Kibaran Resources (ASX: KNL, Share Price: $0.185, Market Cap: $31m) is one of our preferred graphite sector exposures. We introduced the stock to our Portfolio during April 2014 and our most recent coverage was in our Daily Resources Bulletin on 27th July. Kibaran continues to maintain aggressive exploration and appraisal activity with respect to all its advanced Tanzanian graphite projects, although its flagship Epanko project remains very much the current focus.
Kibaran has announced the results of its Battery-Grade Graphite Scoping Study, which highlights robust economics and a compelling case for the development of a downstream manufacturing facility.
Market Significance
Kibaran’s share price performance over recent years reflects ongoing volatility in the junior resource sector, particularly the graphite sector. Nevertheless, overall confidence in the stock is strengthening, as a lot of hard work over the past 18 months (including high-grade drilling results, exceptional metallurgical test-work results, an upgraded JORC-compliant resource base and positive Scoping Study results) has culminated in the release of outstanding BFS results, which clearly demonstrate robust project commerciality. The company is now well-placed to secure project funding and transition to production.
Announcement Detail
Kibaran has reported the results of its Battery-Grade Graphite Scoping Study that highlights robust economics and a compelling case for the development of a manufacturing facility to participate in downstream value-added processing. The Study was based on the additional product from the modeled 100,000tpa operation compared to the 40,000tpa level from the Bankable Feasibility Study (BFS). There have been no material changes to those assumptions from the Scoping Study announced in January.
Key Study Results
- Pre-tax NPV10 of US$115m
- Pre-tax IRR of 51%
- Capital Expenditure of US$35m
- Annual pre-tax cashflow of US$18mpa based on Stage 1
- Payback 1.9 years
Manufacturing of first battery-grade spherical graphite is scheduled to commence around 12 to 18 months into Stage 1 Epanko graphite project expanded production. Stage 1 production is set to commence at 15,000tpa and then increase to 50,000tpa over three stages, producing spherical, expanded and other purified graphite products. The staged expansion is expected to be supported through project cash flow.
Technical Significance
The completion of the Epanko BFS has provided Kibaran with certainty to position itself to become part of the global graphite supply chain and secure strategic partnerships for the battery-grade Spherical Graphite market. Graphite will initially be sourced from the proposed staged increases in production from the Epanko graphite project, where the company has completed a BFS reporting an NPV of US$197.5m.
High-value spherical and expanded graphite would be shipped from the port of Dar es Salaam directly to end-users, eliminating their reliance on, and providing a viable alternative to current supply of these products from China.
The Study provides a compelling investment case and warrants the commencement of a detailed feasibility study. With existing funding prioritised to developing the Epanko project, the company has entered into discussions with a number of potential strategic partners regarding funding of this study via direct investment.
Other Recent Activity
Kibaran recently released the much-anticipated BFS results for its Epanko graphite project, which confirmed the viability of a conventional open-cut mining operation and conventional flotation processing plant infrastructure.
Key Study Results:
- Epanko technically and commercially viable, with no impediments for a positive decision to mine
- Pre-tax NPV10 of US$197.4 million
- Pre-tax IRR of 41.2%
- Capital Expenditure of US$77.5 million
- Annual EBITDA of US$33.6 million for 15 years
- Mine life of 25 years
- Strip ratio 1:1 (LOM)
- Maiden Proved and Probable Ore reserves of 10.9 Mt at 8.6% TGC
The BFS has been delivered both on schedule and within budget and the results support Kibaran’s strategy of being one of the first listed graphite companies to progress to production. Annual concentrate production for the first 15 years is 40,000tpa, with the remaining 10 years averaging 31,300tpa.
Summary
We maintain our view that Kibaran is definitely in the right place at the right time as far as market interest in high-quality graphite plays with a defined path to production is concerned. What is clear is that Kibaran boasts graphite of the highest quality, opening up a lot more potential doors for commerciality than the vast majority of its peers. We therefore retain our Hold recommendation on Kibaran Resources, given our already-strong existing exposure.
