Chilalo Graphite Project
The Chilalo Project is located in the Ruangwa District of the Lindi Region in south-east Tanzania, 100km north of the border with Mozambique, approximately 180km west of the coastal port city of Mtwara on the Indian Ocean and 400km south of Tanzania’s largest city, Dar es Salaam.
Chilalo is situated within the Mozambique belt, which is well known for some of the world’s highest-grade and coarse flake graphite deposits.
In July 2014, Graphex, then IMX Resources Limited, announced that a review of historic rock chip samples from the Chilalo tenement had identified a significant number of samples with high TGC grades.
A drilling program commenced in September 2014 and a maiden mineral resource estimate was announced on 7 April 2015. Further drilling in 2015 delivered an increase in the mineral resource and an upgrade in the classification of the mineral resource (ASX announcement 13 October 2015) that underpinned the Pre-Feasibility Study (PFS), the results of which were announced on 23 November 2015.
Following a 1,365m drilling program carried out in the fourth quarter of 2016, the Company announced an increase in the Chilalo mineral resource, the Mining Licence for the development of Chilalo was granted in February 2017.
The 2018 PFS, which also incorporated up to date graphite prices, additional testwork and revised project parameters, formed the basis for an interim financing decision by funds managed by the Financier under which the Financier provided the Company a US$5 million secured loan facility.
The Company released its Definitive Feasability Study (DFS) in January 2019, underpinned by conservative ‘finance ready’ assumptions including pricing, product qualification timeframes, production and sales ramp-up. The results demonstrate that the Chilalo Project has strong margins with a significant near-term value-add market opportunity.
The Chilalo resource
During August 2019, CSA Global completed an updated Mineral Resource estimate for the Chilalo Main and North East deposits of Chilalo. A total of 30 reverse circulation (RC) holes for 2,666 m and 50 diamond (DD) holes for 5,551.35 m have been drilled and analysed for graphite content directly covering the two modelled deposits.
The Chilalo mineral resource estimate
The Mineral Resource was estimated within constraining wireframe solids using a core high-grade domain defined above a nominal 5% TGC cut-off within a surrounding low-grade zone defined above a nominal 2% TGC cut-off. The resource is quoted from all classified blocks above a lower cut-off of 2% TGC within these wireframe solids. The Mineral Resource is inclusive of Ore Reserves. Differences may occur due to rounding.
Chilalo ore reserve
As part of its Definitive Feasibility Study released in January 2020, the Company reported an updated Ore Reserve.
Read more about the Chilalo Project, its Mineral Resource Estimate and Ore Reserve.
Definitive Feasibility Study
In January 2020, The Company announced the results of the Definitive Feasibility Study for the Chilalo Graphite Project (ASX Announcement January 2020).
The results demonstrate that the Chilalo Project has strong margins with a significant near-term value-add market opportunity. The DFS reflects Graphex positioning itself as a vertically integrated manufacturer of high-value graphite products, as opposed to purely a graphite mining company.
The DFS was prepared to a bankable standard to support a decision to mine and finance. It is underpinned by updated and detailed assumptions including pricing, product qualification timeframes, production and sales ramp-up.
Key Project Outcomes
Since discovering the Chilalo Graphite Project, the Company has adopted a ‘markets-first’ approach to its development. In such an opaque market for graphite, potential graphite suppliers have experienced a steep learning curve to address the knowledge asymmetry that exists between developers and existing market participants.
Graphex has always believed that sustained success in the graphite industry would be achieved through a detailed understanding of the graphite market and continued engagement with multiple diversified market participants.
Graphex is positioning itself as a vertically integrated manufacturer of high-value graphite products, as opposed to a graphite mining company.
Graphex vertically integrated markets-first graphite strategy
Value-added graphite strategy
This ‘markets-first’ strategy has evolved to include the manufacturing of value-added graphite products in addition to the sale of Chilalo graphite concentrate. As outlined in ASX announcement 30 October 2019, a key development in the Company’s strategy has been the advancement of a low-risk, low capital-intensive, value-added products strategy to enhance the value of its concentrate sales.
Over the past four years, Graphex has engaged numerous end users as well as three independent laboratories to evaluate the use of Chilalo flake graphite (in various mesh sizes) for the production of expandable graphite. These evaluations have consistently concluded that Chilalo flake graphite meets the performance characteristics for graphite foils and fire-retardants.
The case for expandable graphite
Sales of flake graphite into value-added markets will achieve higher prices than selling the same graphite into applications such as refractories which generally don’t require any performance qualifications other than meeting minimum purity requirements.
This is another reason why reference to ‘graphite prices’ is irrelevant without further defining other characteristics, even if for example it is the same product (ie. a +895 product, which is +80 mesh, 95% loss on ignition (LOI), will sell for a higher price as a fire-retardant pre-cursor material than it would selling to a refractory manufacturer).
Micronised graphite is a processed form of flake graphite, produced by fine grinding flake graphite concentrate into micron particle sizes. This process allows smaller mesh sizes to be used as raw material, creating a high potential margin for producers. The key characteristic of micronised graphite is the physical size of the microns as increased surface area allows users to optimise lubricity and conductivity.
The case for micronised graphite
Marvel is currently assessing all options to unlock the value of its 100%-owned Chilalo Graphite Project, including a possible demerger and IPO. Any such transaction would likely reward existing shareholders with priority shareholdings and preferential rights to participate in capital raised.
The DFS, which was prepared to a bankable standard to support a decision to mine and finance, positions the Chilalo Project as the centrepiece of a company that is a vertically integrated manufacturer of high-value graphite products. Progression to construction could proceed as soon as financing is secured, and the Company has continued discussions with many potential financiers and strategic investors who continue to view Chilalo as a quality graphite project. Any new company developing Chilalo may seek to undertake further optimisation of the DFS with opportunities identified to reduce the capital cost and significantly reduce mining costs.
Debt owed by the Company to Castlelake currently stands at US$7.37 million. Importantly, the financier has no recourse back to Marvel for the debt, which is secured against the Chilalo Project only. Repayment of this debt owed to Castlelake is a central element of any Chilalo transaction.