Marvel Gold Ltd's (ASX:MVL) (OTCMKTS:GRXMF) (FRA:GR2) has an enterprise value of $22 million (cash around $5 million) and Bridge Street Capital Partners Dr Chris Baker stated that the company looks “very under-priced against its peers in the West African gold space.”
He said: “It looks equally inexpensive against its graphite peers in Tanzania.
“We anticipate further rerating should the market’s ‘pro-graphite’ sentiment remain and as the size and scale of Tabakorole gold emerges.
“[Marvel has] inexpensive exposure to Mali gold exploration, and absolutely nothing in the price for a top tier, coarse flake graphite asset."
Tabakorole potentially + 1 million ounces
Marvel Gold has had an impressive rebirth, with gold assets obtained at bargain basement prices.
Dr Baker said the fact that the company’s geologists have been able to convert a modest 1 gram per tonne orebody at Tabakorole into what seems likely to emerge as a +1 million ounce/1.2 gram per tonne deposit bodes well for the future of the project.
He said: “Tabakorole should be suitable for processing using conventional CIL technology, with high met recoveries and low reagent use potentially contributing to low milling costs.
“It is still early days for the project, with ~5,000 metres of RC drill results expected this month and further drilling of the main orebody and regional targets to take place during 2021.”
Company’s peers “dramatically rerated”
MVL’s former peers have dramatically rerated over recent weeks with what seems to be a view the graphite supply chain - heavily dependent on Chinese supply - is at risk with the new generation of ESG requirements from end users.
Dr Baker said: “The likes of Ecograf (ASX:EGR) (FRA:FMK) has moved from under 20 cents to over $1 in recent weeks and has taken advantage of the rally with a $55 million capital raising.
“It’s far from clear what has driven this attention, other than the markets view that EGR is proposing a mine (Epanko located in Tanzania) similar to Marvel at 60,000 tonnes per annum (resource of 30.7 million tonnes at 9.9% total graphitic carbon (TGC)) and a processing facility in WA to manufacture uncoated spherical graphite for the lithium battery industry employing proprietary technology.”
“Black Rock Mining Ltd (ASX:BKT), another strong performer recently, has attracted the market’s attention with Korean industrial giant POSCO Ltd taking a $7.5 million equity investment in the company.
“Posco has also signed a strategic agreement to facilitate the development of the Mahenge graphite project (212 million tonnes at 7.8% TGC), located in Tanzania.”
There is no suggestion that BKT will move into downstream processing of its graphite; rather it’s targeting industrial uses of graphite (as Marvel is at its Chilalo Project) and feedstock into the battery anode business.
Dr Baker said: “Both Epanko and Mahenge are similar to Marvel’s Chilalo project, and are at similar stage of pre-development, with both awaiting financing subject to a final resolution of the renewed Tanzanian Mining Act.”
Market cap comparatives of Marvel against its graphite peers
Chilalo graphite project “shovel ready”
Dr Baker noted that Marvel’s high quality Chilalo coarse flake graphite project (20.1 million tonnes at 9.9% TGC) in Tanzania is shovel-ready and awaiting finance.
“MVL (then as GPX) released its definitive feasibility study (DFS) for the coarse flake Chilalo graphite project in Tanzania in January 2020.
“The economics of the project are attractive and are summarised as follows:
- A single stage development, producing 50,000 tonnes per annum graphite concentrate;
- Capex of US$87.4 million;
- 18 year mine life;
- A graphite basket price estimated at US$1,534/tonne (FOB); and
- A move downstream with the production of expandable and micronized graphite products.
“This has the opportunity of enhancing the overall basket price to US$2500/tonne and expanding EBITDA margins from 49% (concentrate alone) to 63% (the partly integrated solution).”
Project pending finance
Chilalo’s NPV was reported at US$331 million (post tax, 8% discount rate) and IRR estimate at 36%.
DR Baker stated: “Of the total project NPV, some 36% can be attributed to the mine/processing and sale of concentrate, around 64% to the incremental value obtained from the production and sales of expanded and micronized graphite.
“It should be noted that MVL received its Mining Licence in February 2017 and had already received its environmental approvals and so its tenure position has never been in question.
“The go-ahead for Chilalo was almost entirely dependent on the company securing finance.”
Private equity, once highly supportive of the project, chose not to proceed with financing support, due to the impact of COVID19 on its own business and the company is currently awaiting details of the proposed Tanzanian Government Free Carried Interest agreement.
Dr Baker notes that Marvel has around A$10 million owing to the previous project financier, to be repaid from the proceeds of the sale or refinance of Chilalo in the future.
Share price performance
Dr Bake stated that share price performances in the graphite sector have been remarkable driving market capitalisations to multiples of what they were just a few weeks ago.
He said: “Ecograf is now capitalised at around $350 million, Black Rock Mining at over $100 million.
“Certainly there is none of this value reflected in the Marvel share price.
“We don’t believe the sector has been driven by movements in the graphite price – prices we believe have been fairly steady over recent months.
“But perhaps there is an expectation that prices will move.”