Kibaran Resources (ASX: KNL, Share Price: $0.18, Market Cap: $30m) is one of our preferred graphite sector exposures due to the highly measured approach the company is taking to achieve production status. Kibaran maintains aggressive exploration and appraisal activity with respect to its various Tanzanian graphite projects, although its flagship Epanko project remains the current focus.
Kibaran has announced the signing of a landmark non-binding Memorandum of Understanding (MOU) with Japanese commodities trader, Sojitz Corporation, one of Japan’s largest trading companies and flake graphite traders. The deal complements previous deals with Germany’s ThyssenKrupp.
Market Significance
Kibaran’s solid share price performance reflects strengthening overall confidence in the company’s graphite story, where a lot of hard work has been invested over the past two years in terms of exploration and appraisal activity, including high-grade drilling results, exceptional metallurgical test-work results, an upgraded JORC-compliant resource base, as well as positive Scoping Study and BFS results that demonstrate robust project commerciality. This has been further reinforced by the recent ThyssenKrupp and Sojitz off-take deals, which support Kibaran’s path to graphite production status.
Announcement Detail – MOU with Sojitz Corporation
Kibaran has announced the signing of a landmark non-binding Memorandum of Understanding (MOU) with Japanese commodities trader, Sojitz Corporation – one of Japan’s largest trading companies and one flake graphite traders.
Sojitz is one of Japan’s leading trading companies with net sales of US$3.4billion, net assets of US$1.9billion and a market capitalisation of US$1.4 billion. With over 80 worldwide offices and over 15,000 group employees worldwide, Sojitz has a substantial global presence. Sojitz is listed on the Tokyo Stock Exchange and ranked 1211 largest corporation in the world by Forbes.
Key highlights of the Sojitz MOU comprise:
The MOU sets out an in-principle understanding for Sojitz and Kibaran to enter into commercial negotiations concerning the following:
- Sojitz to source graphite in Tanzania exclusively from Kibaran’s high grade and wholly-owned Epanko project
- Exclusive sales and marketing by Sojitz, for a range of key applications, in Japan, Korea, Taiwan, China and the United States for Epanko’s high purity natural flake graphite grades
- Entry via Sojitz to the lucrative supply-chain for the fast growing lithium ion (Li-Ion batteries or LIB) battery market
- Unique long-term sales into Japanese and Korean battery anode manufacturers
Technical Significance
The signing is Kibaran’s second expansion into international graphite markets, following its binding 10-year 30,000 tonnes per year off-take deals during 2015 with European customers including the German global industrial conglomerate, ThyssenKrupp Metallurgical Products GmbH.
The MOU centres around the trader’s sales and marketing of Kibaran’s high purity natural flake graphite concentrate from Epanko – one of three graphite projects Kibaran is developing in Tanzania as a globally focused graphite mining and processing hub.
The MOU is a key milestone in light of the growing demand in the global hi-tech battery market for energy storage systems and electric vehicles. It also provides additional independent endorsement of the quality and commercial appeal of Epanko natural flake graphite.
This MOU not only supports the development of Epanko but also advances Kibaran’s plans to manufacture spherical graphite, expandable graphite and other value added products for a broad range of industrial applications where significant growth rates are expected. Sojitz has a strong and long history of graphite sales and has established long-term relationships within the Japanese and Korean markets.
Graphite Off-Take Deal with ThyssenKrupp
Kibaran recently formalized a significant off-take agreement (previously an MOU) with ThyssenKrupp Metallurgical Products GmbH, a division of the Materials Services business area of Germany’s ThyssenKrupp group.
The deal will see ThyssenKrupp purchase a minimum 20,000 tonnes annually of refractory-grade natural flake graphite for sale in Europe, Turkey, Russia, Ukraine and Korea. The term of the agreement is initially 10 years, with a further 5-year option.
The deal will account for 50% of Kibaran’s planned 40,000 tpa graphite production from its Epanko project and in conjunction with existing agreements, 75% of the planned graphite production from Epanko is now supported by binding off-take and sales agreements.
ThyssenKrupp is one of the world’s leading commodity trading companies and diversified industrial groups headquartered in Germany with more than 155,000 employees in nearly 80 countries and sales of around €41 billion during fiscal year 2013/2014.
Formalising a deal with a company of ThyssenKrupp’s standing and size is enormously significant, as it reinforces Kibaran’s production credentials, previously demonstrated by the recent release of a robust Bankable Feasibility Study (BFS).
German Government Loan Guarantee
Kibaran also recently received confirmation of “in-principle eligibility for cover” for its Epanko project by the German Government. With this confirmation, Kibaran has met the first important condition to receive an UFK-guarantee from the German Government in combination with financing by German state-owned KfW IPEX-Bank. KfW is one of the world´s leading development banks and its subsidiary KfW IPEX-Bank has a strong track record in the mining sector, including in Africa.
The German Federal Government provides UFK coverage in the form of loan guarantees for loans awarded by lenders to the financing of eligible projects. It provides lenders insurance against commercial and political risk. Eligible projects contribute to the supply of critical natural resources to Germany in the form of a long-term off-take contract between the borrower and a German off-taker.
Summary
I believe Kibaran Resources is in the right place at the right time as far as market interest in a high-quality graphite play with a defined path to production is concerned. The company maintains graphite of the highest quality, which has opened up a lot more potential doors for commerciality than the majority of its peers. Accordingly, the majority of the company’s planned output is now spoken for. Furthermore, Kibaran’s modest market capitalization of just $30m is modest compared to many of its peers. In effect, Kibaran is long on substance and short on hype, which means the stock will remain firmly held within our Portfolio.
