Ann: Annual Report to shareholders, page-3

On behalf of the Directors, I am pleased to introduce the 2019 Annual Report for Graphex Mining Limited. The past 12 months has seen your Company make real progress as we move closer to realising our goal of being a supplier of choice for premium quality, high value, coarse flake graphite.

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This goal has been underpinned by the ongoing strategic acknowledgement that success in the graphite industry will be achieved through a detailed understanding of the graphite market and continued engagement with multiple market participants. This is not a static exercise and an enormous amount of effort has been, and will continue to be, committed to developing the Company’s graphite market IP.

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Towards the end of 2018, we reached agreement with funds managed by US based international private investment firm Castlelake (Financier) on project finance arrangements that involved an interim financing of US$5 million and, subject to satisfaction of agreed conditions, up to US$80 million for construction and commissioning of the Chilalo Project. At the time of entering into the finance agreements, we considered this to be significant as it was the first finance agreement to be achieved by a graphite company. Almost 12 months on, that remains the case.

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This past financial year, our work has been focused on three main areas, each of which is central to unlocking the finance for the development of Chilalo – completion of a bankable feasibility study (BFS), resolution of key issues associated with Tanzanian mining legislation and establishing arrangements for the sale of product from Chilalo. It is appropriate that I touch on each of these work streams.

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An updated pre-feasibility study was completed in September 2018 which reiterated the opportunity at Chilalo and the DFS is expanding on that work. Notably, resource drilling has delivered a 73% increase in contained graphite at Chilalo’s high-grade Indicated Mineral Resource. The Mineral Resource increase will underpin the upcoming DFS and is expected to result in an increase in Ore Reserves, extending the project mine life. We look forward to announcing the DFS in November.

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Since the legislative changes were introduced in Tanzania in the third quarter of 2017, our team has worked tirelessly to obtain positive assurances from the Tanzanian Government that are expected to facilitate our ability to access project finance. Specifically, we have received official correspondence confirming that the Government’s free carried interest is 16% for all mining licences, the Government has published the Mining (Mineral Value Addition) Guidelines clearing the export of Chilalo graphite and amendments to the local content requirements provide a simpler and more practical regime. Together with greater clarity on the ownership of mineral data and the operation of the integrity pledge, this represents real progress as we move closer to a final resolution.

The improving regulatory environment in Tanzania has been recently reinforced by:

• Barrick Gold’s decision to consolidate its ownership in Acacia Mining (completed 17 September 2019);
• Nedbank obtaining credit approval to underwrite a five year, US$26 million project finance facility for the development of ASX listed Strandline Resources Limited’s Fungoni mineral sands project; an
• OreCorp Limited completing its acquisition of the remaining share of its JV with Acacia Mining.

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We recognise that at times the pace of the progress being made in Tanzania is frustrating to our shareholders. We share that frustration, but from the outset, we have sought to engage with the Government in a respectful manner, focused on achieving mutually beneficial outcomes. Rest assured, we are making progress in Tanzania and I remain confident that these issues will be satisfactorily resolved.

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The extensive work committed to the Chinese graphite market since 2015 has resulted in a narrowing focus on high priority customers who can maximise Graphex’s revenue and margins. Further, during 2019, we have significantly expanded our customer engagement to include a balanced focus including European and North American customers.The Company is confident that the physical and chemical specifications of Chilalo graphite are suitable to customers in high-value applications and that the graphite sales agreements required to unlock the Funding Package will be secured.

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During the year we welcomed Daniel Saint Don to the Board. Daniel is the appointed representative of the Financier. Daniel has a great deal of experience in the development of resources projects and since his appointment has provided valuable support in ensuring the DFS aligns with our financier’s expectations.