Armadale Capital (LSE:ACP) has reiterated its intention to deliver a definitive feasibility study (“DFS”) for its Mahenge Liandu graphite project in the current quarter.

Based in south-east Tanzania, Mahenge Liandu contains one of the country’s most substantial high-grade graphite resources, with high-grade coarse flakes and near-surface mineralisation contained within one ore body. Armadale is currently completing a DFS based on the results of a scoping study centred around a 400,000tpa throughput ratio. This put Mahenge Liandu’s net present value at $349 million and its pre-tax internal rate of at 122% against development capital expenditure of just $35 million, implying an after-tax payback period of 1.2 years.

In Friday’s update, Armadale said the DFS ramps up to 1 million tonnes per annum throughput after four years and will initially target high-grade, near-surface graphite mineralisation for production to maximise value. Meanwhile, it said metallurgical test-work is being completed on high-grade composites with average grades of 14.9% and 15.6% total graphitic carbon to confirm the project flowsheet is suited to high-grade ore. Likewise, site locations for all elements of the project have been finalised, an access road has been marked out, and logistics have been costed out with a local well-established Tanzanian contractor.

Beyond the DFS, Armadale said that its director Steve Mahede is confident that developing mining projects through to production is a major priority for Tanzania’s government following a recent meeting with officials. Finally, the organisation said it was beginning to advance post-DFS work programmes focused on road access, production bores, and – critically – commercialisation and project funding discussions with potential partners.

The company’s chairman, Nick Johansen, said: “With one of the largest high-grade resources in Tanzania this dovetails perfectly with our ongoing commitment to push the envelope to transform into an emerging producer by H1 2021.

“In support of this, refinements to our resource modelling and mine plan from the scoping study have increased our confidence that the project is going to be a low cost, long life operation.

“We look forward to sharing these key value metrics within the next month as we finalise the DFS, results for which we know are eagerly anticipated. I would like to thank shareholders for their patience in this regard and give my assurance that finalising this study is our primary objective. We will then look to accelerate commercialisation and funding initiatives with our partners to ensure we remain on track with our fast-paced growth plans.”

As we have previously written, the scoping study at Mahenge Liandu was based around a conservative $1,272 per tonne graphite price and an average concentrate purity of 95%.  Graphite prices are currently sitting much higher than this, and Mahenge Liandu is proven to be able to produce the material consistently at a grade considerably higher than 95%. Last year, we looked at whether investors were missing a significant opportunity at Armadale given this conservative approach.

As we highlighted, Australian miner Black Rock recently agreed to supply “premium” graphite with a nominal grade of between 97.5-98.5% for $1,490 a tonne and “ultra” graphite grading more than 99% for $2,161/t.   Both of these prices come in at a significant premium to the $1,272/t used by Armadale in the scoping study for Mahenge Liandu, which neighbours and shares many similarities with Black Rock’s Mahenge asset.  f Armadale can secure binding sales agreements at a much higher price than $1,272, then Mahenge Liandu’s fundamentals would be enhanced even further.

Author: Daniel Flynn

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