Kibaran Resources (ASX: KNL) is one of our preferred graphite sector exposures, due to the highly measured and strategic approach being employed in order to achieve production status. Kibaran maintains aggressive exploration and appraisal activity with respect to all its various Tanzanian graphite projects, although its flagship Epanko project remains the current focus.
Kibaran has advised that as part of its Feasibility Study on downstream processing of its Epanko graphite, it has produced superior-quality battery-grade graphite for the lithium-ion battery market. The results demonstrate potential for a downstream processing operation to supply this high-growth battery market.
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Market Significance
Kibaran’s unspectacular recent share price performance belies the strong and steady progress being achieved with respect to advancing its Epanko graphite project to production status. An enormous amount of effort has been invested over recent years in terms of exploration and appraisal activity – comprising drilling, metallurgical test-work and positive Scoping and BFS results – that have demonstrated robust project commerciality. This has been reinforced by ThyssenKrupp and Sojitz off-take deals that have underlined KNL’s production credentials. The market is now awaiting finalization of project funding.
Announcement Detail – Epanko Resource Upgrade
Kibaran has reported an upgraded Mineral Resource estimate for its Epanko project, delivering a significant 40% increase over the previous 2015 estimate.
The upgraded Mineral Resource estimate incorporates infill and extensional drilling completed in 2016 and geotechnical inputs generated as part of the updated base-case BFS of 40,000 tonnes annually over a 25-year LOM including a 60,000 tonnes per annum scenario.
The updated BFS is being completed to meet Equator Principles and the IFC Environmental and Social Performance Standards and currently subject to an independent technical review for Kibaran’s funding partners (KfW IPEXBank and Nedbank) advanced due diligence.
Key Points
- 40% increase on the previous Mineral Resource to 30.7Mt at 9.9% Total Graphitic Grade (TGC) for 3.05Mt contained graphite compared to the June 2015 estimate using a 8% TGC cut-off grade
- The increased Mineral Resource positions Kibaran to be a major base-load supplier of high-value graphite products to traditional and emerging markets
- The upgraded Mineral Resource will support both a longer mine-life and an expanded production case
- Of the 4km strike identified by the recent VTEM survey, only 1.13km has been drilled on the Western Deposit, which remains open at depth with the deepest reported graphite intersection at 200 metres
- A revised mine plan and Ore Reserve for both the 40,000tpa and 60,000tpa concentrate scenarios will be completed and incorporated in the updated BFS during April 2017
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Technical Significance
The 7,734-metre drilling campaign completed during 2016 confirmed both the continuity of graphitic mineralisation within the June 2015 resource envelope and allowed the new resource envelope to be extended 500 metres to the south in the Western Zone. All results from the 2016 infill and extension drilling campaign have been incorporated within the updated Mineral Resource estimate.
What’s also significant is that a substantial amount of graphite mineralisation exists within the reported Mineral Resource at a lower 5% TGC cut-off grade – comprising 113.3Mt at 7.2%TGC for 8.1Mt of contained graphite.
Of the 4km strike identified at the Western Zone by the VTEM survey, only 1.13km has been drilled on the Western Deposit, which remains open at depth with the deepest reported graphite intersection at 200 metres.
The high conductivity identified by the VTEM survey underlines the potential for the delineation of additional mineral resources along strike and at depth in the Western Zone and along strike in the Eastern Zone. The Western Zone currently accounts for approximately 55% of the current mineral resource, but has potential to supply significant tonnages of additional graphite mineralisation if required.
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Other Recent Activity
BFS Progress
In previous coverage we’ve focused on Kibaran’s enhanced Feasibility Study that’s designed to assess the potential downstream processing of its graphite – including the production of battery-grade (spherical) graphite for the lithium-ion battery market. The study is based on initial annual production consistent with the current market demand for battery grade graphite, with staged increases based on forecast demand.
Kibaran has engaged GR Engineering Services (ASX: GNG) as the lead study manager – the same group that is the engineering partner for the Epanko project. The study is being overseen by the company’s technical graphite specialist and recently appointed Director, Mr Christoph Frey.
As a reminder, Kibaran has secured binding off-take and sales agreements for 100% of its base-case production with three leading graphite market participants across traditional and emerging battery markets.
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The study is evaluating different routes for the production of spherical graphite, with a focus on methods with a low environmental footprint and competitive production costs. The study is also examining locations for the manufacturing facility in Tanzania near the main port of Dar es Salaam (given all of Kibaran’s graphite projects are connected by either rail or road to Dar es Salaam). Dar es Salaam’s ability to provide low-cost grid power is a significant infrastructure advantage.
Kibaran has advised that it has been able to produce superior-quality battery-grade graphite for the lithium-ion battery market using its Epanko graphite. Current demand for lithium-ion-battery-grade natural graphite is estimated at 48,000 tonnes annually, with all this material sourced from China.
Kibaran is specifically targeting the major anode manufactures outside China, where enormous growth in demand is expected on the back of the electric vehicle market. The quality of Kibaran’s battery-grade graphite is superior to that produced in China. One major anode manufacturer has advised Kibaran that the product’s analytical values even exceeded their high expectations.
Technical Significance
Production of battery-grade graphite offers Kibaran a substantial opportunity to add value to the graphite concentrate it plans to produce at its Epanko project. It will also enable Kibaran to further capitalise on the rapidly growing demand for battery-grade graphite from the lithium-ion battery industry.
The current study is assessing the economics of developing a manufacturing facility to produce battery-grade spherical graphite and other value added products. The scope of work will include study management, engineering, procurement and estimates of project capital and operating costs.
Kibaran is specifically targeting the existing market in Japan and Korea, given Panasonic (Japan) and LG Chem (Korea) are developing the world’s largest gigafactories. Product samples will also be distributed within the German market.
The company is confident of delivering this vertically-integrated growth strategy, given that the previously completed Scoping Study on downstream processing delivered a compelling investment case. The company also has significant competitive and technical advantages due to the existing binding agreements that have been secured as a result of Epanko graphite’s superior quality.
Spherical graphite pricing is subject to a number of factors – including particle size distribution – however current pricing for standard grade, purified, uncoated spherical graphite with a Carbon content > 99.95% is ~US$3,000/t. Kibaran will be aiming to produce the highest quality spherical graphite which attracts significantly higher prices, ranging up to US$5,000.
Summary
We initiated coverage of Kibaran Resources at a price around $0.22 during September 2015. The company is 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. It maintains graphite of the highest quality, which has opened up a lot more potential doors for commerciality than its peers. Accordingly, the majority of the company’s planned output is now spoken for – with agreements with German and Japanese customers. Furthermore, Kibaran’s market capitalization of $45m is modest compared to most of its peers that are at a similar stage of development.
