Pre-Feasibility Study (PFS)
Highlights:
o Net Present Value (post-tax) of US$482M, a 52% increase on previously reported Preliminary Economic Assessment (PEA)
o IRR (post-tax) of 49%
o 14-year mine life, which can be increased by additional drilling
o US$499/t operating cost (FOB Mombasa port), underlining one of the lowest cost graphite projects worldwide
o US$1,307/t weighted average sales price for basket of end-products
o Initial Capital requirement reduced by 23% from PEA 2021 to US$62M
o US$1.398 billion EBITDA delivered over life of mine, average US$100M EBITDA p.a.
o US$1.073 billion cumulative Net Cash delivered from project over life of mine
o 36,000tpa end-products as 96-97% LOI concentrates in year 1, ramping up in stages thereafter to 147,000tpa
o ~50% of end-product in higher value +100 to +50 mesh fractions
o Blencowe to apply for Free Trade Zone License (FTZL) in 2H 2022, which in turn will bring considerable advantages, including a 10-year corporate tax exemption
· Pre-Feasibility Study (PFS) completed on time and under budget
· PFS indicates a robust, long-term, profitable graphite mining operation at Orom-Cross
· PFS managed by leading graphite technical experts Battery Limits Pty Limited (Australia), who have delivered several other leading graphite project feasibility studies in the past
· Scope to expand resource and ramp up production as global markets dictate
· Flake graphite forecast to move into significant supply deficit medium term as increased demand for electric vehicles (EVs) lifts demand for lithium-ion batteries. Graphite is a non-replaceable input material into lithium-ion batteries
· Blencowe will now move towards Initial Stage production at Orom-Cross by 2H-2023
Blencowe Resources (“Blencowe” or the “Company”) (LSE: BRES) is pleased to announce results of the Pre-Feasibility Study it has been conducting at its flagship Orom-Cross Graphite Project in Uganda. These results highlight an exceptional long-life project that delivers considerable returns over an initial life of mine period of fourteen years. In addition, the PFS indicates an initial capital requirement that has been lowered by 23% since the Preliminary Economic Assessment (“PEA”) announced in 2021.
The PFS has been delivered in conjunction with leading graphite technical expert Battery Limits Pty Ltd (“Battery Limits”) who have managed several other leading graphite project feasibility studies worldwide.
Executive Chairman of Blencowe, Cameron Pearce commented:
“This PFS represents a major milestone for the Orom-Cross Project and the results are outstanding. We have considerably outperformed the 2021 Preliminary Economic Assessment in all key areas, whilst also reducing the initial capital requirement by 23% to just US$62M.”
“The Orom-Cross NPV (Net Present Value) of US$482M is excellent, especially in relation to this lower capex, and proves that this is a standout graphite project. The 14-year long mine life can be extended at any time with additional drilling at Orom-Cross, whilst the concentrate is of high quality with specific element content that is unique and which will elevate market demand for all of the end-products we sell. Selling graphite is one of the key challenges for a successful operation so this is critical.
As a result of 50% of these end-products being larger flake size categories Orom-Cross has a substantial weighted average selling price for its basket of end-products, yet it also has one of the lowest total operating costs of any graphite project worldwide. This ensures considerable operating margins over life of mine, which in turn will deliver over US$1 billion free cash to Blencowe as return on investment.
We have adopted a more conservative production profile for both start-up and the ramp-up thereafter to maintain the integrity and viability of delivering new graphite product into the market. We could have chosen to boost the NPV further by expanding production and sales of graphite but we don’t see that as a credible base case. Also, this modest production profile helps delivers a lower initial capital requirement for Blencowe to commission the mine which is another big advantage.
These are tremendous results for our Project and once again highlight the disconnect between the value of Orom-Cross and our current public market valuation. With a current market cap of circa £4M, excluding our nickel project and existing cash, we are trading at approximately 1% of our NPV and at 5% of our expected average annual EBITDA figure. With the PFS now finalised we would expect interest to grow and the inherent value in the Company to be recognised.”
Orom-Cross Graphite Project: Pre-Feasibility Study
The following areas highlight the quality of the project, and provide the basis for Blencowe to move towards Initial Stage production within the next 12-18 months. Main production is targeted for 2025.
|
Key Performance Indicator
|
|
Comment |
|
Life of Mine |
14 years |
Can extend at any stage with further drilling |
|
Average tonnes mined pa |
1.6Mtpa |
Start-up 600ktpa, moving to 2.4Mtpa at year 7 |
|
Average tonnes (concentrate) produced pa over life of mine |
101,000tpa |
Start-up 36ktpa; moving to 147ktpa by year 7 1.41M tonnes over life of mine |
|
Initial Capital Requirement |
US$62M |
Plant, infrastructure and contingency |
|
Net Present Value ( NPV ) |
US$482M |
8X return on initial capital invested |
|
Internal Rate of Return ( IRR ) |
50% |
Highlights strong rate of return on investment |
|
Weighted Average Selling Price/t – starting position |
US$1,307/t |
5 different end-products produced, with ~50% in the higher value +100 to +50 mesh fraction sizes |
|
Operating Cost (FOB Mombasa port) – average life of mine |
US$499/t |
C2 costs, including mining, processing, admin, manpower, logistics, sales and marketing costs |
|
Average EBITDA per annum – life of mine |
US$100M |
US$1.398Bn total EBITDA earned over life of mine |
|
Free Cash Generated |
US$1.073Bn |
Net Cash (after tax and royalties) delivered to Company over life of mine |
1. Mining and Processing
Orom-Cross has an existing JORC Standard Resource of 24.5Mt at 6.0% presenting from surface, which provides for a shallow, low cost, open pit mining operation. All mining within this first 14 years will be done from 0-25m depth. Approximately 600,000 tonnes of ore will be mined per annum from commissioning date and this will increase to 2.4Mtpa by the time the project is fully ramped up in year 10. The existing JORC Resource provides an initial mine life of 14 years and further resources, higher production volumes and an extended mine life can all be obtained at any stage via drilling additional ready-targets. This is however not considered a priority at the moment.
Mining will be free-dig with no drill and blast requirement. Initial ore will come from saprolite (clay) but is expected to move into fresh around 15-20m depth on average. Both of the deposits identified in the drilling programmes (Northern Syncline and Camp Lode) will be mined and a composite blend of both will be input into the processing plant that will be constructed on-site.
An initial 36,000tpa of end-product as concentrates will be delivered from the plant which increments in two additional stages to 147,000tpa once the mine is fully ramped up. Considerable metallurgical test work has been done on the end-products to determine their chemistry and characteristics and this shows that Orom-Cross can deliver a high quality >96% LOI concentrate that is unique in several key aspects, as highlighted in the June 2022 announcement on final met test results. Circa 35% of these end-products will be coarse flakes and ~50% will be in the +100 to +50 mesh higher value categories. The remaining smaller flake products can be sold into the fast-emerging battery market, which is forecast to grow considerably over the long term thus providing a channel for incremental growth and sales.
2. Capital Requirement
Blencowe will commence main operations from 2025 at an initial output of 36,000tpa end-product, which is considerably lower than the initial start-up volume as per the PEA (2021).
This is due to guidance from Blencowe’s experienced graphite sales and marketing advisors targeting a more conservative ramp up profile to ensure all products are able to be sold on start-up into various markets as identified. It is likely that various different products will be sold into all of the key graphite markets, including engineered products, thermal management and energy storage.
Pre-qualification of all end-products will commence from initial stage smaller scale production facility at Orom-Cross from 2023, which will deliver bulk samples over a period of 12-24 months prior to the main plant being commissioned, in order to build relationships with end-users over that period. This will ensure that all end-products are qualified and can be locked into binding sales agreements once main stage production commences in 2025.
This lower volume start-up position has resulted in a reduced initial capital requirement of US$62M (down by 23% from the US$80M capex as per the PEA in 2021).
|
Capital Item |
US$ M |
% |
|
Processing Plant |
27.3 |
44.1 |
|
EPCM |
5.3 |
8.5 |
|
Other Indirect Costs |
3.1 |
5.0 |
|
Plant Infrastructure, including Tailings Storage Facility (TSF) |
8.1 |
13.1 |
|
Camp and Facilities |
8.4 |
13.5 |
|
Mining Capital |
2.6 |
4.2 |
|
Owners Costs |
2.4 |
3.8 |
|
Contingency |
4.8 |
7.8 |
|
TOTAL |
62.0 |
100% |
This requirement is expected to be funded post-DFS by a combination of both debt and equity via strategic investors and funding partners. The full capital requirement by stages is indicated in the table below, with subsequent future requirements to be funded internally from free cash generated by the mining operation itself.
|
Stage |
Year |
Capital Requirement US$ M |
Use of Funds |
|
1 |
2024/5 |
62 |
Initial 800,000tpa plant All infrastructure, including power, roads, TSF, communications and mine camp. Includes mining capital and contingencies |
|
2 |
2027/8 |
52 |
Additional 800,000tpa plant capacity, plus all associated infrastructure |
|
3 |
2029/30 |
45 |
Additional 800,000tpa plant capacity, plus all associated infrastructure |
3. Infrastructure
Orom-Cross benefits by considerable key infrastructure already in place, which in turn lowers the capital required to commission the mine. There are existing tarred roads from the regional centre Kitgum (90kms from site) all the way through to Mombasa port in neighbouring Kenya, and the road from Kitgum to nearby Orom (10kms from site) will be tarred by 2025; work on that is already underway. Blencowe will establish local roads required around the mine site.
Power will be connected to the national grid which is currently nearby at Orom and will provide lower cost, energy-efficient hydro-power. Wireless communications will be connected on site giving all range of phone and internet options. There is plentiful water on and around the site and bores will be sunk for clean water.
A smaller processing facility and mine camp will be set up for initial stage production from 2023 to deliver bulk samples for pre-qualification, and a larger camp will be constructed together with additional plant, storage, admin offices and a larger tailings facility, prior to 2025 main start-up.
4. Operating Costs
Orom-Cross benefits from several key attributes that combine to deliver one of the lowest operating cost graphite projects worldwide.
Specifically these include:
· Low strip ratio for open pit mining (graphite presents from 0-25m below surface)
· No drill and blast required and minimal crushing (no hard rock)
· Lower energy costs (low cost hydro power off the national grid)
· Lower labour costs; and
· A simple process flow through a standard floatation plant.
|
Cost Centre
|
Average Cost per tonne (USD/t) |
% Total |
|
Mining |
90 |
18.1 |
|
Processing |
180 |
36.1 |
|
Fuel |
3 |
0.6 |
|
Project Personnel |
48 |
9.6 |
|
Project Services |
35 |
7.0 |
|
Depreciation |
17 |
3.4 |
|
Transport & Logistics |
110 |
22.0 |
|
Sales & Marketing |
16 |
3.2 |
|
TOTAL |
499/t FOB port |
100% |
Mining will be owner-operated using equipment assumed as leased. Training will be given to locals to fill positions wherever possible and Blencowe intends to build a strong base of experienced in-country personnel for all positions over life of mine.
Ore will be mined from both the Northern Syncline and Camp Lode deposits and stockpiled for processing through the plant, which will be located on-site and near to the mining operations. An initial 500,000tpa of ore will be throughput but this will expand to 2.4mtpa over a series of ramp ups during the first ten years’ life of mine. This will result in 36,000tpa of end-products delivered as concentrates from year 1 that will expand to 147,000tpa by year 10. Operating costs per tonne will reduce over the life of mine as the production tonnage ramps up.
The processing flowsheet consists of a flash and rougher flotation stage followed by a primary cleaning circuit with a polishing mill, followed by three stages of cleaner flotation. The intermediate concentrate is classified and then further upgraded in secondary cleaning circuits with stirred media mills (SMM) followed by cleaner flotation.
Orom-Cross will deliver at least five different end-products, characterised by different mesh size fractions; namely +50 mesh, + 80 mesh, +100 mesh, +150 mesh and -100 mesh. These products will all have different markets and will be branded and packaged at site. Blencowe intends to apply for a Ugandan Free Trade Zone License (FTZL) in 2H 2022 which will allow for all goods for export to be custom-cleared at the mine site before being transported to Mombasa port by truck for shipment to end-users.
Initially the transport to port will be done via road but it is expected that by 2025 main plant start-up there may be a rail option available nearby which would lower logistics costs further. Orom-Cross will be able to utilise cheaper backfill options for road transport as both Uganda and South Sudan are land-locked countries and therefore require substantial volumes of imported goods delivered by trucks, which often return to Mombasa port empty. This is a key advantage.
5. Weighted Average Selling Price
The basket of end-products that Orom-Cross produces will deliver a strong weighted average sales price of ~US$1,307/t. Prices have been determined using updated Lone Star Tech Minerals (leading graphite sales and marketing expert) graphite pricing data, with forecast increments through to proposed 2025 start for the main production facility. Thereafter a price increment of 2.5% p.a. is included for small flake products only taking into consideration higher demand as forecast for these products ahead.
The weighted average selling price is made up as follows:
|
Flake Size |
Mesh Size |
96-97% LOI 2025 |
% End Product |
Weighted Average US$/t |
|
Jumbo |
+32 |
3,510 |
1.5 |
53 |
|
Jumbo |
+50 |
2,830 |
12.2 |
345 |
|
Large |
+80 |
1,474 |
22.5 |
332 |
|
Large |
+100 |
1,091 |
10.6 |
116 |
|
Medium |
+150 |
990 |
15.1 |
149 |
|
Small |
-100 / -200 |
982 / 752 |
11.9/26.0 |
117/196 |
|
|
|
|
|
1,307 |
The table shows a wide range of price differentiation between coarse and fine flake sizes for 96-97% LOI (loss on ignition) concentrates, and both current prices as well as forecast prices for 2025 expected start-up date. Orom-Cross benefits from having ~35% of its end-products as jumbo or large flake sizes (+80 mesh) as these products sell into markets at a considerable premium to the smaller flake/mesh sizes. The concentrates also benefit from having very low impurities.
Strong anticipated future demand for smaller flake product that can be upgraded to 99.9% SPG and used within batteries for EVs presents growth potential for further demand ahead, with this forecast to positively impact prices considerably over the next decade and beyond. The market has already seen an upward shift in the price of these mesh sizes during 2022.
6. Sales and Marketing
Blencowe has been working closely with experienced graphite marketing consultant Lone Star Tech Minerals LLC (USA) during the PFS period to identify products and markets to sell its graphite products into ahead. Lone Star have over 30 years’ direct experience in graphite sales and their expertise has been valuable in all facets, including metallurgical test work, identifying product specifications, branding, packaging, customer identification, interaction and liaison. Blencowe will continue to work with Lone Star as Orom-Cross moves towards first production.
Blencowe’s marketing strategy will be to construct a smaller scale plant initially at Orom-Cross from 2023 that will deliver 1,500tpa of end-products as concentrates for bulk sample sales into end-users. This process of pre-qualifying will continue in parallel to the main plant being constructed in 2024 for target 2025 start-up, with all products thereby having had 12-24 months’ history of sales into customers before more extensive production commences.
Blencowe intends to seek key ISO certifications for its plant and products through this pre-qualification period to ensure highest possible standards which will then be reflected in higher demand for its products, and potentially higher prices.
7. Cash Flow
The high net operating margin generates substantial cash flow from Orom-Cross, particularly from when the mine has fully ramped up to 147,000tpa capacity by year 10. This in turn generates free cash net of all taxes of US$1.073 billion from the Project over the initial 14 years’ life of mine. As only a small percentage of the full Orom-Cross graphite deposit will have been mined out by then it is likely that further drilling will result in a considerable extension to the life of mine well beyond the initial 14 years, and with that significant additional net cash flow.
Royalties of 5% have been added and a 10-year exemption from corporate tax is also included in the model. Thereafter a standard rate of 30% corporate tax is used. Whilst Blencowe will not apply for any tax exemption until the Definitive Feasibility Study is completed the Company has been made aware the investment quantum for Orom-Cross and the nature of the exported end-products, plus certain other features, will allow for such an exemption to likely be granted; as such it has been included within the modelling.
Provision has been made for payments to the local community as dictated by the existing Local Community Agreement already in place, and for other means for Blencowe to assist such as water bores, health and educational support and various minor infrastructure.
8. Management and staffing
Blencowe will ensure operational delivery of end-product via experienced management at Orom-Cross, specifically in key areas such as the processing plant. However the Company will focus on training local staff wherever possible to transfer skills and to ensure participation. Ultimately the full operation will have >400 persons employed, operating in shifts to ensure constant mining and processing all year round. Mining is will be owner-operated using dry hire equipment, as opposed to contract mining.
9. ESG (Environmental, Social & Governance)
Blencowe is taking a firm stance from the outset on life cycle sustainability at Orom-Cross with every effort made to ensure the project operates using renewable energy sources wherever possible, and any non-renewable options are only considered as emergency or backup where no other alternative is possible.
Orom-Cross benefits from the ability to utilise hydro-electric power sourced from the Ugandan national grid and various solar options are under consideration and will be examined further within the Definitive Feasibility Study stage.
Social programmes are already in place to ensure the local community benefits from a successful mining operation, and Blencowe will continue to work closely with the local community ahead to ensure its continued support. Strong governance and risk management are critical to the success of the Project and Blencowe will monitor these aspects at all times to international standards.
10. Strategy Forward and Timing
Blencowe is committed to bringing Orom-Cross into first production as soon as practically possible. Subject to further revisions due to prevailing circumstances the following strategy and associated timings reflect the Company’s plan to advance Orom-Cross over the medium term:
|
Milestones
|
Dates |
Comments |
|
Stage 1 (pilot plant) feasibility study |
3Q 2022 |
Specific study for 1,500tpa plant for bulk sample sales to end-users from 2023 onwards |
|
Stage 1 plant implementation |
1H 2023 |
Processing plant and associated infrastructure for initial stage production |
|
Stage 1 plant commissioning |
2H 2023 |
Commencement of operations at Orom-Cross
|
|
Definitive Feasibility Study |
End-2023 |
DFS on main plant in parallel with development of Stage 1 main plant and infrastructure |
|
Decision to Mine (main plant)
|
End-2023 |
Completion of DFS and decision to raise necessary funds for main plant implementation |
|
Funding & implementation (main plant) |
2024 |
Construction of main plant on-site |
|
Main plant commissioning
|
2025 |
Commencement of operations (main plant) |
As highlighted above, Blencowe anticipates moving into initial stage production at Orom-Cross during 2023 and building relationships with end-users via delivery of bulk samples sold over a period thereafter whilst the Company completes the DFS and builds the main production facility.
11. Graphite demand within World Markets
Graphite is used in many different applications and there will be a different demand profile ahead for each based on prevailing circumstances, and as these products are in different sectors of the market they do not necessarily impact one another. Blencowe will be looking to sell end-products into each of these market segments below:
· Engineered Products
Electronics, agriculture, automotive, lubricants, ceramics, government defence, carbon brush and foils products that use natural flake graphite products. Other example applications that use graphite powder additives include friction, powder metallurgy, ceramics, foils, fire retardants, pencil, lubricants, dispersions, and carbon brush.
· Thermal Management
Applications that require graphite powder in various mesh or micron sizes as a thermal insulator or conductor in a wide range of applications including traditional and advanced graphite products for high end refractories, standard refractories, HMF (Hot Metal Forging), HMT (Hot Metal Toppings), crucibles, foundry and geothermal.
· Energy Storage
The energy sector continues to require new producers of consistent and high quality advanced carbon and graphite products to meet the needs of the global population for consumer goods, grid stabilisation, transportation, communications, aerospace and medical device advances. Applications and markets within the energy storage group will experience increased demand for innovative high tech graphite solutions.
The applications that are receiving the least attention requiring significant volumes of high purity micronised carbon powders are secondary battery (cathode) and primary battery (alkaline); both of which use high purity (99.9% LOI MIN) micronised carbon or graphite powder as a conductive additive without the need for any additional morphology modification.
There is significant discussion on the current and future needs of advanced battery technologies for critical raw material supply; specifically lithium, carbon and graphite products. Advances in battery and raw material technologies require increasing higher quality in advanced carbon or graphite products. These advances need to meet not only energy density requirements, but power density and energy requirements as industrial and consumer electronics become more sophisticated. Blencowe is making strategic steps to meet those future challenges. Electrochemistry applications that use carbon or graphite powders as a conductive additive include batteries, fuel cells, & super-capacitors.
Price points for each market group are not the same for every application and can vary significantly from one to another. A traditional or advanced graphite powder production facility must possess the capability to produce multiple products created from a single source or feedstock with processes and packaging to meet specific customer requirements. This will encompass serving multiple product families with various combinations resulting in large number of unique permutations. Specific target applications have the potential to deliver significant incremental revenue and profits creating long term sustainability and future growth for the Company.
An advanced carbon powder manufacturing program will include certifications to include ISO: 9001 (QA/QC) and ISO: 14001 (EMS) in line with industry, application and customer requirements. Blencowe Resource’s Orom-Cross graphite project is set to be part of the next generation of traditional and innovative advanced carbon powder products for the global market. It is prudent in any graphite business strategy to diversify product offerings and target market focus to provide for progressive revenue streams to weather a variety of market dynamics that could potentially affect one market or another.
Due to graphite’s metallurgical rarity, its unique physical and chemical properties, and its growing importance in high technology applications and green energy initiatives, natural graphite has been declared a strategic mineral by both the USA and European Union (EU). Natural Graphite is positioned as one of 24 critical raw materials out of 54 candidate materials.
The critical success factor for Blencowe Resources will be the Company’s manufacturing focus on delivering higher quality, consistent flake graphite products and not focusing solely on selling bulk tonnes of lower quality flake graphite at lower prices; a strategic position of quality over quantity.