Proactive investors article out today
Energizer Resources roars ahead with development of Molo graphite deposit
Monday, November 25, 2013 6:51
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(Before It's News)
Energizer Resources (TSE:EGZ) has been moving at lightning speed to bring to production its Molo graphite deposit in Madagascar, a project that given its sheer size is one of the largest graphite assets in the world and is flying under the radar when considering the company’s trading value.
In the short span of four weeks, the graphite development company announced four significant milestones that move it along considerably in the process of achieving its end goal. Energizer unveiled the start up of its pilot plant operations, signed a preliminary deal with Cat Financial for potential project financing, acquired 100% ownership of the project and strengthened its management team by luring engineering veteran Robin Borley as senior VP of mining development.
“We have been progressing very quickly these past 12 months and, despite the very difficult financial times, continue to check off the milestones required to advance our project ,” senior VP of corporate development, Brent Nykoliation told Proactive Investors in a recent interview.
Energizer’s recent news releases have proven to the market and potential strategic partners that the company is clearly focused on moving to mine development. Notably, the company received a Letter of Intent (LOI) from the mining finance division of construction and mining equipment giant Caterpillar (NYSE:CAT), offering to provide debt financing for both the equipment and capital expenditures of the future Molo mine . Based on the company’s preliminary economic assessment and recent pilot plant updates, Molo ranks as one of the top flake graphite projects in terms of quality and size in the world.
Indeed, the company’s maiden resource on the property is made up of 84 million indicated tonnes at 6.36% carbon (C) and 40.3 million inferred tonnes at 6.29% C. A preliminary economic report on the asset estimated a pre-tax net present value of $421 million at a discount rate of 10%, with a 48% internal rate of return. Capital costs were pegged at $162 million, with a three-year payback period.
Nykoliation notes that the economics include transportation costs FOB ship, an element that many junior companies leave out in their assessments, but are a necessary component in understanding project logistics nonetheless.
The completion of a bankable feasibility study is one of the few due diligence requirements standing in the way of a definitive agreement with Cat, with the mining giant also expressing an interest to act as Energizer’s financial adviser and funding partner pending further due diligence on the property. The feasibility study is now underway and the final study is expected sometime in the third to fourth quarter of next year.
Moving full steam ahead, of the 180 plus graphite projects globally, Energizer will be only one of two with a bankable feasibility study, with the other being Northern Graphite (CVE:NGC).
“We’re expediting the BFS process so that we can begin to finalize discussions with potential strategic and off take partners and financial institutions that have made it known that they are interested in funding the Molo project and require a completed BFS as part of their due diligence.”
It’s easy enough to find the source of this interest with some basic mathematics and loose calculations. Using an average price of $1,563 per tonne as per the PEA study, when multiplying 84 million indicated tonnes by the average grade and projected recovery rate of 95%, this amounts to some $8 billion worth of the metal in situ. When dividing this by the company’s 197 million shares issued and outstanding and applying a typical discount rate of 90%, this comes to a share price upwards of $4.00, compared to the company’s trading price , which was 15 Canadian cents at the time of publication. This even leaves out the additional 40 million tonnes of inferred resources that are considered too speculative in nature to include in the economics of the project at this stage.
And now Energizer has full ownership to this asset that promises some major upside, signing as it did a binding memorandum of understanding to acquire Malagasy Minerals’ remaining 25 per cent interest in the joint venture that holds the Molo project. The two parties said on October 24th that they agreed to complete a formal deal within 45 days, giving Energizer a huge advantage moving forward in its negotiations with potential strategic partners.
And the scalability of the graphite resource is virtually unlimited. In fact, the Molo deposit represents just 1% of Energizer’s total property position, which has a confirmed 320km of continuous graphite mineralization at surface.
“We have one of the largest flake graphite resources in the world,” says Nykoliation. “When the demand markets manifest further for flake graphite, we can easily scale up to meet that demand.”
“It’s beyond comprehension how much graphite we have at Green Giant.”
Energizer has identified 17 graphite zones thus far, and has drill tested seven including Molo, meaning there are six other zones that could potentially be stand-alone deposits unto themselves.
The Toronto-based graphite company even appointed a new CEO with engineering expertise to help as it transitions from a junior explorer to a mine developer, signing on Richard E. Schler to take the helm, who served as Energizer’s CFO and executive vice president since September last year and has worked for the company in some capacity since April 2006.
Energizer also has African-based DRA Mineral Projects on its side, which has built more than 200 mines and took a 1.6 per cent equity investment in Energizer last year through a strategic partnership, with the right to acquire up to 5 per cent of the company. The African firm completed the preliminary economic assessment for Energizer, and is also tasked with conducting the feasibility study. Nykoliation boasts that director of DRA, Johann de Bruin, is on the company’s board of directors, as it continues to strengthen its board capacity with execs that have experience in building a mine.
As part of its bankable feasibility study, the company has just completed its pilot plant operations at SGS Minerals, which generated about 10 tonnes of finished flake concentrate. Several large bulk samples are now being shipped to potential off-take partners, whom Energizer has been engaged with for more than one year, for final evaluation.
The expectation is that Energizer will pass the pilot plant product evaluation with flying colours, after announcing metallurgical results that include ultra-high purity graphite of greater than 99.9% graphitic carbon with glow discharge mass spectrometry (GDMS) analysis, which is one of the most stringent assay tests available in the market to measure impurities. Nykoliation explains that management’s confidence in the project is based on the accuracy of the figures at hand, with certain elements of the PEA boasting accuracy of plus or minus 12%, compared to 30% for most projects. “We have a very high degree of confidence that we have a very special and profitable project here,” alluding to the company’s resource that is all-flaked, the most actively pursued form of graphite which is associated with the top three markets for natural graphite – refractories, batteries and consumer electronics.
The Molo deposit is located strategically in the centre of the key graphite demand markets, which include China, India, South Korea and Japan, and has immediately serviceable infrastructure.
The question remains why Energizer is not trading at a higher multiple, versus other projects that are in comparison, less developed.
“While many other graphite juniors have been focused on marketing and promoting their projects, we have been singularly focused on project advancement. What we have accomplished since discovery less than 2 years ago is impressive,” says Nykoliation.
“Our stock price will reflect the true value of our asset once we reach production. That’s our sole focus and where we believe shareholders want us to direct precious funds – the advancement of the project to a mine. First-mover advantage is key.”
Evidently, Energizer has no plans of slowing down anytime soon, looking to keep up its momentum even after the mine opens up, to continue delivering on milestones. “Eventually the market will realize we are flying under the radar.”
The company has a 52-week trading range of 10 to 36 Canadian cents, with a market cap of some $27 million.
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