DFS confirms Mahenge as a long-life low-cost gr...

DFS confirms Mahenge as a long-life low-cost graphite project with US$358m NPV and IRR of 91%

Armadale Capital Plc

Armadale Capital Plc / Index: AIM / Epic: ACP / Sector: Investment Company

31 March 2020

Armadale Capital Plc (‘Armadale’ or ‘the Company’)
DFS confirms Mahenge as a long-life low-cost graphite project with US$358m NPV and IRR of 91%

Armadale Capital plc (LON: ACP), the AIM quoted investment group focused on natural resource projects in Africa, is pleased to provide the key data from its Definite Feasibility Study for its Mahenge Liandu graphite project (‘Mahenge’ or ‘the Project’) in south-east Tanzania.

Highlights

• DFS confirms Mahenge in the board’s view as a large, long life, low cost graphite deposit with a focus on high quality graphite concentrate for the rapidly emerging EV market
• US$882m pre-tax cashflow generated from initial 17 year mine life utilises just 25% of the resource, which remains open in multiple directions offering significant further upside
• Estimated pre-tax NPV of US$358m and IRR of 91% with scope for further positive improvement upon economics in near-term through delivery of optimised DFS
• Staged ramp-up planned to facilitate near term production with 60,000tpa graphite concentrate to be produced for the first four years (Stage 1) before increasing to 90,000tpa (Stage 2)
• Capital cost estimate for Stage 1 is US$38.6m, which includes a contingency of U$S4.1m or 15% of total direct capital cost, a slight increase on the scoping study allowing for the staged ramp up
• 1.6 year payback for Stage 1 (after tax) based on an average sales price of US$1,179/t
  • Stage 2 expansion is expected to be funded from cashflow
• The outlook for the graphite market remains strong with the ongoing development of the EV market
• Scope for improvement of DFS economics through delivery of further detailed modelling of higher-grade zones to increase the head grade in the mine schedule - work is underway
• Application for Mining Licence is planned to commence in Q2 2020
• Projected timeline to first production is expected to be approximately 10-12 months from the start of construction
• DFS delivery has confirmed the commercial potential of Mahenge and will support ongoing discussions for offtake agreements, debt package finance for construction and project level development funding

Nick Johansen, Armadale Chairman, commented: “As expected, the Definitive Feasibility Study for the Mahenge Graphite Project has delivered extremely compelling economics. This study represents one of the most significant de-risking milestones in the Company’s history to date and we are delighted with the outcome. Across all commodities globally there are few mining projects that can demonstrate economics such as a 91% IRR and a 1.6 year payback upon capital. 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$882m over an initial 17 year mine-life and scope for further improvement.

Compelling economics combined with low technical risks and 100% ownership make Mahenge an incredibly attractive investment. As previously advised, agreements with a number of potential offtake partners have already been secured and with the delivery of the data from the DFS, the Company is now in a strong position to move these agreements further forward in addition to advancing workstreams on potential debt finance packages and project level development funding for construction. We look forward to updating the market regularly with regards to these workstreams as well as further upgrades to the DFS and the Mining Licence.”

Project summary
Armadale’s wholly-owned Mahenge Liandu Graphite Project is located in a highly prospective region, with a high-grade JORC compliant indicated and inferred mineral resource estimate of 59.5Mt at 9.8% Total Graphitic Carbon (‘TGC’). This includes 11.5Mt @ 10.5% Measured 32.Mt Indicted at 9.6% and 15.9Mt at 9.8% TGC, making it one of the largest high-grade resources in Tanzania.

Based on this resource, the DFS was initiated in October 2019 based on a two-stage project expansion strategy comprising:

• Stage One – processing plant and infrastructure at a nominal design basis rate of 0.4-0.5 Mt/pa to produce a nominal 60kt/pa graphite concentrate in the first four years of production
• Stage Two – a second 0.5 Mt/y plant and associated additional infrastructure doubling throughput to 1 Mt/y from Year 5 of operation.

Mining
A mine optimisation study was undertaken based on an appropriate balance of grade and strip ratio, rather than defining the largest economic pit. The result was an approximately 4 year starter pit(s) that used a 10% TGC cut-off to ensure the highest possible grade of ore feed in the early years followed by a larger LOM pit utilising a reduced (6% TGC) cut-off grade for the remainder of the schedule to minimise waste and keep the stripping ratio as low as possible. The resulting mining inventory is shown in table 1. The mining operation will be undertaken by a local mining contractor.

Table 1 Mining Inventory Pit Physicals

Pit	Rock Kt	Waste Kt	Strip	Measured Kt	Indicated Kt	Total Kt	Measured TGC	Indicated TGC	Total TGC	Con Kt
Starter	6,459	4,727	2.7	295	1,437	1,733	12.93	13.36	13.29	223
LOM Pit	23,498	10,931	0.9	7,098	5,470	12,568	9.02	9.8	9.36	1,139
TOTAL	29,958	15,657	1.1	7,393	6,907	14,300	9.18	10.54	9.83	1,362

Processing
The processing plant is designed to recover graphite concentrate by froth flotation. The design for the processing plant is based on a metallurgical flowsheet with unit operations that are conventional and well proven in the industry and aligned with current graphite industry practice.

The ROM ore will be two-stage crushed, followed by grinding in a rod mill, with graphite recovered by flotation. The process includes multi-stage re-grind milling and cleaner flotation to improve liberation and product purity. The flotation concentrate is then dewatered by filtration and drying. The product is screened and bagged as final product in five different sized fractions and bagged for transport to port. The tailings will be thickened and pumped to the tailings storage facility (‘TSF’).

The second stage expansion in year 5 is expected to comprise a duplicate parallel production plant.

Power for the project will be supplied from diesel generators under a BOOM contract. Additional power for the second stage expansion plant is expected to be supplied from than upgraded local grid network.

Graphite concentrate produced will be road hauled to the Port of Dar Es Salaam for shipment to market

Capital costs
The capital cost for Stage 1 and 2 are estimated in table 2.

Table 2 Capital cost estimated for stage 1 and stage 2

Description	Stage 1	Stage 2
	Capital Cost	Capital Cost
	(US$ ‘000)	(US$ ‘000)
Process Plant	16,290	15,989
Infrastructure	8,660	6,085
Indirect costs
EPCM and other construction costs	6,487	4,693
Owners’ costs	3,035	820
Contingency	4,109	3,277
GRAND TOTAL	38,580	30,864

Operating Costs
The LOM operation costs are estimated at US$385/t of concentrate (FOB) with an estimated breakdown shown in table 3.

Table 3 LOM estimated production operating costs ( FOB Dar Es Salaam)

Annual Operating Costs	Av. Total (US$ k/y)	Total Cost (%)	Feed (US$/t)	Product (US$/t)
Technical Services & Mining	7,149	23.4%	8.7	90
Processing	11,861	38.8%	14.4	149
General & Administration	2,800	9.2%	3.4	35
Product Logistics (FOB)	8,765	28.7%	10.7	110
Total Cost FOB (DES)	30,574	100.0%	37.2	385

Key Financial metrics
Financial project metrics are shown in Table 4.

Table 4 key financial metrics LOM

Financial Performance Summary	Unit	LOM
Project Life	(years)	17.5
Total LOM Net Revenue	(US$ M, real)	1,634.1
Total LOM EBITDA	(US$ M, real)	981.1
Total LOM Net Cash Flows Before Tax	(US$ M, real)	882.7
Total LOM Net Cash Flows After Tax	(US$ M, real)	617.9
NPV @ 10.0% - before tax	(US$ M, real)	358.1
NPV @ 10.0% - after tax	(US$ M, real)	242.3
IRR - before tax	(%, real)	91.2%
IRR - after tax	(%, real)	67.1%
Project Capital Expenditure	(US$ M, real)	38.6
Payback Period - after tax - from 1st ore	(years)	1.6
Average Sales Price (LOM)	Product (US$/t)	1,179
Total LOM cash cost (FOB)	(US$/t, real)	385

Sensitivity Analysis
Tables 5 and 6 show sensitivity modelling analysis on a plus and minus 10% basis.

Table 5 NPV sensitivity analysis

Key metric	Base Case	10% Unfavourable	10% Favourable
	US$M	US$M	US$M
Capital Expenditure	358	351	365
Operating Expenditure	358	328	388
Grade	358	299	417
Price	358	291	426

Table 6 IRR sensitivity analysis

Key metric	Base Case	10% Unfavourable	10% Favourable
Capital Expenditure	91%	83%	101%
Operating Expenditure	91%	84%	98%
Grade	91%	78%	104%
Price	91%	76%	106%

Community and the environment
Graphite Advancement Tanzania Pty Ltd (‘GAT’) have actively engaged with local and government stakeholders and as part of the project application for a Mining Licence (‘ML’) an Environmental and Social Impact Assessment (‘ESIA’) and a Relocation Action Plan have been undertaken in preparation for and submission as required by relevant Tanzanian legislation.

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**

Enquiries:
Armadale Capital Plc Nick Johansen, Non-Executive Director Tim Jones, Company Secretary	[phone]
Nomad and broker: FinnCap Ltd Christopher Raggett / Simon Hicks	[phone]
Joint Broker: SI Capital Ltd Nick Emerson	[phone]
Press Relations: St Brides Partners Ltd Charlotte Page / Beth Melluish	[phone]

Notes
Armadale Capital Plc is focused on investing in and developing a portfolio of investments, targeting the natural resources and/or infrastructure sectors in Africa. The Company, led by a team with operational experience and a strong track record in Africa, has a strategy of identifying high growth businesses where it can take an active role in their advancement.

The Company owns the Mahenge Liandu graphite project in south-east Tanzania, which is now its main focus. The Project is located in a highly prospective region with a high-grade JORC compliant Indicated and inferred mineral resource estimate of 59.48Mt @ 9.8% TGC, making it one of the largest high-grade resources in Tanzania, and work to date has demonstrated Mahenge Liandu’s potential as a commercially viable deposit with significant tonnage, high-grade coarse flake and near surface mineralisation (implying a low strip ratio) contained within one contiguous ore body.

Other assets Armadale has an interest in, include the Mpokoto Gold project in the Democratic Republic of Congo and a portfolio of quoted investments.

More information can be found on the website www.armadalecapitalplc.com.

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