Analysis - IMX seems very undervalued

Hi guys,

Since March, I’ve recently been analyzing another stock in the graphite sector in detail, and just thought of also offering my 2 c on IXR. A lot of info is available in recent IXR announcements and has been taken from them –

1) Market cap – Market cap of IXR of around 7.38 M  seems dirt cheap compared to other companies in graphite sector

2) Offtake is king – Some graphite investors believe that there could be a massive surplus of graphite in the coming years mainly due to production to start from some explorers with mega deposits. Hence, graphite companies with offtakes typically command a better market price. Current graphite price is around 1500. Taking a conservative figure of USD 1000, the supply of 25000 tonnes of graphite for 5 years would be around 125 million USD (AUD would be even more). Note that IXR does not have offtake but only MOU but this is definitely a step in right direction

3) Offtaker-  Offtaker China-Base Ningbo is now one of China’s Top 500 Companies, Top 100 Trading Enterprises, and China’s Top 10 Private Trading Enterprises. In 2014, it imported commodities to the value of approximately US$3 billion and its turnover was estimated to be US$4.5 billion. Further information on China-Base Ningbo is available on their website at http://www.cbnb.com.cn/en/.
Seems like a good well known offtaker

4) Past relationship - IMX has a previous trading relationship with China-Base Ningbo, having sold 10 shipments of iron ore from the Cairn Hill Mine to China-Base Ningbo during 2013-14, for total proceeds of approximately US$87 million. During this time, China-Base Ningbo was a valued customer, with a record of prompt payment and a capacity to readily open letters of credit with reputable banks. Since then, the relationship has been maintained through IMX’s China marketing consultant and strengthened by recent visits to the city of Ningbo in China’s Zhejiang Province by IMX CEO, Phil Hoskins. This is a major positive as we see from this that the MOU seems likely to move into binding offtake in the time to come

5) Graphite Purity –
Up to 97.6% TC from basic flotation (extremely high purity)

6) Volume – Volume over last 2 days was huge. IXR was the leading volume stock on the ASX with 67 million on Wednesday and 21 million today. Average volume is otherwise only around 1 million. Such a huge volume is highly indicative of a good re-rating in the time to come

7) Semi positive sentiment – Sentiment in graphite sector is semi positive right now as 1 graphite company 5 bagged for a brief time in the last month, and offtake was one of the major catalysts. So, this is good for IXR too, as the market digests IXR in the coming days.

8)Strong potential for further MOUs/offtakes-  
Having recently completed the initial metallurgical testwork and continuing optimisation work to yield the highest value product, IMX has begun producing bulk samples for customers the Company met during a recent visit to China. These customers are testing Chilalo graphite for use in various products, including batteries, refractories and graphite foil.
The Company is also now following up contacts in North America, Europe, Japan and Korea who have expressed an early stage interest in offtake.
It is clear that IXR is taking good initiative in the matter. It is very positive to see that potential customers are already testing Chilalo graphite to see if it meets their needs, and that contacts across the world have expressed interests.

9) Diversified offtakes - While China-Base Ningbo has expressed a desire to purchase a larger quantity of graphite, IMX has indicated a preference for its offtake agreements to be diversified across multiple parties. This once again shows that there is a strong chance that IXR believes that there would be further offtakes or else they would not be taking this stance.

10) Floor price – The MOU stipulates that the price to be paid by China-Base Ningbo will be linked to market prices for graphite and also requires that a mechanism be put in place for setting a floor price or fixed price. It is good that they are considering a floor price. An example may be 1000 USD or 1200 USD, etc. which will be the minimum amount that offtaker pays to IXR in the event that price of graphite tumbles in the coming years. This will offer IXR some security and cushion against price falls.

11) Exclusivity - China-Base Ningbo has also agreed to deal exclusively with IMX in respect of purchasing graphite for the term of the MOU. This is another positive for IXR.

12) Finance – Finance is often one of the most critical areas for an explorer. IMX and China-Base Ningbo have agreed to discuss opportunities for China-Base Ningbo to play a role in other key aspects of the Chilalo project, including funding, procurement and logistics. China-Base Ningbo has also facilitated introductions to parties with respect to plant design, construction and commissioning. IMHO, if the offtaker takes a keen interest in funding / facilitating funding of the project, I would rate this as one of the most important positives for IXR.

13) Jumbo flake – Graphite of up to 57% in large and jumbo flake categories (>180 microns). This is a huge positive for the company, and is one of the better ratios in the graphite industry. Jumbo flake typically commands a premium selling price for graphite companies. The USD 1000 figure quoted above is thus very conservative, and price could easily even go above 2000 or more for jumbo flake.

14) Exploration potential - In Tanzania, IMX controls (85%) the Nachingwea Property in south-eastern Tanzania. The Nachingwea Property covers an area of 5,800 km2 and lies in the world-class Mozambique Belt which is prospective for graphite, nickel, gold and copper mineralization. The Chilalo Graphite Project, the Kishugu Gold Prospect and the Ntaka Hill Nickel Project are located on the Nachingwea Property. As can be seen, there is huge exporation potential with massive tenements. I'll elaborate further in the next point.

15) Ntaka Hill Nickel Project –
IMX has entered into a Project Acquisition Agreement with Loricatus Resource Investments, an investment vehicle on behalf of Mauritius-based mining private equity fund, Fig Tree Resources Fund II (‘Fig Tree’), for a joint venture covering its Ntaka Hill Nickel Project.

Under the Agreement, Fig Tree will acquire a 70.65% stake in Ntaka Hill from the IMX-managed Nachingwea JV between IMX (85%, MMG Limited 15%) for consideration of US$6 million in cash, of which US$2 million is paid upon receipt of key regulatory approvals (should be received in a few days) and US$4 million is paid upon successful completion by Fig Tree of additional geotechnical studies (should be around Aug- Sep).

Fig Tree will have the right to maintain its 70.65% interest in Ntaka Hill upon sole funding all work to completion of a Definitive Feasibility Study within 5 years. If Fig Tree does not complete the study, its interest in Ntaka Hill will reduce to 50%. Should the geotechnical studies be unsuccessful, Fig Tree will then hold a 30% interest in the joint venture. The geotechnical studies are expected to be completed by August 2015. We thus see that Fig Tree has an incentive to progress further or else they could lose a part of their interest.

This is good for IXR from many perspectives. IXR would be getting 2 million USD upfront consideration  in a few days once Tanzanian FCC approves on April 21 (USD 300,000 already received). Geotechnical studies are expected around Aug 2015 – so if all works out fine, the company could be sitting on a handy cash pile

Again, it appears that IXR would still be retaining at least a  30% share in the nickel project, providing much more upside for IXR in future. There is a significant nickel resource too.


The Tanzanian Ministry for Energy and Minerals has granted a five year retention licence over the Ntaka Hill tenement, one of the two tenements that is the subject of the Ntaka Hill Nickel Project joint venture agreement (the ‘Agreement’) with Fig Tree. These two tenements represent two of the 89 tenements that make up the Nachingwea Property and only 99 km2 of the property’s 5,800 km2 area. This further shows the massive potential of further tenements. There is always the possibility of similar agreements with other companies in the future.

16) Conclusion – The company could be sitting on a major pile of cash in the time to come which would almost be equal to its market cap. It has potential with the nickel, gold and some massive tenements, with a lot of exploration upside. Things seem to be going good on the graphite front right now, with the MOU with a seemingly reliable offtaker. The company seems very undervalued with good upside potential.

Many explorers end up perishing; so it might be very early days to say if IXR will make it and do well over the long haul. If it survives and thrives, then there could be huge upside over the longer term too, but I reserve opinion on that since it might still be early stages. In any cases, IMHO, a short to medium term re-rate could be very likely due to all reasons mentions above. Key dates could be receipt of 2 million and then 4 million more in a few months, which will give major boost to cash balance.  Positive sentiment in other graphite companies could also spill over to IXR.


Most info has been taken from recent company presentations and disclosures. No predictions and no targets from me -  I urge everyone to do thorough research of their own, as this is just my quick 2c on the company, which I am just analyzing for the first time. I'm just presenting some facts which I observed.


Cheers and good luck