Walkabout Resources (ASX: WKT, Share Price: $0.069, Market Cap: $15m) is an emerging graphite play that has implemented measured exploration, project appraisal and growth strategies. It aims to fast-track production at its Lindi jumbo graphite project in Tanzania, whilst also filing applications for Prospecting Licences in Tanzania and Namibia. It has also expanded its commodity exposure into lithium.
Walkabout has advised that is has concluded a non-binding Strategic Sales and Purchase MOU with specialist European-based graphite trading house, GEORG H LUH GhmB, to negotiate the contractual sale and purchase of between 10,000 and 12,500 tonnes of graphite per year, commencing in 2018.
Market Significance
Walkabout rose by 13% on the back of today’s news. Whilst it’s still very much early days in terms of Walkabout’s graphite and lithium adventures, the company has so far adopted a measured and successful approach to project advancement. The company’s flagship Lindi graphite project has recently seen the release of a maiden JORC Resource, followed by robust Scoping Study and Definitive Feasibility Study results. Walkabout is now busy working on the remaining pieces of the production jigsaw puzzle, namely firm off-take agreements and project financing discussions.
Announcement Detail – MOU with European Trader
Walkabout Resources has concluded a non-binding Strategic Sales and Purchase MOU with specialist European-based graphite trading house, GEORG H LUH GhmB.
The MOU calls for Georg H. Luh GmbH and Walkabout to promptly commence commercial discussions on a confidential basis to negotiate the contractual sale and purchase of graphite. The discussions would involve volumes of between 10,000 and 12,500 tonnes annually, across four series of purity and flake-size ranges, commencing in 2018 and continuing.
The parties will also work together in other areas of product marketing and development, specifically in the area of high-value graphite products.
Technical Significance
There is a lot of hype in the graphite/lithium sectors and the market has grown more cautious in terms of assessing the production potential of companies. Therefore, the commencement of off-take discussions is an important follow-up step, following the recent completion of Walkabout’s Lindi DFS.
Georg H. Luh GhmB is an established graphite industry player in Europe, with an impressive track record of operating in the premium end of the graphite market. It is based in Germany and has been operating for over 80 years, is fully certified within the EU and also operates extensively in and across China.
The trading house specialises in the marketing and development of premium flake graphite products, specifically in the fire retardant and foils area of expandable products, as well as more traditional industrial uses.
Other Recent Activity
Lindi Definitive Feasibility Study
The finalisation of the DFS is a milestone event for Walkabout. It simultaneously allows the company to actively pursue funding options for fast-tracked development, whilst also reducing risk and boosting project confidence. The DFS financial modeling has been carried out on a 100% basis because Walkabout will move to acquire the remaining 30% upon project development.
The Study scope was focused 100% within the existing JORC 2012 Measured and Indicated Resources. The Study has found the Lindi Jumbo deposit to technically and financially viable, with no immediate or obvious impediments to mining, even at current 10-year low prices.
The company believes the very high-grade nature of the Mineral Resource provides a significant competitive advantage in capital and operating cost reduction and also in metallurgical performance through the production of a premium graphite product which is able to secure premium sales prices in a highly competitive market.
Key DFS Outcomes:
Table 1: Some financial modeling results
The development philosophy is underpinned by the unique and very high-grade nature of three discrete and visually distinct domains within the Measured and Indicated Resource. Comprehensive mining modelling indicate that these may be extracted with minimum contamination from lower-grade associated domains, such that a high-grade mill-feed in excess of 17.5% TGC can be delivered for the first three years – along with a life-of-mine average mill feed grade above 16% TGC.
As such, the potential high-grade feed favourably impacts the capital and operating margins, as well as mitigating potential market risks that may arise within the international graphite market.
Walkabout believes a second pillar of design needs to be the production of a premium product, which could be in short supply even in a highly-contested supply environment. The company has managed to achieve this with repeated test-work that has returned highly favourable ratios of the high-value, larger graphite flakes especially those in the Jumbo (+300μm) and Super Jumbo (+500μm) categories.
This should allow the company to negotiate higher-than-average prices even during periods of softer pricing due to potential oversupply of general natural flake graphite product smaller than 300μm.
The third pillar of the design philosophy is to not target too large an operation, increasing capital and operational risk during the early stages. It would be much more prudent to increase production from a stable economic base than attempt too large an entry into the market which may be oversupplied with smaller flake natural “vanilla” graphite.
Figure 1: High level preliminary project schedule
Summary
We initiated coverage of Walkabout Resources during April 2016 around $0.007. The stock has since undergone a 1-for-4 rights issue priced at $0.004 and 23-for-1 share consolidation.
The Lindi graphite project is an exciting proposition, as the multiple and discrete domains of the JORC Resource has the proven flexibility and robustness to support a potential mining operation. Optionality is added by the potential for mining of substantially higher-grade zones during periods of economic downturn, as opposed to being locked into a grade of around 5%.
The board’s development strategy envisages a focused, modest, low-risk approach to exploration and potential mine development. This is intended to prevent large expenditure incurred on resource size at the expense of product quality. The international graphite market is limited in nature and there is an ongoing surplus of graphite exploration. This would imply that quality is much more important than quantity.
Walkabout’s market value is modest and it is progressing funding discussions with respect to the purchase of the remaining 30% balance of the Lindi project, as well as funding for project.
