Are investors missing a massive buy at Armadale Capital as DFS confirms its project’s world-class potential? (ACP)

Tuesday saw Armadale Capital (LSE:ACP) confirm its 100%-owned Mahenge Liandu project as a “large, long-life, low-cost graphite deposit” in its long-awaited definitive feasibility study (“DFS”). The work gave the Tanzania-based project a substantial estimated net present value of $358 million (£289 million) and an attractive internal rate of return of 91%.

However, with these figures being underpinned by a highly conservative graphite price, the reality is that Mahenge Liandu could, in fact, be worth much more to Armadale. With this in mind, the company begins to look all the more undervalued with a current market cap of just £10 million.

Just the beginning

To recap, Mahenge Liandu is one of the most significant graphite resources in Tanzania, with an estimated indicated and inferred mineral resource of 59. million tonnes at 9.8% total graphitic carbon (TGC).

Critically, the asset can consistently produce high quality, high purity graphite suitable for application in the lithium batteries used to power electric vehicles. This is a market that Deloitte expects to more than double in size over the next five years alone. Even more rapid expansion is predicted in the years beyond this as the world moves entirely away from traditional vehicles.

Armadale plans to develop Mahenge Liandu using a staged ramp-up approach. Specifically, it will produce 60,000 tonnes of graphite a year for the first four years of operation, before increasing this to 90,000 tonnes for the remainder of the asset’s initial 17-year mine life.

In Tuesday’s DFS, Armadale found that this approach would provide total pre-tax cashflow of $882 million over life of mine, with payback expected over just 1.6 years against a capital cost estimate of $38.6 million. These figures are already attractive. Indeed, as Armadale’s chairman Nick Johansen put it on Tuesday:

This study represents one of the most significant de-risking milestones in the company’s history to date, and we are delighted with the outcome. Across all commodities globally, there are few mining projects that can demonstrate economics such as a 91% IRR and a 1.6-year payback upon capital.”

However, it is critical to note that the organisation that average sales price underpinning these economics is just $1,179 per tonne (“/t”). Not only is this considerably lower than the $1,271/t basket price used by the firm in its scoping study back in March 2018, but it is far below the rate that battery-grade graphite typically commands.

In May last year, Armadale’s neighbour Black Rock Mining was able to secure binding sales agreements for its “premium” (97.5-98.5% TGC) grade and “ultra” (>99% TGC) grade graphite of between $1,490/t and $2,161/t.

Armadale has proven that Mahenge Liandu can easily mirror these sorts of grades, with work last month confirming that the project is capable of grinding a consistent purity of above 97%. If, like Black Rock, the firm can sell its graphite for up to $2,161/t, then the impact on Mahenge Liandu’s fundamentals would be monumental.

Alongside this, the project itself offers an enormous amount of upside – current calculations utilise just 25% of its total resource, which remains open in multiple directions. As Armadale itself put it in Tuesday’s release, Mahenge Liandu offers scope for improved economics through the “delivery of further detailed modelling of higher-grade zones”. Work here is already underway.

Moving forward, Armadale plans to begin its application for a mining licence in the second quarter and has put forward a projected timeline to first production of around 10-12 months from the start of construction.

Now that it has established strong economics on conservative grounds for Mahenge Liandu and shown the asset’s upside, the road to securing the necessary funding for these stages is much clearer for Armadale. Indeed, as Johansen highlighted on Tuesday, potential offtake agreements have been secured and are now much more likely to move forward. Likewise, he said the company was now in a strong position to advance workstreams on potential debt finance packages and project level development funding for construction.

Updates on these developments seem likely over the coming weeks and months. Once the current, Covid-19-driven market turmoil passes, perhaps we will finally see the catalyst that triggers a re-rate for Armadale that will allow its market cap to more accurately reflect Mahenge Liandu’s value.

Author: Daniel Flynn

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

Armadale Capital primed for emerging producer status after confirming Mahenge Liandu’s world-class potential (ACP)

Armadale Capital (LSE:ACP) is primed and ready to launch into its transformation from explorer to emerging producer after confirming that its Mahenge Liandu asset is among the highest-grade graphite projects globally.

In an update on Wednesday, the £9.4 million firm said met test work has confirmed that the Tanzanian property can produce “high quality, high purity graphite”. Specifically, conventional technology at Mahenge Liandu is now proven to be capable of achieving grinding consistent purity of above 97% TGC (graphitic carbon content) – among the highest grades in its sector.

In layman’s terms, as the “purity” of graphite rises, so does its range of potential applications and, in turn, the value at which it can be sold. One established use for high purity graphite is in the “foils” that feature in all of our electrical devices – from our smartphones to our computers.

However, perhaps the most exciting application of the material moving forward is in the lithium-ion batteries that power electric vehicles (“EV”). Despite their name, these power sources include around ten times more graphite than they do lithium.

With Deloitte expecting the amount of EVs sold to rise from 4 million in 2020 to 12 million in 2025, and 21 million by 2030, the sector will drive graphite demand growth for many years to come. It is therefore highly encouraging that Armadale has confirmed that a large proportion of graphite concentrates tested at Mahenge Liandu were in the medium size fraction, making them “ideally suited to the battery market”.

Key milestone

Chairman Nick Johansen added that the results of the met test work programme market represent a “key milestone” for Armadale, confirming its long-held confidence in the asset’s commercial and economic potential.

Indeed, the project already boasts an established JORC-compliant indicated and inferred mineral resource estimate of 59.48Mt at 9.8%, making it one of the largest high-grade resources in Tanzania. Likewise, a scoping study in 2018 based on a throughput of 400,000 tonnes per annum over a 32-year mine life outlined exceptional project economics. These included a $349 million net present value and a 122% internal rate of return as well as a significant capacity for extension: the current mine plan is based on just a quarter of the project’s total resource.

Meanwhile, the region in which Mahenge Liandu is based is on of the most prolific for graphite globally as it hosts vast reserves of small and medium flake sizes alongside the coarser “large flakes” with fewer applications. As such, the area – and African countries in general – are becoming a more popular purchase destination for parties with graphite needs over China, where rising environmental standards are forcing many plants to shut.

The location of the Mahenge Liandu project (Source: Armadale Capital)

Moving forward

The results of the met test work on Wednesday – which prompted a 23% increase in Armadale’s share price – will now feed into a definitive feasibility study (“DFS”) for Mahenge Liandu. The company said this work will build on the existing scoping study and is “at the heart” of its transformation into a producer.  Finally, Johansen added that the DFS remains on track for delivery by the end of March despite the global outbreak of Covid-19:

Naturally, ensuring the safety of our team is our primary responsibility, but as most of our work currently comprises desktop studies and the processing of results from previous fieldwork we have been able to progress these activities remotely. We look forward to updating shareholders on the DFS results imminently.”

Once the DFS completes, Armadale’s technical director Matt Bull tells us that Mahenge Liandu will move into the Front End Engineering Design, or “FEED”, stage. This will see the firm complete various studies to figure out any technical issues and estimate a rough investment cost ahead of the engineering, procurement, construction, and ultimately production phases.

Alongside this, Bull said that financing and offtake discussions with potential partners are ongoing. Despite possible turbulence in the face of the continuing global coronavirus pandemic, he remains absolutely confident that Mahenge Liandu’s sheer graphite quality will see these engagements conclude:

“These latest results prove what we already knew about Mahenge Liandu definitively – the area we will begin mining in can produce a very fine and pure product that can be used in the battery market. Although the current market crisis may present short-term difficulties as we pursue strategic partners, the quality of our asset, paired with soaring graphite demand and a move away from Chinese production, means partner interest will continue.”

Author: Daniel Flynn

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

VIDEO: Re-visit Matt Bull's update on Armadale Capital’s progress at Mahenge Liandu in exclusive presentation (ACP)

Towards the end of October, Ben Turney from our sister site ValueTheMarkets hosted Armadale Capital’s (LSE:ACP) technical director Matt Bull in a recorded presentation and interview. Bull provided a comprehensive update on the firm’s progress at its wholly-owned Mahenge Liandu graphite project in Tanzania, where it is currently completing a feasibility study.

Among the topics covered were the project’s market-leading graphite purity and flake size and Armadale’s ongoing progress in securing offtake agreements and financing for its development. Elsewhere, Bull provided an update on the increasing demand for graphite globally against a backdrop of shrinking supply from China as the country tightens its environmental controls.

He also argued that the economic fundamentals currently used at Mahenge Liandu are looking increasingly conservative given the attractive offtake deals recently secured by several of Armdale’s peers at their projects. This was a point recently highlighted in MiningMaven’s detailed report on the business, which can be read here.

During the presentation, Bull also took questions from shareholders. These focused on numerous subjects, including the firm’s intention to hire a CEO, its plans for communicating its message, and the positive impact that recent progress could have on Mahenge Liandu’s economics.

For a full recording of the presentation, please see below:

Armadale Capital - Online Presentation and Q&A Session - 25/10/2019 from ValueTheMarkets.com on Vimeo.

Author: Daniel Flynn

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, does not own a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

MiningMaven Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and MiningMaven Ltd are not responsible for the article’s content or accuracy and do not share the views of the author. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance

Armadale Capital: Advancing one of the world’s highest-grading, large-flake graphite resources (ACP)

Armadale Capital’s (LSE:ACP) primary interest is its 100pc-owned Mahenge Liandu project in Tanzania– one of the world’s highest-grading, large-flake graphite resources.

Throughout summer 2019, the company’s share price has soared as work completed as part of an ongoing feasibility study (FS) has continued to demonstrate the asset’s market-leading grades and flake size.

All the while, Armadale’s efforts to secure offtake financing arrangements for its project have continued against a backdrop of improving demand for graphite - a key element in the production of electric vehicle batteries.

With several of Armadale’s peers securing highly attractive terms for the offtake of graphite produced at their projects, the economic fundamentals used to date at Mahenge Liandu are looking increasingly conservative.

In the report below, we have analysed the opportunity for shareholder value creation at the organisation in detail.

Please click here to download and read the report in full.

 

Armadale Capital confirms ‘exceptional’ graphite purity at major Tanzanian project (ACP)

Armadale Capital (LSE:ACP) enjoyed a 3.2pc lift to 1.29p on Thursday morning after confirming that premium quality, high-value graphite concentrates can be produced from its flagship Mahenge Liandu deposit.  The latest round of metallurgical test-work at the Tanzania-based project delivered graphite concentrates of up to 97.1pc purity for large and medium-size flake fractions – something Armadale described as ‘exceptional’.

All-in-all, the average grade of the composite sample was 8.65pc total graphite content. This produced an average purity of 96pc across all flake sizes with an average of 97pc in the high-value jumbo, large and medium flake size ranges. These results comfortably exceed the 95pc average purity used in the company’s scoping study for Mahenge Liandu and fall in line with the high-quality graphite sourced from similar projects in the surrounding Mahenge region.

Armadale is now carrying out test-work on a high-grade composite that aims to maximise the proportion of larger flake sizes from Mahenge Liandu. Further optimisation work is also ongoing at a leading metallurgical laboratory in Perth, Australia.

Armadale’s latest test-work forms part of ongoing Definitive Feasibility Study at Mahenge Liandu based on the results of a scoping study completed in March last year.  The study was based on a throughput of 400,000tpa of graphite over a 32-year mine life and showed that the project is economical and warrants further development based on a conservative $1,272/t graphite price. The project boasts a JORC-compliant indicated and inferred mineral resource estimate of 51.1Mt at 9.3pc total graphite content, making it one of the most substantial high-grade resources in Tanzania.

Speaking to MiningMaven, Armadale’s technical director Matt Bull said that prices for premium purity graphite concentrate with a purity of more than 95pc are much higher than the standard grade of 95pc or less.

The standard grade is 95pc total graphite content, so if you can produce at a purity above that then the prices you can command increase with each percent point. The fact that we have we got up to 97.1pc, and can produce above 95pc consistently is very exciting and reflects the prospectivity of our surrounding area,’  he said. ‘This means we can deliver a top-drawer product to fast-growing end markets such as the lithium-ion batteries that power electric vehicles. This clearly enhances Mahenge Liandu’s overall economics at a time when we are steadily progressing from explorer to emerging producer.'

Bull adds that the results should also help Armadale in gaining greater traction with prospective Chinese off-take and project finance partners.

‘The offtake and project financing talks are progressing well, and our ability to demonstrate that we can consistently produce high-quality graphite concentrates from our project area will be really important in making progress and securing partner,’  he said.

We recently looked at whether investors are missing a major opportunity at Armadale given the conservative figures used in Mahenge Liandu’s scoping study. Australian miner Black Rock recently agreed to supply ‘premium’ graphite with a nominal grade of between 97.5-98.5pc for $1,490/t and ‘ultra’ graphite grading more than 99pc 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.

If Armadale can secure binding sales agreements at a much higher price than $1,272, then Mahenge Liandu’s fundamentals would be enhanced even further. For example, if it could agree on a graphite sale price of $2,161/t, then the project’s NPV would nearly double.  If this occurred, then the argument for Armadale being undervalued would strengthen, and the likelihood of a re-rate could increase.

To read more, please click here

Author: Daniel Flynn

The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.

The Author has been paid to produce this piece by the company or companies mentioned above.

Catalyst Information Services Ltd, the owner of MiningMaven.com, owns a position in the stock(s) and/or financial instrument(s) mentioned in the piece.

Catalyst Information Services Ltd, the owner of MiningMaven.com, has been paid for the production of this piece by the company or companies mentioned above.

MiningMaven.com and Catalyst Information Services Ltd are not responsible for its content or accuracy. News and research are not recommendations to deal, and investments may fall in value so that you could lose some or all of your investment. Past performance is not an indicator of future performance