Ten Bagger, Friday 4th March

Kibaran shows it is a cut above the graphite pack as it prepares to finalise funding for Epanko project

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With every second battered resources outfit rebranding itself as a graphite company over the past year, it is little wonder that investors are struggling to work out which ones have any realistic prospect of ever turning a dollar from this new-age material.
Based on the tsunami of ASX releases from graphite explorers, there is no shortage of “high-grade premium flake graphite” on this planet. In fact, it would seem that in some parts it would be harder to avoid it than drill it.
But if investors have learned one thing from the resource fads of the past, it is that changing the shingle and gathering a few samples of a trendy commodity still leaves a company – and its shareholders – a world away from the holy grails of production and cashflow.

In this respect, Kibaran Resource (ASX: KNL) appears to be streets ahead of most of its peers, with the feasibility study on its Epanko project in Tanzania completed and funding and offtake agreements in place.
Kibaran is now putting in place the final pieces of the Epanko jigsaw, including the due diligence process being undertaken by KfW IPEX-Bank, the development funding agency of the German Government, and .
KfW has provided indicative terms and conditions to Kibaran concerning US$40 million in debt funding for Epanko. Finalisation of this debt facility is subject to the due diligence process, including a peer review of the project’s feasibility study by independent engineering firm SRK.
Epanko has an estimated capital cost of US$77.5 million, of which US$40 million is expected to be funded by the KfW facility. African resources financier Nedbank has given Kibaran an expression of interest in respect to providing a further US$30 million debt facility.
Completion of these two debt facilities will pave the way for Kibaran to secure the equity component of the project funding.
The bankable feasibility study on Epanko found the project had a pre-tax net present value of US$197.4 million and a payback period of just 2.7 years.
This is based on initial annual production of 40,000 tonnes of natural flake graphite concentrate, generating annual EBITDA of US$33.6 million.
Site works are scheduled to start within three months of securing debt and equity finance with first production forecast to take place nine months from then.
Kibaran has signed a binding long-term offtake agreement with German integrated materials and technology company ThyssenKrupp for 20,000 tonnes of graphite concentrate a year.
ThyssenKrupp would use the graphite primarily in manufacturing the refractory equipment which is used to produce steel.
Kibaran also envisages that about 10,000 tonnes a year, or 25 per cent, of Epanko’s graphite will be used in the high-growth lithium battery industry that will supply electric vehicles and energy storage markets.
In line with this objective, Kibaran recently signed a Memorandum of Understanding with Japanese trading conglomerate Sojitz Corporation, one the largest graphite traders in Japan and Korea
It is now in discussions with Sojitz with a view to converting this MoU into a firm offtake agreement.
As part of this strategy, Kibaran has just despatched a bulk sample of ore from Epanko for production-scale testing.
Previous testwork has confirmed that Epanko graphite has the required characteristics to supply this rapidly growing market. The next round of testing is designed to confirm these results under production conditions, therefore determining the production cost, demand and pricing.
The booming lithium-ion battery market represents an outstanding commercial opportunity for Kibaran given the high quality of the Epanko graphite and the forecast increase in battery sales. Kibaran is well positioned given Panasonic (Japan) and LG Chem (Korea) are developing the world’s largest gigafactories.
A further 10,000 tonnes a year of Epanko graphite will be sold by for other high-end uses.
Kibaran Managing Director Andrew Spinks said the sale of graphite to the battery market would provide a strong boost to the project’s already robust economics.
The debt funding proposal for Epanko does not take into account any sale of graphite to the battery industry. This means that sales to the battery market could provide a substantial additional revenue stream for Kibaran.

GLTA