Entry for STT Thread: AXE, Archer Exploration, FA, High Purity Graphite Project, Eyre Penninsula, South Australia
It has been a long time coming, however shareholders of Archer Exploration Ltd now have reason to be very optimistic about the company's Campoona Graphite Project. As announced to the market on the 9th of August, Archer has been able to produce ultra-pure graphite from samples across the entire deposit down to the base of complete oxidisation at around 100m depth.
During July and August the company has been able to consistently produce ultra-pure crystalline graphite at grades in excess of 99.0% C and up to 99.4% C. These grades are expected to be improved after a light acid wash towards 99.9% C. Graphite with a high level of purity grading from 99.0% C upwards with a flake size in the range 5 micron to -100 mesh, commands a significant price premium of $2,500 to $5,000 per tonne versus typical flake graphite. Archer’s average size sits well within this range at 35 micron.
The focus for the sampling and metallurgical work will now shift towards producing approximately 10 kilograms of ultra-pure concentrates to be assessed by potential customers. If these initial marketing efforts create interest in potential offtake agreements, then the stock should perform very strongly.
Even a small operation producing 10,000 tonnes of ultra-pure graphite has the potential to transform Archer, generating potential revenue in the $25.0 - $50.0m range and substantial net after tax cash flows. At a 90% recovery rate and a grade of 12.5% C, this sort of production level would only require the mining of approximately 90,000 tonnes of graphite ore per annum. With a waste to ore ratio of around 3:1, this sized operation would only require mining of just over 5,000 tonnes per week!
Based on my preliminary NPV analysis at the parametres which I have stated above, this project has an NPV of close to $100m versus the current market capitalisation of $14.0m @ 17.0 cents. An even more stark comparison can be seen when comparing the potential of this company to the current EV, which sits at only $5.4m.
With a current cash balance of $8.6m the company has the resources to progress the project through to the feasibility stage over 2013/2014, so there is no capital raising on the horizon. And to add to this, you get all of Archer’s other assets thrown in for free.
With the results achieved by management to date an investment here look compelling to me. Good luck to holders.
