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.

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Author: Daniel Flynn

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