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Energizer Resources Inc. (TSX:EGZ,OTCQB:ENZR,WKN:A1CXW3) is a Canadian-based mineral exploration and mine development company focused on the development of its wholly-owned Molo Graphite Project in southern Madagascar. The Molo project is one of the world’s most advanced, full feasibility-stage graphite projects and is on-track for production in Q4 2018.
Among the dozens of graphite companies around the globe, Energizer is one of the few to have delivered a full feasibility study. Energizer’s 2015 full (bankable) feasibility study confirms the attractive economics of the Molo deposit, including reasonable capital costs and operating costs in the lowest quartile for the industry. The study also outlines a very large NI 43-101 compliant resource that is immediately at surface with a negligible strip ratio. The feasibility study shows a 26-year mine life with annual average production of 53,017 tonnes of flake graphite concentrate, a post-tax NPV of US$389M, an IRR of 31 percent and payback in less than 5 years.
The quality of the flake graphite concentrate produced from the Molo’s pilot plant has been fully tested and validated by various leading graphite buyers, processors and end-users across all the top demand markets for graphite, including refractories, batteries, foils and graphene.
The Molo project is currently in the permitting stage and awaiting results of a recently initiated a front-end engineering and design (FEED) study. The company is presently focused on securing project financing and off take agreements on the strength of the feasibility study results and the soon to be released FEED Study results. In August 2016, Energizer announced that Dundee, Canada’s premier mining investment fund, took a 19.4% interest in Energizer, investing C$6,000,000 into a private placement in order to fund the FEED Study and the next major development catalyst. The FEED Study is being undertaken by Energizer in order to determine potential development path options that have been presented to them by prospective strategic partners.
- Shovel-ready, permitting-stage project
- Attractive economics confirmed through a completed full feasibility study
- Incredibly large resource
- Environmental and social responsibility studies conducted to highest international standards
- Technically de-risked
- Multiple development pathways: graphite suitable for all applications including refractories, graphite foil and lithium-ion batteries
- Lowest-quartile producer
- Madagascar government-supported project
- Largest shareholders collectively hold around 40 percent of Energizer: Dundee CMP Funds; JP Morgan; VR Capital
Country Spotlight: Madagascar
Energizer’s Molo Graphite Project is located 160 kilometers southeast of Toliara in the Tulear region of southern Madagascar and 220 kilometers northwest of the port town of Fort Dauphin. Madagascar is situated in the hub of the world’s leading markets for graphite applications and the country’s world-renowned flake graphite resources are of the highest quality. Molo represents one of the largest discoveries of graphite in the world and its attractive location includes unrestricted access to a major shipping port connecting to key Asian, European and North American markets.
The democratically elected Madagascar government recognizes the importance of the mining industry to the nation’s economic growth and is highly supportive of the Molo Graphite Project. The Word Bank has partnered with the government to implement strategies for improving the country’s business climate as well as social indicators with a focus on infrastructure.
In February 2016, the World Bank approved Madagascar’s access to International Development Association (IDA) finds. The 2016 IDA allocation for the country is $110 million which is set to more than double to $230 million in 2018. Currently, the World Bank has a total commitment of $618 million in investment operations in Madagascar with transport and infrastructure projects accounting for 27 percent.
In March 2016, the World Bank announced the country had received an IDA credit of US$65 million in support of improving electricity access throughout the nation. “We’ve teamed up with the authorities in identifying a set of high priority activities that could be carried out in the short–to-medium-term to achieve significant improvements in the sector’s operations and governance,” stated Isabel Neto, World Bank Team Leader for the operation. “In the longer run, the actions identified aim to create the building blocks to attract sound private sector investments in generation and access to electricity in Madagascar.”
Key Project: Molo Graphite Project
The Molo Graphite Project is easily accessible by a network of secondary and district roads as well as an all-weather, year-round airstrip adjacent to the property. The deposit is immediately at surface with a nearly negligible strip-ratio (0.81:1) and situated in a sparsely populated, dry savannah grassland region devoid of flora and fauna—ideal for a low cost, open pit operation.
Large, all-flake deposit
Molo is a large all-flake graphite deposit with a highly favorable flake-size distribution. The deposit contains a combined total resource of 141.28 million tonnes at 6.13 percent carbon, above a 2 percent carbon cut-off, and remains open along strike and at depth. More than 46 percent of the deposit’s flake graphite is classified as the premium-priced large and jumbo flake (greater than +80 mesh) variety, with 23.6 percent solely in the highly sought-after jumbo flake category (+50 mesh).
- Measured: 23.62 million tonnes at 6.32 percent carbon
- Indicated: 76.75 million tonnes at 6.32 percent carbon
- Inferred: 40.91 million tonnes at 5.78 percent carbon
- Proven: 14.17 million tonnes at 7.00 percent carbon
- Probable: 8.37 million tonnes at 7.04 percent carbon
|Molo Metallurgical Data – Flake Size Distribution and Product Grade|
|Product Size % Distribution Product Grade (% Carbon)|
|+48 mesh (jumbo flake) 23.6 96.9|
|+65 mesh (coarse flake) 14.6 97.1|
|+80 mesh (large flake) 8.2 97.0|
|+100 mesh (medium flake) 6.9 97.2|
|+150 mesh (medium flake) 15.5 97.3|
|+200 mesh (small flake) 10.1 98.1|
|-200 mesh (fine flake) 21.1 97.5|
“Our Molo deposit is blessed with very favorable metallurgical qualities,” explained Brent Nykoliation, Senior Vice President of Corporate Development at Energizer. “Not only is the flake distribution attractive, it is of very high quality with no known contaminants. All the major graphite manufacturers and end-users, notably for graphite foil and battery applications, require flake graphite free of contaminants such as iron and vanadium.”
Full (Bankable) Feasibility Study
The Molo Project Full Feasibility Study completed in 2015 was based on the metallurgical test work conducted by SGS Canada Metallurgical Services and was prepared by DRA Mineral Projects. The study considers an open pit operation with a proposed 862,000 tonnes per year processing facility projected to produce an average of approximately 53,017 tonnes of graphite concentrate each year over a 26-year life of mine.
The results of the study indicate the Molo deposit can produce a high-quality graphite concentrate at one of the lowest operating costs in the industry over a very long mine life. The easily scalable operation has the ability to provide material for any end-user in the refractory, graphite foil and electric vehicle battery markets.
Full Feasibility Study Highlights:
- Post-tax: NPV (10% Discount Cash Flow)(1)(2)
- Post-tax: IRR(1)(2)
- Capital cost (“CapEx”)
- Design Development Allowance
- On-site Operating Costs (“OpEx”) per tonne of concentrate, Year 3 onward)
- Transportation per tonne of concentrate (from Mine site to Madagascar Port Year 3 onward)
- Transportation per tonne of concentrate (from Madagascar Port to European Customer Port from Year 3 onward)
- Average annual production of concentrate 11. Life of Mine (“LOM”)
- Graphite concentrate sale price (US$/tonne at Start Up – 2017)
- Average Head Grade 14. Average ore mined per annum
- Average stripping ratio 16. Average plant recovery
(1) Assumes project is financed with 50% debt and 50% equity.
(2) Values shown based on nominal cash flows, which include the effect of inflation. Costs are increased on an annual basis by the relevant inflation index.
“The full feasibility study has confirmed that we in the lowest quartile for operating costs,” explained Nykoliation. “This is essential as the Molo compares favourably to Chinese operating costs for flake graphite and the ability to compete with the Chinese flake deposits is critical in this industry.”
The high purity of graphite flake that can be achieved with standard flotation contributes significantly to the project’s low operating costs as there is no additional need to remove deleterious elements from our graphite. “Molo can approach battery-grade purities with simple processing and this can be an advantage in having lower operating costs when further upgrading to 99.9 percent purity.” added Nykoliation.
Detailed and Value Engineering Study Underway
In an effort to further reduce the capital and operating expenditures for the Molo Project, Energizer’s management has initiated a value engineering study focused on optimization of the design and construction plan anticipated in the current feasibility study model; a review of the transportation options for concentrate produced at Molo; and a review of possible renewable energy solutions for the Molo mine site.
“Energizer sees significant potential in reducing our CAPEX as well as our OPEX to enhance the economics of the mine through the value engineering process,” explained Nykoliation, adding that the recently initiated FEED study incorporated aspects that the Company believes can reduce costs.
Molo concentrate verified across multiple graphite markets
A number of the world’s leading graphite buyers and processors have validated Molo for all the top demand markets for graphite including refractories, batteries, foils and graphene. Various independent end-user tests have confirmed that the flake graphite concentrates from Energizer’s Molo deposit meet or exceed the quality requirements for all these end-markets.
“In our opinion, Energizer compared to its peers has done some of the most extensive validation testing at the end-user stage and that has provided us a lot of traction with potential strategic partners,” said Nykoliation.
The refractory market represents 50 percent of the global demand for flake graphite. Molo flake graphite concentrate has received positive results across all testing parameters from five of the world’s top refractory producers. This industry requires flake sizes of medium, large and jumbo. Nearly 79 percent of Molo graphite is classified as medium, large or jumbo flake.
The graphite foil market is currently the fastest growing market segment for flake graphite and represents about 10 percent of total global demand. Graphite foils are used in smartphones and tablets, gasket materials in automotive, petroleum, chemical and nuclear industries, and conductive plates in fuel cells and vanadium redox batteries.
A leading European manufacturer of carbon-based products has proven that Molo flake graphite can be successfully manufactured into a graphite foil. Independent testing has also verified that Molo graphite meets all specifications and quality requirements for specialty graphite foil applications. For graphite foil, jumbo flake is the required manufacturer size. The Molo deposit is made up of 23.6 percent jumbo flake according to the feasibility study.
The electric vehicle battery market is the second largest market segment for flake graphite, representing 25 percent of global demand; in fact, graphite is the anode material of choice in all batteries. In lithium-ion batteries, approximately 10 times more graphite is required than lithium itself. Based on demand forecasts for lithium-ion batteries, the demand for graphite in this market is projected to grow by about 10 percent per year.
Both a leading Japanese manufacturer of battery anode material and a top European supplier of spherical graphite for electric vehicles successfully manufactured spherical graphite from Molo concentrate. Independent testing has verified that the Molo concentrate has met all specifications and quality requirements for lithium-ion battery anode material production.
Results from verification testing by UK-based Haydale Graphene Industries PLC have validated the Molo deposit as a viable source of graphene nanoplatelets used in the development of graphene inks for printed and flexible electronics. Haydale Graphene Industries is a global leader in the processing and application of graphene nano-materials. According to BCC Research, the global graphene-based product market will grow at a CAGR of 58.7 percent between 2015 and 2020 to reach $675.1 million.
Off-take and partnership discussions
Energizer is currently engaged in discussions concerning strategic partnerships and off-take agreements with several parties. The Company has been in contact with certain potential partners for over two years, and is focused on being the first graphite development-stage company to secure a “true” binding off-take agreement – one that is both credit-worthy from a chartered bank’s perspective and facilitates debt and equity funding of the project.
In July of this year, Energizer announced it retained UK-based HCF International Advisors Limited to help negotiate and structure such agreements as well as debt and equity financing for the Molo project. HCF has successfully completed more than US$12 billion in transactions; most notably, HCF advised Turquoise Hills Resources on the introduction of Rio Tinto as a 19.9 percent strategic equity investor and advised on the structuring and raising of the US$4.0 billion in project financing for the development of the Oyu Tolgoi Copper-Gold Project in Mongolia.
Craig Scherba, P.Geol.—President & CEO, Director
Craig Scherba has also served as Vice President, Exploration of the company from January 2010 to September 2012. He also currently serves as Vice President, Exploration of MacDonald Mines Exploration, Red Pine Exploration and Honey Badger Exploration, all of which are resource exploration companies trading on the TSX – Venture Exchange. In addition, Scherba was professional geologist with Taiga Consultants, a mining exploration consulting company from March 2003 to December 2009. He was a managing partner of Taiga between January 2006 and December 2009. Scherba has been a professional geologist since 2000, and his expertise includes supervising large Canadian and international exploration. Scherba was an integral member of the exploration team that developed Nevsun Resources’ high grade gold, copper and zinc Bisha project in Eritrea. He served as the company’s Country and Exploration Manager in Madagascar during its initial exploration stage.
Robin Borley, B. Tech, Mining Engineering—Senior Vice President, Mine Development
Robin Borley is a graduate mining engineering professional and a certified mine manager with more than 25 years of international mining experience building and operating mining ventures. He has held senior management positions both Internationally and within the South African mining industry. He has most recently served as Mining Director for DRA Mineral Projects and was instrumental as the COO of Red Island Minerals in a developing a Madagascar coal venture.
His diverse career has spanned resource project management, evaluation, exploration and mine development. Borley has completed several mine evaluations including operational and financial evaluations of new and existing operations across a diverse range of resource sectors. He has experience in the management of underground and surface mining operations from both the contractor and owner miner environments. From 2006 through to 2012, he participated in the BEE management buy-out transaction of the Optimum Colliery mining property from BHP, through its independent listing and its ultimate sale to Glencore in December 2012.
Brent Nykoliation—Senior Vice President, Corporate Development
Brent Nykoliation holds a Bachelor of Commerce degree with Honours from Queen’s University, and has a career that has spanned 15 years in various senior management roles in marketing and corporate development with notable industry leading companies such as Nestle, Home Depot and Whirlpool.
Marc Johnson, CFA—Chief Financial Officer
Marc Johnson is a senior executive with over 19 years of experience, including 9 years at large public companies in financial management, cost control and corporate development. He also brings 10 years of capital markets experience in mining investment banking and as an equity research mining analyst covering precious and base metals. Johnson is a Chartered Financial Analyst (CFA), holds a Bachelor of Commerce (Finance) degree from the John Molson School of Business at Concordia University and will be completing the Chartered Professional Accountant (CPA) designation in 2016. He is a Principal at Quantum Advisory Partners LLP, a professional services firm that provides CFO services to public and private companies, and is also the CFO of Red Pine Exploration and the CFO of Y Gold Resources.
Quentin Yarie, P.Geo —Senior Vice-President, Exploration, Director
Quentin Yarie’s principal occupation is as a professional geophysicist. He is President and CEO of Red Pine Exploration, Senior Vice-President of Exploration for Honey Badger Exploration and Senior Vice-President of Exploration for MacDonald Mines Exploration since January 1, 2010. Yarie was the business development officer of Geotech Limited, an Ontario corporation from October 2007 to January 2010. From September 2004 through October 2007, he was a senior representative of sales and business development for Aeroquest Limited.
Roland Fok Seung—Madagascar Country Manager
Roland Fok Seung is a Chartered Accountant of the Institute of England and Wales and the Association of Chartered Certified Accountants. Employed as Energizer’s Madagascar Country Manager for the past 5 years, Fok Seung is based full time in Madagascar and will continue to act in this capacity with a focus on financial related business activity.