Kibaran Resources inks graphite MOU with Richland Resources in Tanzania
Kibaran Resources (ASX: KNL) has signed a non-binding MoU with UK-listed Richland Resources (LON: TNZ) targeted at consolidating their Merelani graphite assets that could provide a second source of graphite in Tanzania.
With this, we expect Kibaran to open stronger in ASX trading this morning, lifting the graphite footprint of the company and potentially providing scale in Tanzania for graphite operations.
It follows the company recently securing a binding offtake agreement
with a sophisticated European graphite trader for its flagship Epanko
Deposit at the Mahenge Graphite Project.
Under today's MoU agreement, the two companies will undertake due diligence and work towards legally binding agreements to consolidate their respective graphite assets in the Merelani region in a joint venture.
Richland’s graphite assets are located within the 7.6 square kilometre mining licence area jointly licenced on a 50:50 basis to Richland’s wholly owned subsidiary TanzaniteOne Mining Limited and the Tanzania’s State Mining Corporation.
This includes the historical Merelani Graphite Mine plant with a nameplate capacity of 15,000 tonnes per annum that was closed in the late 1990s.
Other infrastructure includes the tailing storage facility, power, water, administration facilities, site camp and services.
Kibaran’s Merelani-Arusha Graphite Project consists of seven tenements and covers an area of 973.4 square kilometres about 12 kilometres east of TanzaniteOne Mining’s mining licence.
Kibaran has a 90-day exclusive due diligence period under the MoU which will include a site visit by its directors and design/mechanical engineers to evaluate the processing plant and the cost of refurbishment to return it to operational status for graphite production.
“Following the recent milestone achievement of a signed binding off-take agreement for Epanko graphite, we are pleased to be in negotiations to progress the Company’s Merelani-Arusha Graphite Project with the Richland group – the owners of the historical Merelani Graphite Mine,” Kibara executive director Andrew Spinks said.
Merelani Graphite Mine
The Merelani Graphite Mine commenced mining operations in 1995 and produced 6,776 tonnes of graphite.
While mineralisation was initially identified to be sufficient for a 40-year operation at a mining rate of 15,000 tonnes per annum of high-grade flake graphite of 97-98% purity, the mine encountered financial problems in 1997 and the last shipment of remaining stockpiled ore was made in February 1998.
Richland acquired the Merelani Tanzanite and Graphite Mine in 2004 from African Gem Resources, which had modified the graphite mining operation and plant to focus on tanzanite gem extraction only.
Significant infrastructure and equipment originally installed for the extraction and processing of graphite still exist and are currently partly in use for Richland’s tanzanite mining operation.
Richland currently has over 650 employees and well established infrastructure on the same property, including offices, accommodation, engineering facilities, water, electricity, haulage roads and a Tanzanite processing plant.
The Merelani-Arusha province in Tanzania is best known for the occurrence of the rare gemstone, Tanzanite.
The highly unusual hydrothermally-altered geological environment that produces Tanzanite is thought to also give rise to the graphite mineralisation in the local gneissic host rocks at Merelani-Arusha, and may provide an explanation for the occurrence of such large flake graphite in the region.
The recently announced offtake agreement with the European graphite trader 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.
Epanko has a current Inferred Resource of 14.9 million tonnes at 10.5% total graphitic carbon with metallurgy indicating the graphite to be large flake and expandable in nature.
Highlighting the potential to expand the resource, this covers just 20% of the project area.
With existing infrastructure, including a graphite processing plant, Kibaran’s MoU with Richland Resources presents the company with the potential to establish a second source of graphite in Tanzania that can be quickly brought into production in the medium term.
That the Merelani Graphite Mine had previously produced high-grade flake graphite of 97-98% purity also substantially de-risks the project.
Substantial resources should also remain at the project given that while the project was projected to be sufficient for a 40-year operation at a mining rate of 15,000 tonnes per annum, just 6,776 tonnes of graphite were produced before the mine was shut.
Kibaran already has the security of an overriding off-take guarantee from the EGT for its Epanko deposit, which also gives the company an advantage in gaining a foothold in the tightly controlled graphite market.
This could benefit any potential JV with Richland.
Today's MoU is value accretive in the short term for Kibaran.
Recently, Proactive Investors estimated a preliminary valuation of $0.39
over 12 - 18 months for Kibaran 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.
Our valuation of $0.39 per share is contingent on successful completion of feasibility studies in the near term.
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