Black Rock Mining Ltd (ASX:BKT) has 16.6 million tonnes of contained graphite at its flagship Mahenge Graphite Project in Tanzania, but rather than just focusing on the electric vehicle battery market, it is targeting multiple end-users with a particular focus on expanded graphite markets.
The company’s Mahenge project has one of the largest JORC-compliant flake-graphite mineral resource estimates in the world, with 211.9 million tonnes grading 7.8% total graphitic carbon (TGC).
Its ore reserve of 68.6 million tonnes grading 8.5% TGC is the second largest contained graphite reserve of any listed company.
Black Rock chief executive officer John de Vries is no fence sitter when it comes to whether companies should just focus on trying to supply the EV market battery segment.
He told Proactive Investors he believed companies ‘owe it to investors’ to have multiple potential target markets so they are not beholden to the vagaries of some market segments that have lengthy pre-qualification periods and high barriers to entry.
De Vries said, “The thing about graphite is, we’ve painted it as the field of dreams, we all dream of a better future with EVs, that’s cool, but this isn’t Kansas Dorothy, you can’t click your heels three times and hope you’ve got an EV factory.
“Everyone in the graphite sector is banging on about EVs, which is good thank you, we all believe in EVs, but the reality is you need to have multiple target markets.
“Some target markets will be quick to adopt your product and deliver revenues quickly, whilst others will be slow to adopt but will likely pay a premium price and sign up for lengthy supply deals.
“You need to play both a short game and a long game, running different target-market entry strategies at the same time.”
The three graphite mineralised structures at Mahenge project in Tanzania
Graphite deposit holders need to be pragmatic, de Vries believes.
“Graphite is not a walk up, turn it on and you’re in business, this is not a gold mine where day one you produce ore that’s shipped off to the Perth Mint and you get paid.
“Segmenting the market and focusing on distribution channels highlighted a gap in the market for large high-quality flake for the expanded graphite market.
“This is ideally suited for us as our product is unique in its grade, and opens up some of the higher performance expanded materials segments. Importantly you can demonstrate product performance off a decent-sized sample.”
“The bottom line is that to get into production for a graphite mine you need to have multiple potential customers across multiple different end uses, including expanded graphite, consumer batteries and EV batteries.
Do the work, get the finance
Black Rock’s CEO believes graphite companies are unlikely to gain finance to build their mines going forward if they don’t produce definitive feasibility studies.
He said, “I have spent over 30 years in this industry and time and time again I see examples of people building mines off a pre-feasibility study and then wondering why it doesn’t work properly.
“You need to do a high-quality definitive feasibility study because you’re inviting massive underperformance if you don’t do that.
“The evidence is doing good work delivers. A pilot plant 10 times bigger than anybody else, gave us incredible design data and product that we could engage customers with.
“The result is clear, we got offtakes on the back of that plant.”
Syrah’s strategy was to build fast, build quick at its Balama operation in Mozambique but it has encountered a number of troubles since bagging its first saleable flake in November 2017, experiencing a 50% drop in its share price decline since October 2017.
Syrah suffered equipment and planning approval setbacks earlier this year, and questions over the expected price it would receive for its product given gradings.
Black Rock, which produced its DFS in the shadow of Syrah’s experience, focused its efforts on producing a rigorous study.
De Vries said, “There’s a couple of elephants in the room.
“Elephant in the room number one is we’ve put a lot of effort into getting the DFS right, and the evidence says that no further graphite mines will be financed without a DFS.
“It’s a good question to be asking, ‘Will all people have to do a DFS?’
“In the graphite business, Syrah went off the PFS but took a fair bit of heartburn before they got that right.”
The other critical question or elephant in the room is how companies are going to pay the bills if they only target EV batteries and they take longer than expected to be adopted by EV battery manufacturers.
De Vries said, “There you go, two fairly simple questions but at the end of the day it strips the graphite sector bare.”
An October 2018 DFS
The company announced its first offtake agreement for Mahenge on October 22, 2018, two days before it published an executive summary of its DFS for the large graphite project.
Black Rock agreed to supply up to 90,000 tonnes a year of blended graphite concentrate to one of the largest expanded graphite processors, Heilongjiang Bohao Graphite Company Limited, for up to three years under the supply agreement.
READ: Black Rock Mining inks offtake agreement to supply large quantities of graphite concentrate to Heilongjiang Bohao Graphite
A second three-year offtake agreement, unveiled on October 29, 2018, commits Black Rock to supplying China-based consumer battery producer Qingdao Fujin Graphite Company Limited with 15,000 tonnes a year of premium flake graphite at a to-be-determined price.
The agreements, which do not include mine or plant-building funds, are a sign of confidence in the company and could grab about 44% of proposed 250,000 tonnes a year steady-state annual production from Mahenge.
De Vries says “The strategy is straightforward, the Heilongjiang Bohao contract is from a large user with multiple end markets that completely derisks our mine.
“The Qingdao Fujin contract targets EV batteries representing an additional market for our graphite.”
Market entry strategy critical
Black Rock’s published DFS figures model a 32-year life-of-mine with average steady-state production of 250,000 tonnes a year.
The expected production could return 6.6 million tonnes of total life-of-mine concentrate.
De Vries spoke to Proactive from Hong Kong, saying “We all get what’s going with the EV revolution.
“You can’t go to a graphite presentation without people showing you lovely pictures of plugged-in cars.
“The reality is none of us drive them just yet but we know it’s coming.
“So, if you’re going to be successful in this space, you need to start with a multi-tiered market-entry strategy and if you ultimately become an energy materials business just focusing on EV batteries then that’s great.
“But, it’s not the fundamental premise on which you build the mine.”
De Vries was in China with a company roadshow after a ‘pretty bloody successful’ Australian leg of the roadshow.
He told Proactive the company and its project was attracting interest from industry.
“A lot of people have expressed interest in offtake," De Vries said.
“The challenge we have at the moment, because we did the pilot plant in a manner that was about having graphite product for graphite customers, is that now we’re now in a situation where we’ve got almost too many customers.
“So, we’re talking to a few more customers in China and seeing how many more people are interested in our product, so we can start to write some hard-money contracts.
“As this becomes tighter, we’ll look at the rate at which we bring on additional capacity and have a look to see if we can add other modules to the crawl-walk-run strategy.”
Black Rock’s current offtake agreements do not include a component to help build the mine or its capacity but the company is continuing to talk to potential customers and work on producing such agreements.
About the project
Black Rock’s DFS calculations valued its Mahenge project at US$895 million using a net present value (NPV10) calculated at a 10% discount, after tax and after government free-carried Interest.
Mahenge’s corresponding internal rate of return was 42.8%.
Key metrics from the company’s October 2018 definitive feasibility study
The life-of-mine net direct cash costs (C1), free-on-board (FOB) at Dar es Salaam port is US$401 a tonne while the life-of-mine all-in sustaining costs FOR Dar are US$473 a tonne.
A concentrate basket FOB at Dar is priced at US$1,301 a tonne in the study.
The company has reported it has the “lowest cost to customer given access to rail and major East African port from rail”.
Black Rock highlighted it had the highest purity flake graphite achieved from conventional flotation circuit processing at the time it shared results from its study in October 2018.
The company had said the study demonstrated “major geological and geographical advantages” and low-cost-to-customer advantages.
Mine operations building has been broken down into three phases in the DFS.
Phase one would have a US$115 million capital expenditure (capex) based on a 10% contingency and enable production of 83,000 tonnes a year.
Phase two would cost US$69.5 million while phase three would cost US$84.2 million, both with a 15% contingency.
Like phase one, each phase would enable a further 83,000 tonnes a year to be produced at Mahenge.