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

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