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Armadale Capital Plc (ACP)

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Tuesday 16 April, 2019

Armadale Capital Plc

Mahenge Liandu Graphite Project Update

Mahenge Liandu Graphite Project Update

Armadale Capital Plc

Armadale Capital Plc / Index: AIM / Epic: ACP / Sector: Investment Company

16 April 2019

Armadale Capital Plc (‘Armadale’ or ‘the Company’)

Mahenge Liandu Graphite Project Update

Armadale Capital plc (LON: ACP) the AIM quoted investment company focused on natural resource projects in Africa, is pleased to provide an update in respect of the significant progress made advancing the Mahenge Liandu Graphite Project in Tanzania (“Mahenge Liandu” or the “Project”) towards production, including the remaining steps needed to complete the Definitive Feasibility Study (“DFS”).

Overview:

  • DFS completion expected in Q4 2019 following Scoping Study that reported Net Present Value (“NPV”) of US349million, Development CAPEX of US$35million, Pre-tax Internal Rate of Return (“IRR”) of 122%; and 32-year life of mine with an after-tax payback period of 1.2 years
  • Remaining work underway including; product marketing, developing transport and logistics pathway and Resource update
  • Drilling to achieve ten years of planned production in the Measured JORC compliant category completed
  • Mine planning process updated to reflect results of completed drilling programme
  • Product quality wide diameter drilling completed to create representative concentrates and test work to optimise process flow sheet by determining recovery rates, flake size distribution and final product purity
  • 1.6 tonnes of diamond core sent to Perth, Australia where it will undergo metallurgical testing that will enable completion of the final plant design
  • Environmental Social Impact Assessment (“ESIA”) and Relocation Action Plan (“RAP”) finalised and expected to be submitted to the National Environment Management Council (“NEMC”) this month
  • Test work programme aimed to progress the MOU for offtake of 30,000tpa of graphite concentrate to a binding agreement underway
  • Discussions progressing with further offtake partners for remaining 19,000tpa of graphite concentrate
  • Application for a mining lease expected to be submitted in August 2019
  • Graphite market continues to strengthen with a number of Tanzanian based graphite projects securing binding offtakes over recent months

Nick Johansen, Director of Armadale said: “The Mahenge Liandu Graphite deposit is one of the highest-grade large flake deposits globally with a current JORC Resource of 51.1Mt at 9.3% TGC. With work now underway to upgrade this Resource to declare a Maiden Reserve, the potential of the Project is set to increase. We are now working on securing the mining permit and completing the Definitive Feasibility Study which will allow us to make the decision to mine and ultimately advance Mahenge Liandu into production.

“The Scoping Study released in March 2018 demonstrated an NPV of US$349m and IRR of 122%. Project capex drawdown was US$35m demonstrating the potential for an extremely low project development cost, with a payback estimated of 1.2 years and a 32-year life of mine. We expect the DFS to confirm our confidence in the extremely compelling economics of the Project.

“We are encouraged by the strengthening graphite market which has been reflected across a number of comparable graphite-projects that are securing project finance and advancing to mine construction. The Tanzanian government is now actively recognising the requirement for foreign investment in the mining sector and we are pleased to note the accommodating investment conditions.

“I look forward to reporting further as our DFS and partner discussions continue. The Company will release regular updates as material developments occur, including those areas covered in the ongoing work streams outlined below.”

Mahenge Liandu Background

The Company published a Scoping Study in March 2018 which demonstrated the following economics:

  • Net Present Value (“NPV”) of US349million;
  • Development CAPEX of US$35million;
  • Pre-tax Internal Rate of Return (“IRR”) of 122%;
  • 32-year life of mine with an after-tax payback period of 1.2 years.

This Scoping Study was based on an upgraded Total Graphitic Carbon (“TGC”) JORC compliant Resource published by the Company in February 2018, which demonstrated that the deposit is one of the highest grade large flake deposits globally with 51.1Mt at 9.3% TGC including 38.7Mt Indicated at 9.3% and 12.4Mt Inferred at 9.1% TGC.

The Scoping Study that was published in 2018, only reflects 25% of the Mahenge Liandu’s JORC Compliant Resource, and generates a 32-year life of mine. The deposit is accessible with cost-effective open pit mining methods. As part of the DFS an infill drilling programme targeting near surface high-grade mineralisation, was successfully completed confirming the Company’s confidence in the Resource.

The Project economics at scoping level indicated considerable upside against CAPEX requirements. Based on the assumed financial model, the substantial free-cash flow generated in the event of a mining operation would provide the Company with significant working capital to conduct exploration programmes with a view to increasing throughput by staged expansions.

Based on the Scoping Study findings the Company announced the commencement of a DFS in May 2018 which is based on a throughput of 400,000tpa over a 32-year mine life and involves a range of activities which are progressively being completed, these include:

  • A diamond drilling programme to obtain samples for metallurgical test work and marketing;
  • An infill RC drilling programme over the initial planned mining area;
  • An airborne topographic survey over the area of the proposed mining licence;
  • Product marketing towards the goal of achieving binding offtake agreements;
  • Environmental and social studies covering the Project area and completion of a Relocation Action plan (“RAP”) for the people who may be impacted through the development of the Project;
  • Progressing towards application of mining permits;
  • A geotechnical drilling programme to define the final pit wall design;
  • Calculation of Proved and Probable Reserves;
  • The construction of water production bores to determine the flow rates and ground water conditions in the Project area;
  • Finalisation of production flowsheets and final plant design parameters.

Progress to Date and Ongoing Work Streams

Resource and Reserve Definition

The Company announced completion of RC and diamond drilling programme in August 2018 with all holes intersecting wide intervals of high-grade mineralisation from surface with up to 67m thickness. Drilling focused on the proposed initial mining area and the results have been incorporated into the mine planning process.

The intention of the drilling programme was to have at least ten years of planned production in the Measured JORC compliant category. The Company has now undertaken sufficient drilling to achieve this and is finalising the Reserve calculations with mine engineering advisers. A Reserve update to market is expected to be released as part of and together with the completion of the DFS.

Product Quality

Product quality wide diameter drilling has also been completed to create representative concentrates and test work thereon will provide data on graphite recovery rates, flake size distribution and final product purity.

The Company sent a shipment of 1.6 tonnes of diamond core to Perth, Australia which will undergo metallurgical testing to produce a concentrate that will enable completion of the final plant design. The concentrate samples will be used to further assist commercial discussions and for downstream product test work.

The results of metallurgical test work for product quality are expected in June 2019. Downstream test work results confirming product quality are expected in July 2019.

Definitive Feasibility Study Completion

Multiple work streams are underway on various additional areas of the technical Feasibility Study which include:

  • Product marketing roadshow to potential end users in June 2019;
  • Development of the transport and logistics pathway – expected to be finalised in June 2019;
  • Resource update targeting high grade near surface mineralisation – expected in June 2019;
  • Metallurgical work results confirming product quality and downstream test-work confirming the potential uses of Mahenge Liandu Concentrates – expected July 2019;
  • Updating and optimisation of the pit design expected to be finalised in September 2019,
  • Construction of water bores and assessment of flow rates and ground water conditions is which is expected to be completed by November 2019 and;
  • Overall completion of the full DFS is expected in November 2019.

Environmental and Social Studies

During August 2018 the Company also announced the completion of field work for Environmental and Social baseline surveys and the Company has finalised the Environmental Social Impact Assessment (“ESIA”) and Relocation Action Plan (“RAP”) with both documents expected to be submitted to the National Environment Management Council (“NEMC”) this month.

Community Liaison

To help increase local engagement in the Project area, the Company has appointed a community liaison officer who will aid understanding of the impact and benefits of mining in the region. Further information in respect of this work of will be provided as progress is made.

Product Marketing and Offtake Partners

In February 2019 the Company announced a Memorandum of Understanding (“MOU”) with the Matrass Group, a China based graphite mining and processing company, for high quality graphite products produced at Mahenge Liandu. This includes a proposed offtake of 30,000tpa of graphite concentrate for an initial five-year term at a price to be agreed based on the Chinese benchmark for the quality of the graphite produced, representing over 60% of average target annual production.

The test work programme aimed to progress the MOU to a binding agreement is underway. Discussions with other potential offtake partners for the remaining 19,000tpa of graphite concentrate are also progressing positively.

The graphite market continues to strengthen with a number of Tanzanian based graphite projects securing binding offtakes over recent months. The rapid expansion of the electric vehicle market is expected to continue to drive this growth.

Project Level Financing

The Company is also engaged in discussions to secure a project level funding mandate. Further details in respect of this element will be provided as material developments occur.

Mining Lease Application

Reflecting the progress of work to date, the Company expects to submit its application for a mining lease in August 2019.

Front End Engineering Design

Following completion of the DFS the Company expects to commence the Front-End Engineering Design (“FEED”) work programme in December 2019. The FEED process is a detailed technical project planning phase undertaken prior to the commencement of construction and used as a basis to secure project construction bids.

Project Construction

Subject to successful and timely completion of the above preparatory work, suitable project level financing and the receipt of relevant regulatory permits and licences, the Company expects to commence the construction phase in Q2 2020.

Production

Based on current estimates and assuming a construction phase of 10 months the first production would be achieved from the Mahenge Liandu project around Q1 2021.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

**ENDS**

For further information please visit www.armadalecapitalplc.com or contact:

 
Armadale Capital Plc

Paul Johnson, Non-Executive Director (UK)

Tim Jones, Company Secretary

+44 (0) 20 7236 1177
Nomad and broker: FinnCap Ltd

Christopher Raggett / Max Bullen-Smith

+44 (0) 20 7220 0500
Joint Broker: SI Capital Ltd

Nick Emerson

+44 (0) 1483 413500
Press Relations: St Brides Partners Ltd

Isabel de Salis / Juliet Earl

+44 (0) 20 7236 1177

Notes

Armadale Capital Plc is focused on investing in and developing a portfolio of investments, targeting the natural resources and/or infrastructure sectors in Africa. The Company, led by a team with operational experience and a strong track record in Africa, has a strategy of identifying high growth businesses where it can take an active role in their advancement.

The Company owns the Mahenge Liandu graphite project in south-east Tanzania, which is now its main focus. The Project is located in a highly prospective region with a high-grade JORC compliant Indicated and inferred mineral resource estimate of 51.1Mt @ 9.3% TGC, making it one of the largest high-grade resources in Tanzania, and work to date has demonstrated Mahenge Liandu’s potential as a commercially viable deposit with significant tonnage, high-grade coarse flake and near surface mineralisation (implying a low strip ratio) contained within one contiguous ore body.

Other assets Armadale has an interest in, include the Mpokoto Gold project in the Democratic Republic of Congo and a portfolio of quoted investments.

More information can be found on the website www.armadalecapitalplc.com.


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