Black Rock Mining Ltd (ASX:BKT) recently added one new offtake agreement to the five it already held for its Mahenge Graphite Project in Tanzania and reinked a number of agreements with new prices based on its products' demonstrated qualities.
Patersons Securities has initiated coverage on Black Rock Mining with a speculative buy rating and a 12-month target price of 24 cents (current price - 10 cents).
Following is an extract from Patersons’ research report on Black Rock.
• Black Rock Mining Limited (BKT) is an ASX-listed graphite developer, focused on advancing its 100% owned Mahenge Graphite Project, located in south-central Tanzania. The company completed a Definitive Feasibility Study (DFS) on the Mahenge Project which highlighted strong economics supported by two successful and significant pilot plants (90 kt and 18 kt) underscoring the strong technical approach by the management team, and the company’s willingness to demonstrate repeatability of laboratory trials on a larger scale. We are initiating coverage on BKT with a Speculative Buy rating and a $0.24/share valuation.
• Mahenge: a globally significant project. Mahenge has a delineated JORC-compliant Mineral Resource of 211.9 Mt at 7.8% total graphitic content (TGC). Importantly, BKT has the second largest JORC Mineral Reserve globally with 69.6 Mt at 8.5% TGC, with 6 Mt of contained graphite. The Mahenge DFS which included a post-tax NPV10 of USD$895 million with a post-tax internal rate of return (IRR) of 42.8%, inclusive of the Tanzanian government’s 16% free carry.
• Geographical and logistics advantage. The Mahenge Project is located proximal to key infrastructure including grid power 60km from site and a railway line that feeds directly to the Port of Dar es Salaam. BKT’s access to the rail and port enhances logistics and helps to underpin a long-term, low cost operation.
• Leveraging graphite expertise. The Company has secured the services of CPC Engineering and Yantai Jinyuan Group, a major Chinese mining machinery group, to design and build the process plant, both of whom have significant experience in graphite and Africa-specific skills.
• Funding Mahenge a near term challenge. Phase 1 of Mahenge is expected to cost US$115m. The DFS staged development approach is positive in that Stages 2 and 3 can be funded via Stage 1 cash flows. Successful sell down of a stake in the Mahenge Project would provide a read through valuation for BKT and would provide further credibility to the project.
• Valuation: $0.24/share. Our BKT valuation is based on a discounted cash flow analysis of the Mahenge Graphite Project development, risk weighted at 50%. We assume Mahenge is financed with 50% debt and 50% equity.