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

Armadale makes further headway in its efforts to commercialise major graphite project (ACP)

Shares in Armadale Capital (LSE:ACP) sat at 1.1p on Tuesday morning after the graphite-focused firm revealed several areas of substantial progress at its flagship Mahenge Liandu project in Tanzania.

Armadale said initial metallurgical test-work results for the project, which it is currently advancing towards commercialisation, demonstrated graphite recovery of up to 95pc total graphite content (TGC). Although this is consistent with expectations, the organisation is now completing incremental test-work to enhance the quality of its final graphite concentrate product.

It added that this new stage of metallurgical work is ‘progressing well’, with targeted premium purity levels currently sitting in the 95-97pc range. Such an enhancement would place Mahenge Liandu towards the high-end of graphite project globally, potentially facilitating premium pricing being factored into future offtake agreements.

Elsewhere, Armadale said that a review of local rainfall data has indicated that the project will have enough surface water for both mining and processing. The use of surface and recycled water will minimise run-off from the site and into surrounding communities.

Meanwhile, the business said further test-work has confirmed that water bores can be used in Mahenge Liandu’s process plant, mine construction, and operation phases and that groundwater can be used in drought conditions. These reduce the need for a bore field to be constructed to supply water, cutting overall project costs.

Finally, Armadale said it recently held a meeting with a director of the council committee of the nearby Liandu village. This saw both parties agree that their existing relationship has delivered ‘considerable value’ to the community over the past two years and should continue.

Mahenge Liandu boasts a high-grade JORC-compliant indicated and inferred mineral resource estimate of 51.1Mt at 9.3% TGC. This includes 38.7Mt at 9.3pc TGC and 12.4Mt at 9.1pc TGC, making the project one of the most considerable high-grade resources in Tanzania.

Armadale is currently in the processing of completing a definitive feasibility study (DFS) for the project based on the results of a scoping study that was completed in March last year. This DFS is scheduled to end in Q4 this year.

The firm’s scoping study suggested that Mahenge Liandua could produce an average of 49,000tpa worth of high-quality graphite products for a 32-year mine life – with plenty of upside potential. Other highlights included an operating cost of $408/t, based on an average 12.5pc TGC life of mine grade, a pre-tax IRR of 122pc and an NPV of $349m with a low development capex of $35m.

Towards the end of last month, Armadale notably revealed what it described as ‘exceptionally high-grade assay results’ for the first four holes in an 18-hole reverse circulation drill programme at Mahenge Liandu. High-grade near-surface assayed intercepts recorded included 7m at 6.9pc TGC from 31m, 7m at 16.8pc TGC from surface, and 9m @ 14.8pc TGC from surface.

In Tuesday’s update, Armadale’s director Nick Johansen hailed the company’s latest progress as it moves towards ‘aggressively ramping up’ its efforts to transform from explorer to emerging graphite producer.

‘With many moving parts critical to developing a seamless value chain for the Mahenge Liandu Project, it is pleasing to receive metallurgical test-work that is progressing to plan and with results in line with expectations. This will augur favourably as we move more proactively to secure binding off-take commitments and project level financing from our Chinese partners,’  he added. ‘It is also a positive outcome that surface water will be the primary water source as, along with the potential to price our final graphite product at a premium, this will also deliver a positive uplift on the Project’s overall economics.’

To read our recent look into whether investors are missing a major opportunity at Armadale Capital as graphite prices soar, 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

Are investors missing a major opportunity at Armadale Capital as graphite prices soar? (ACP)

Last month saw Black Rock Resources (ASX:BKT) reveal binding sales agreements for graphite produced at its Mahenge project in Tanzania. The Australian miner has 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 London-listed Armadale Capital (LSE:ACP) in the scoping study for its Mahenge Liandu graphite project, which neighbours Black Rock’s Mahenge asset. With Mahenge Liandu sharing many similarities with Mahenge, could Black Rock’s update present a real buying opportunity at Armadale?

Graphite opportunity

Mahenge Liandu is a high-grade, coarse flake 29.9km2 project based in a Neoproterozoic system of high-grade metamorphic rocks with access to reliable infrastructure and Tanzania’s most populous city, Dar es Salaam. The project, which Armadale is currently focused on advancing to production, boasts a JORC-compliant, inferred mineral resource estimate of 51.1Mt at 9.3pc total graphite.

Last March, these figures were used alongside a conservative graphite price of $1,272/t to complete a scoping study that gave Mahenge Liandu a pre-tax NPV of $349m (£261.7m) and an internal rate of return of 122pc. Meanwhile, the project has a payback period of just 1.2 years, based on low capex requirements of only $35m after tax and a mine life of 32 years at 400,000tpa. Armadale believes this life of mine could be increased significantly, with current figures representing just a quarter of Mahenge’s total resource.

Given that Mahenge Liandu is Armadale’s critical project, it is likely that the asset underpins much of the company’s value. If we assume that Mahenge Liandu reaches production under Armadale, then the scoping study figures already suggest that the business could be considerably undervalued – even once project financing is taken into account. Indeed, the firm’s market cap currently sits at £4.8m and a placing bolstered its cash balance in February.

However, 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 can 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.

A look at the performance of Black Rock’s market performance since the beginning of the year highlights this potential even further. Indeed, it has risen from AUD$0.039 to AUD$0.099, giving it a market cap of AUD$55.33m (£30.39m) compared to Armadale’s £4.8m.

Drawing parallels

Encouragingly, there are already several indicators that suggest Armadale can replicate Black Rock’s prices. Firstly, and most obviously, there is the fact that Mahenge Liandu neighbours Mahenge, meaning the projects share the same deposit type and rock unit.

Secondly, work carried out by Armadale at Mahenge Liandu to date has suggested numerous additional similarities between the projects in terms of quality. Indeed, test work at the project has delivered excellent levels of purity of up to 99.99pc total graphite content using conventional treatment. Likewise, graphite from the project has shown demonstrable expandability up to 330cm3/g, confirming its suitability for a range of high-value end uses.

Both of these results are typical for the high-quality product that other operators have enjoyed in the graphite province surrounding the Mahenge Liandu project. Indeed, as the graph created by Armadale below shows, graphite from neighbouring projects in the region is among the purest in the industry. 

Surging demand

What’s more, thanks to favourable conditions in the graphite sector, there is also the possibility that the price companies are willing to pay for graphite in the future could increase beyond those secured by Black Rock. As we have previously written, several growing markets have arisen for the material thanks to its robust characteristics.

Graphite’s most traditional application is in the industrial sector, where it is put to use in areas like steelmaking and brake lining. It is also being used increasingly in the creation of so-called ‘graphite foil’, an essential component in the production of electronic products like smartphones and tablets.

Critically, recent years have also seen graphite become widely used in the production of lithium-ion (Li-ion) batteries - applied in emerging renewable energy technologies and, most importantly, electric vehicles (EVs) Indeed, according to the International Energy Agency (IEA), the number of EVs on roads globally will hit 125m by 2030 – this compares to just 3.1m in 2017.

Likewise, numerous ‘gigafactories’ have arisen around the world to rush out unprecedented amounts of Li-ion batteries ahead of the EV boom. Notably, Tesla has built a new $5bn battery factory that could drive a 37pc increase in demand for natural graphite by 2020. The forecast output for the factory is 35GWph/y in Li-ion batteries, requiring the consumption of 28,000tpa of spherical graphite - double the size of the graphite market in 2017 alone.

Meanwhile, on the supply side, nearly all of the world’s natural spherical graphite is currently sourced and processed in China. However, supply limitations, increasingly strict environmental regulations and an absence of the ‘high-quality’ graphene required by the market are putting the country under pressure. Many expect both China and its EV customers will look increasingly to operators in other geographies like Armadale and Black Rock as potential sources of supply that can subsequently be processed.

Potential catalyst

So, with all this potential upside in mind, what could be the trigger for a re-rate in Armadale’s share price? At the end of May, the business announced that it is fast-tracking plans to commercialise Mahenge Liandu. As part of this, the firm’s management team will hold meetings with current and prospective Chinese parties in early June to finalise binding off-take and project funding agreements.

According to Armadale, securing these agreements will validate Mahenge Liandu and mark the start of the company’s transition from graphite explorer to emerging mining. If these meetings can indicate that Mahenge Liandu is indeed much more prospective than last year’s scoping study suggested, could an accompanying update be the catalyst that catches the attention of UK investors?

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

Armadale Capital to fast-track commercialisation of flagship Tanzania graphite project (ACP)

Shares in Armadale Capital (LSE:ACP) advanced 1.5pc on Wednesday morning after the business announced that it is fast-tracking plans to commercialise its flagship Mahenge Liandu graphite project. With a definitive feasibility study (DFS) for the Tanzania-based project due to complete in Q4 2019, the £4.4m firm said it is now focused on accelerating the various additional workstreams needed to reach production.

Mahenge is a high-grade coarse flake asset that Armadale expects to become a strategically-valuable ‘world-class’ supplier to the lithium-ion battery sector once it enters production.  According to the organisation, Mahenge is one of the highest-grade, large flake deposits in the world, with a JORC-compliant, inferred mineral resource estimate of 51.1Mt at 9.3pc total graphite.

As part of its acceleration efforts, Armadale’s management team will hold meetings with current and prospective Chinese parties in early June to finalise binding off-take and project funding agreements. According to Armadale, securing these agreements will validate Mahenge Liandu and mark the start of the company’s transition from graphite explorer to emerging mining.

As part of this work, test-work on fresh samples at Bureau Veritas’s facility in Perth is focusing on maximising the quality of Mahenge Liandu’s graphite product. Specifically, the work is aimed at enhancing purity levels for a certain volume of output, something that Armadale’s director Nick Johansen believes will highlight the project’s ‘true value’ to potential Chinese partners.

‘Our most important task is to ensure that a high-purity graphite product, which attracts a material price premium, can be consistently produced,’ he added in Wednesday’s release.

Previous results from the region where Mahenge Liandu is based have confirmed the potential to produce high-value produce from graphite deposite. As such, results from Bureau Veritas’s test-work programme are being used in Mahenge Liandu’s plant design, which is being progressed by a leading Chinese group. This group has used the data to provide an update on engineering, procurement, and constructing pricing that will be factored into the Mahenge Liandu DFS.

Armadale will also be fast-tracking its work on a graphite resource update as part of its acceleration efforts. This new figure – expected by the end of June - will incorporate the latest topographics survey data and the most recent round of reverse circulation and diamond drilling. The results of the update will then be used in the mine planning phase of Mahenge Liandu’s DFS.

Elsewhere, Armadale has collected water samples from bore-holes around Mahenge Liandu’s proposed mining site for testing to ensure suitability during mine construction and within the process plant. Armadale said the ability to use this groundwater rather than securing liquid from a third-party source will be an ‘important cost-saving development’ when mining operations begin.

Finally, Armadale said it has increased its engagement work with local community groups as part of its efforts to fast-track Mahenge Liandu’s commercialisation. This has so far involved donating food and necessary supplies to schools and well-being services.

‘Looking beyond the completion of the DFS, which is targeted for year-end, the Board is now focused on fast-tracking the various work streams critical to bringing the Mahenge Liandu Graphite Project into commercial production,’ added Johansen. ‘Our most important task is to ensure that a high-purity graphite product, which attracts a material price premium, can be consistently produced. In tandem, the team are finessing details for the processing plant, which has an initial capacity of 400ktpa, and at the same time are ensuring ground-water suitability at site.

‘Most importantly, we are ensuring our traction with the local community at Mahenge Liandu remains strong, as their ongoing support is critical to commissioning the Project. We look forward to providing shareholders with further regular updates as the Board moves to fast-track efforts towards transitioning from explorer towards emerging miner.’

The 29.9km2 Mahenge Liandu project is based in the Neoproterozoic system of high-grade metamorphic rocks with easy access to strong infrastructure and Tanzania’s most populous city, Dar es Salaam. A scoping study completed in March last year gave the project a pre-tax NPV of $349m (£261.7m) and an internal rate of return (IRR) of 122pc; in comparison, Armadale’s market cap currently sits at just £4.4m. What’s more, these calculations are based on a conservative basket graphite price of $1,272/t.

The project has a payback period of just 1.2 years, based on low capex requirements of only $35m after tax and a mine life of 32 years at 400,000tpa (c.49,000tps of graphite concentrate). Armadale believes this life of mine could be increased significantly, with current figures representing just a quarter of Mahenge’s total resource.

To read MiningMaven’s in-depth interview with Armadale’s management team on the company’s prospects and predictions for the graphite market, 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.