Armadale Capital Plc (ACP.L) DFS update increases Mahenge NPV to $430 million

Armadale Capital plc (LON: ACP), the AIM quoted investment group focused on natural resource projects in Africa, is pleased to provide results for the updated Definitive Feasibility Study for its Mahenge Liandu graphite project (‘Mahenge’ or ‘the Project’) in south-east Tanzania, completed by experienced graphite specialists BatteryLimits.

The update, which is based upon a revised Mine Schedule using a higher-grade cut off of 9% Total Graphitic Carbon (‘TGC’), a higher strip ratio of 1.95:1, and a rescheduled Stage 2 expansion, results in the production profile increasing average annual output from 80ktpa to 109ktpa of concentrate over life of mine, which is a significant 30% increase on the recently completed Definitive Feasibility Study (‘DFS’).

Highlights

  • Updated Mine Schedule reaffirms Mahenge as a long-life low-cost graphite project
  • 30% increase in average annual production of large flake high-purity graphite to 109ktpa compared to recently completed DFS annual production of 80kpta
  • 20% increase in estimated pre-tax NPV to US$430m and IRR of 91%
  • US$985m pre-tax cashflow to be generated from initial 15 year mine life utilising just 25% of the resource, which remains open in multiple directionsoffering significant further upside
  • Staged ramp-up planned to facilitate near term production with 60,000tpa graphite concentrate to be produced for the first three years (Stage 1) before increasing to LOM average 109,000tpa (Stage 2)
  • A higher-grade cut off is expected to allow the Company to maximise initial production and build lower grade stockpiles in subsequent years
  • Low capital cost estimate – Stage 1 is US$39.7m, including contingency of U$S4.1m or 15% of total direct capital cost
  • 1.6 year (after tax) payback period from first production for Stage 1 based on an average sales price of US$1,112/t
  • Stage 2 expansion is expected to be funded from cashflow
  • Application for Mining Licence is planned to commence by the end of June, with further updates due shortly
  • Projected timeline to first production is expected to be approximately 10-12 months from the start of construction

The delivery of the updated DFS delivery confirms the enormous commercial potential of Mahenge and will support ongoing discussions for binding offtake agreements, debt package finance for construction and project level development funding. Following these substantially improved economics to an already attractive Feasibility Study, a number of initiatives are currently advancing with respect to project financing and the Company hopes to be in a position to update the market shortly with respect to one or more of these workstreams.

Armadale Chairman, Nick Johansen, commented:
“The updated DFS demonstrates the exceptional potential of the Mahenge Liandu Graphite Project. The use of a higher-grade cut off and mining of a higher-grade material at an increased pace leaves significant scope for the Project to produce higher volumes of graphite over the 15 year mine life at a higher EBITDA margin, and as reflected in the significantly improved NPV figures greatly enhances its already attractive economics.

The Mahenge project has a long mine life, low cost of production and has now been significantly de-risked at a time of rapidly increasing demand for large-flake graphite. As such it represents an attractive opportunity for investors who wish to gain exposure at a crucial inflection point in its development. The updated DFS reconfirms the enormous commercial potential of the Mahenge graphite project and lends strong support to our ongoing discussions for binding offtake agreements, debt package finance for construction and project level development funding – all workstreams which are in flight and advancing well and which we hope to provide further updates upon in the near future. In addition, important work continues with progressing workstreams in relation to Detailed Design Engineering, and the finalisation of the Company’s application for a full Mining Licence (and thus furthering major permitting milestones).

“Armadale has continued to deliver a number of key value accretive milestones in recent months and we look forward to maintaining this momentum in the near term in order to continue to build value for shareholders.”

Project update summary
Mining
An updated Mine Schedule using a higher-grade cut off of 9% TGC has resulted in a LOM average production increase of 30% to 109 ktpa.

The updated mine schedule is based on the following key changes;

  • Increase in cut off grade to 9% TGC
  • Revision of phased production expansion profile with stage 2 expansion moved forward from year 5 to year 4 resulting in average stage 1 production of 61 ktpa increasing to 121 ktpa in year 4.
  • Inclusion of a proportion of high-grade inferred material

Table 1: The updated mining inventory

Area

Unit

DFS results

Update

Mining inventory

(Mt)

14.40

13.42

Measured and indicated

(Mt)

14.40

10.84

Inferred

(Mt)

2.58

Mine grade

(TGC%)

9.90

12.50

Strip ratio

1.10

1.95

The revised production profile is shown in table 2, which now starts at 53.3ktpa ramping up to an average rate of 121ktpa after year 4.

Table 2: Updated Production Schedule by Year.

Year

Mill Feed Mt

Head Grade TGC %

Concentrate Kt

Y1

0.4

14.5%

53.3

Y2

0.5

12.1%

71.0

Y3

0.5

12.4%

59.1

Y4

1.0

13.4%

121.5

Y5

1.0

12.1%

131.3

Y6

1.0

11.9%

118.6

Y7

1.0

13.1%

116.3

Y8

1.0

11.7%

128.5

Y9

1.0

12.4%

115.1

Y10

1.0

12.5%

122.0

Y11

1.0

12.6%

122.1

Y12

1.0

12.2%

123.6

Y13

1.0

12.3%

119.1

Y14

1.0

12.5%

120.2

Y15

1.0

13.1%

121.9

Key financial metrics
The recently completed DFS confirmed Mahenge as a long-life low-cost graphite project with a US$358m NPV and IRR of 91% based on a two-stage expansion strategy.

The updated mining schedule and revision of the schedule stage 2 expansion from year 5 to year 4 has resulted in a 20% increase in project NPV to US$430m. The IRR remains at 91% with a modest less than 3% increase in capital to US$39.7m.

Further, the average LOM product sales price of $1,112/t reflects a more conservative product pricing assumption adopted for the update.

Table 3: Updated DFS key financial metrics

Area

Unit

DFS results (Mar 2020)

Update Results

Mining inventory

(Mt)

14.4

13.4

Mine grade

(TGC%)

9.9

12.5

Strip ratio

1.1

2.0

Project Life

(years)

17

15

Total LOM Net Revenue

(US$ M, real)

1,634

1,823

Total LOM EBITDA

(US$ M, real)

981

1,085

Total LOM Net Cash Flows Before Tax

(US$ M, real)

883

985

Total LOM Net Cash Flows After Tax

(US$ M, real)

618

690

NPV @ 10.0% – before tax

(US$ M, real)

358

430

NPV @ 10.0% – after tax

(US$ M, real)

242

292

IRR – before tax

(%, real)

91%

91%

IRR – after tax

(%, real)

67%

68%

Project Capital Expenditure

(US$ M, real)

38.6

39.7

Payback Period – after tax

(years)

1.6

1.6

Average Sales Price (LOM)

Product (US$/t)

1,179

1,112

Cash Costs (FOB DES)

(US$/t, real)

385

369

Sensitivity Analysis
Additional financial sensitivity analysis has been undertaken and is outlined in tables 4 and 5.

Table 4 NPV sensitivity analysis (before tax)

Key metric

30% Unfavourable

20% Unfavourable

10% Unfavourable

Base Case

10% Favourable

20% Favourable

US$

US$M

US$M

US$M

US$M

US$M

Capital Expenditure

407

415

422

430

437

445

Operating Expenditure

324

360

395

430

465

500

Grade

224

293

361

430

498

567

Price

192

271

350

430

509

588

LOM Average Sales Price $/t

778

889

1000

1112

1223

1334

Table 5 IRR sensitivity analysis (before tax)

Key metric

30% Unfavourable

20% Unfavourable

10% Unfavourable

Base Case

10% Favourable

20% Favourable

Capital Expenditure

71%

77%

83%

91%

100%

111%

Operating Expenditure

71%

78%

84%

91%

97%

104%

Grade

55%

67%

79%

91%

103%

114%

Price

49%

63%

77%

91%

104%

118%

The DFS updated financial metrics show a significant improvement in the already compelling economics of the Mahenge project. The sensitivity analysis furthers shows robustness of the Project, where a 30% reduce in product pricing still results a US$192m NPV and IRR of 49%.

The DFS shows that Armadale can be a significant low-cost supplier to the graphite industry with the potential to generate pre-tax cashflows of US$985m over an initial 15 year mine-life and scope for further improvement as this utilises just 25% of the current resource, which remains open in multiple directions.

Projected timeline to first production is expected to be approximately 10-12 months from the start of construction and the capital cost estimate for Stage 1 is US$39.7m, which includes a contingency of U$S4.1m or 15% of total direct capital cost, with a 1.6 year payback for Stage 1 (after tax) based on an average sales price of US$1,112/t. Stage 2 expansion is expected to be funded from cashflow.

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**


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