µm (micron) fraction, and 21.6% that exceeded 300µm fraction.
The finished product was clean, with no visible natural mineral impurities, and confirm that the use of standard recovery processes produce a marketable product that is suitable for the “expanded” graphite market. This confirms that Epanko will generate a high rate of return from the sale of high grade flake products.
Scoping Study confirms further development of Epanko is warranted
Intermine Engineering Consultants of Perth completed a Scoping Study that estimated a total CAPEX of $39 million to complete a mine and process plant capable of treating 200,000 tonnes per annum of raw graphite feedstock. This included mining $2 million, process plant $24 million, infrastructure $4 million, EPCM (engineering, procurement and contract management) $5 million and contingency of $4 million.
The graphitic mineralisation will be mined by open pit, with mineralisation known to occur from surface, and reaching downhole depths of up to 107 metres.
A preliminary proposal utilises a process plant with conventional crushing and milling circuits to feed a multi stage floatation plant. Concentrate will be dewatered and dried before packing for export.
Transport options include direct trucking to Dar Es Salaam, or trucking 120 kilometres to the nearby Ifakara rail siding.
Feasibility Studies will establish reserve status, fine tune data from the Scoping Study and optimise CAPEX and OPEX costs.
GRAPHITE AT EPANKO AMENABLE TO TREATMENT VIA A LOW COST CONVENTIONAL PROCESS PLANT
Catalysts – 2014 to 2015
- Engineering drilling to assist with Pre-Feasibility Studies to be completed in January of 2014.
- Completion of diamond drilling to upgrade Inferred Resources to Indicated and Measured Resources, now underway, with results expected in the March quarter of 2014.
- Metallurgical and pilot plant production studies to be completed in March quarter of 2014.
- Community and Environmental Studies to be completed by end of September quarter of 2014.
- Mine design completed in June quarter of 2014.
- Permitting and Mining Lease completed in December quarter of 2014.
- Detailed plant engineering completed in December quarter of 2014.
- Announcement of additional strategic relationships for increased production of graphite, and financing terms to be completed on dates to be advised in 2014.
- Mine and process plant construction completed in June quarter of 2015.
Tanzania exhibits solid growth and is mine friendly
Tanzania has a stable government that is committed to the growth of its mining industry within a liberalised market economy. GDP growth was 6.9% in 2012 driven by growth in the mining and tourist industries.
Country risk is significantly reduced by long term political stability and international financial and political support.
Kibaran has good access to a skilled and educated workforce along with local mining support services. Tanzania also has established infrastructure that includes road and rail that feeds into a nearby port for export of concentrates.
Traditional uses for graphite include steel refining, foundries and lubricants that consume mostly fine flake product that is priced at around $800 per tonne. High technology applications are driving the demand for large size and high grade flake at $1,350 per tonne, and technologically upgraded or spherically coated flake that can fetch from $6,000 to $10,000 per tonne.
Newer applications for high grade large flake and upgraded flake include lithium ion batteries, computer heat sinks, construction materials, nuclear pebble reactors, and development of graphene which is the strongest material known to man.
Demand for lithium ion batteries is growing at 30% to 40% per year, and is led by the electric car industry which is growing by 20% per year. Each electric car battery requires 30 kilograms of high grade graphite with demand projected to reach 1,000,000 tonnes per year in 2020.
China currently controls approximately 75% of global output of graphite and is imposing a number of controls on its local industry for strategic and economic reasons. This includes the recent shut down of approximately 20% of its output due to environmental issues. This equates to a shut-down of 60,000 tonnes per year of graphite concentrates, or approximately 10% of global output, and has set off a global push to secure long term supplies of high grade flake from other sources.
Offtake agreement de-risks development of Epanko
Kibaran has issued 67.1 million shares that are trading at $0.13 for a market capitalisation of $8.7 million that includes current cash resources of $1.1 million.
The recently announced offtake agreement with the EGT significantly de-risks development of Epanko, with cash flows from the contract to underwrite development funding.
The EGT also has the right to subscribe for 5 million shares in Kibaran at $0.10 per share to raise $500,000, and to maintain its equity level in future funding.
The recently completed Scoping Study was based on an annualised process rate of 200,000 tonnes of graphitic feedstock at a grade of 10.5% Total Graphitic Carbon.
This should produce approximately 20,000 tonnes of graphite concentrate each year, consisting of 21.6% large flake, 52.2% medium flake and 26.2% fines. Ongoing feasibility studies are now aimed at refining and upgrading this estimate.
Kibaran now a front runner within its peer group, but lags significantly on a valuation basis
By virtue of its off take agreement and project quality, Kibaran ranks highly against its peers.
This group includes recently listed Valence Industries (ASX:VXL) which is looking to restart South Australia's historic Uley graphite mine and has a market cap. of $46 million relative to Kibaran’s market cap of $8.7 million.
On a range of metrics, Kibaran is every bit as compelling as Valence:
- Issued capital: 148m (Valence) vs 67m (Kibaran)
- Deposit size: 6.4 mt (Valence) vs 14.9 mt (Kibaran)
- Deposit grade: 7.1% (Valence) vs 10.5% (Kibaran)
- Flake size (%passing > 75 micron): 60% (Valence) vs 85% (Kibaran)
- Super flake size: [not known for Valence) vs 21.6% in the super large flake size grading (Kibaran)
- Offtake agreement: none (Valence) vs EGT (Kibaran)
- Production timeline: 2014 (Valence by processing existing stockpiles) vs na (Kibaran)
- Capital cost: $34m for Valence for 50,000t graphite pa vs $39m to produce 20,000t graphite pa
On a global comparison, Kibaran also compares favourably to international peers that includes Canadian listed Focus Graphite (TSXV: FMS) which owns the Lac Knife graphite deposit in Canada.
Focus completed a Preliminary Economic Assessment to process 300,000 tonnes of graphitic ore to produce 44,200 tonnes of graphite concentrate consisting of 33% large flake, 11% medium flake and 51% fines. Focus has just signed an offtake agreement with Chinese interests to sell up to 40,000 tonnes of graphite concentrate per year, and is capitalised at C$49.2 million / A$51.9 million.
Our preliminary valuation at this stage is a 12 month share price target of $0.39 based on our model relative to Valence and Focus’ projects. Epanko’s production rate is estimated at 20,000 tonnes per annum versus 40,000 tonnes per annum at Lac Knife.
Lac Knife has a CAPEX of $133 million versus a CAPEX of $39 million for Epanko, and a CAPEX of $34 million for Valence. While Valence can move into production earlier than Kibaran, the latter’s off take agreement tends to counter that advantage.
In addition, we have attributed part of the valuation to the ability of Epanko to produce a much higher percentage of larger flake concentrate, and only half the fines.
Lac Knife has a Mineral Resource of 7.9 million tonnes at a grade of 15.7% Total Graphitic Carbon versus Epanko with 14.9 million tonnes grading 10.5% Total Graphitic Carbon. The resource evaluation at Epanko has only covered 20% of its resource targets and provides very significant blue sky for resource and long term production growth.
Our valuation of $0.39 per share or $26 million market valuation within 9 – 12 months is contingent on successful completion of feasibility studies in the near term. This provides an opportunity for investors.
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