DFS update increases Mahenge NPV to $430 million

DFS update increases Mahenge NPV to $430 million

Armadale Capital Plc

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

05 June 2020

Armadale Capital Plc (‘Armadale’ or ‘the Company’)

DFS update increases Mahenge NPV to $430 million

Armadale Capital plc (LON: ACP), the AIM quoted investment group focused on natural resource projects in Africa, is pleased to provide results for the updated Definitive Feasibility Study for its Mahenge Liandu graphite project (‘Mahenge’ or ‘the Project’) in south-east Tanzania, completed by experienced graphite specialists BatteryLimits.

The update, which is based upon a revised Mine Schedule using a higher-grade cut off of 9% Total Graphitic Carbon (‘TGC’), a higher strip ratio of 1.95:1, and a rescheduled Stage 2 expansion, results in the production profile increasing average annual output from 80ktpa to 109ktpa of concentrate over life of mine, which is a significant 30% increase on the recently completed Definitive Feasibility Study (‘DFS’).

Highlights

• Updated Mine Schedule reaffirms Mahenge as a long-life low-cost graphite project
• 30% increase in average annual production of large flake high-purity graphite to 109ktpa compared to recently completed DFS annual production of 80kpta
• 20% increase in estimated pre-tax NPV to US$430m and IRR of 91%
• US$985m pre-tax cashflow to be generated from initial 15 year mine life utilising just 25% of the resource, which remains open in multiple directionsoffering significant further upside
• Staged ramp-up planned to facilitate near term production with 60,000tpa graphite concentrate to be produced for the first three years (Stage 1) before increasing to LOM average 109,000tpa (Stage 2)
• A higher-grade cut off is expected to allow the Company to maximise initial production and build lower grade stockpiles in subsequent years
• Low capital cost estimate - Stage 1 is US$39.7m, including contingency of U$S4.1m or 15% of total direct capital cost
• 1.6 year (after tax) payback period from first production for Stage 1 based on an average sales price of US$1,112/t
• Stage 2 expansion is expected to be funded from cashflow
• Application for Mining Licence is planned to commence by the end of June, with further updates due shortly
• Projected timeline to first production is expected to be approximately 10-12 months from the start of construction

The delivery of the updated DFS delivery confirms the enormous commercial potential of Mahenge and will support ongoing discussions for binding offtake agreements, debt package finance for construction and project level development funding. Following these substantially improved economics to an already attractive Feasibility Study, a number of initiatives are currently advancing with respect to project financing and the Company hopes to be in a position to update the market shortly with respect to one or more of these workstreams.

Armadale Chairman, Nick Johansen, commented:
“The updated DFS demonstrates the exceptional potential of the Mahenge Liandu Graphite Project. The use of a higher-grade cut off and mining of a higher-grade material at an increased pace leaves significant scope for the Project to produce higher volumes of graphite over the 15 year mine life at a higher EBITDA margin, and as reflected in the significantly improved NPV figures greatly enhances its already attractive economics.

“The Mahenge project has a long mine life, low cost of production and has now been significantly de-risked at a time of rapidly increasing demand for large-flake graphite. As such it represents an attractive opportunity for investors who wish to gain exposure at a crucial inflection point in its development. The updated DFS reconfirms the enormous commercial potential of the Mahenge graphite project and lends strong support to our ongoing discussions for binding offtake agreements, debt package finance for construction and project level development funding – all workstreams which are in flight and advancing well and which we hope to provide further updates upon in the near future. In addition, important work continues with progressing workstreams in relation to Detailed Design Engineering, and the finalisation of the Company’s application for a full Mining Licence (and thus furthering major permitting milestones).

“Armadale has continued to deliver a number of key value accretive milestones in recent months and we look forward to maintaining this momentum in the near term in order to continue to build value for shareholders.”

Project update summary
Mining
An updated Mine Schedule using a higher-grade cut off of 9% TGC has resulted in a LOM average production increase of 30% to 109 ktpa.

The updated mine schedule is based on the following key changes;

• Increase in cut off grade to 9% TGC
• Revision of phased production expansion profile with stage 2 expansion moved forward from year 5 to year 4 resulting in average stage 1 production of 61 ktpa increasing to 121 ktpa in year 4.
• Inclusion of a proportion of high-grade inferred material

Table 1: The updated mining inventory

Area	Unit	DFS results	Update
Mining inventory	(Mt)	14.40	13.42
Measured and indicated	(Mt)	14.40	10.84
Inferred	(Mt)		2.58
Mine grade	(TGC%)	9.90	12.50
Strip ratio		1.10	1.95

The revised production profile is shown in table 2, which now starts at 53.3ktpa ramping up to an average rate of 121ktpa after year 4.

Table 2: Updated Production Schedule by Year.

Year	Mill Feed Mt	Head Grade TGC %	Concentrate Kt
Y1	0.4	14.5%	53.3
Y2	0.5	12.1%	71.0
Y3	0.5	12.4%	59.1
Y4	1.0	13.4%	121.5
Y5	1.0	12.1%	131.3
Y6	1.0	11.9%	118.6
Y7	1.0	13.1%	116.3
Y8	1.0	11.7%	128.5
Y9	1.0	12.4%	115.1
Y10	1.0	12.5%	122.0
Y11	1.0	12.6%	122.1
Y12	1.0	12.2%	123.6
Y13	1.0	12.3%	119.1
Y14	1.0	12.5%	120.2
Y15	1.0	13.1%	121.9

Key financial metrics
The recently completed DFS confirmed Mahenge as a long-life low-cost graphite project with a US$358m NPV and IRR of 91% based on a two-stage expansion strategy.

The updated mining schedule and revision of the schedule stage 2 expansion from year 5 to year 4 has resulted in a 20% increase in project NPV to US$430m. The IRR remains at 91% with a modest less than 3% increase in capital to US$39.7m.

Further, the average LOM product sales price of $1,112/t reflects a more conservative product pricing assumption adopted for the update.

Table 3: Updated DFS key financial metrics

Area	Unit	DFS results (Mar 2020)	Update Results
Mining inventory	(Mt)	14.4	13.4
Mine grade	(TGC%)	9.9	12.5
Strip ratio		1.1	2.0
Project Life	(years)	17	15
Total LOM Net Revenue	(US$ M, real)	1,634	1,823
Total LOM EBITDA	(US$ M, real)	981	1,085
Total LOM Net Cash Flows Before Tax	(US$ M, real)	883	985
Total LOM Net Cash Flows After Tax	(US$ M, real)	618	690
NPV @ 10.0% - before tax	(US$ M, real)	358	430
NPV @ 10.0% - after tax	(US$ M, real)	242	292
IRR - before tax	(%, real)	91%	91%
IRR - after tax	(%, real)	67%	68%
Project Capital Expenditure	(US$ M, real)	38.6	39.7
Payback Period - after tax	(years)	1.6	1.6
Average Sales Price (LOM)	Product (US$/t)	1,179	1,112
Cash Costs (FOB DES)	(US$/t, real)	385	369

Sensitivity Analysis
Additional financial sensitivity analysis has been undertaken and is outlined in tables 4 and 5.

Table 4 NPV sensitivity analysis (before tax)

Key metric	30% Unfavourable	20% Unfavourable	10% Unfavourable	Base Case	10% Favourable	20% Favourable
	US$	US$M	US$M	US$M	US$M	US$M
Capital Expenditure	407	415	422	430	437	445
Operating Expenditure	324	360	395	430	465	500
Grade	224	293	361	430	498	567
Price	192	271	350	430	509	588
LOM Average Sales Price $/t	778	889	1000	1112	1223	1334

Table 5 IRR sensitivity analysis (before tax)

Key metric	30% Unfavourable	20% Unfavourable	10% Unfavourable	Base Case	10% Favourable	20% Favourable
Capital Expenditure	71%	77%	83%	91%	100%	111%
Operating Expenditure	71%	78%	84%	91%	97%	104%
Grade	55%	67%	79%	91%	103%	114%
Price	49%	63%	77%	91%	104%	118%

The DFS updated financial metrics show a significant improvement in the already compelling economics of the Mahenge project. The sensitivity analysis furthers shows robustness of the Project, where a 30% reduce in product pricing still results a US$192m NPV and IRR of 49%.

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$985m over an initial 15 year mine-life and scope for further improvement as this utilises just 25% of the current resource, which remains open in multiple directions.

Projected timeline to first production is expected to be approximately 10-12 months from the start of construction and the capital cost estimate for Stage 1 is US$39.7m, which includes a contingency of U$S4.1m or 15% of total direct capital cost, with a 1.6 year payback for Stage 1 (after tax) based on an average sales price of US$1,112/t. Stage 2 expansion is expected to be funded from cashflow.

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 / Teddy Whiley	[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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