Ann: Bass to acquire 100% of operating Graphite Mine-BSM.AX, page-48

yup indeed that post from AIM forum summeizes it very well :

"It's been a sorry story first of poor technical execution and, more recently, lack of access to finance to push this low cost production into profit."

thats exactly what happened, hopefully Bass management will be able to finance and refurbish completely the mine with newer better equipment (some 1M$-2M$ capital expenditure) and bring it to 96%+ purity at 10k-12k annual production. That would bring at least 15M$ annual revenues (assuming 10k per year at conservative price per tonne of the large flake 96% stuff at 1500$ per tonne). This could be the lower cost producer in the world of this large flake 96% purity graphite at max 750$ per tonne all-in sustaining expenses (including costs of sales, administration, overhead..etc), which means 100% margin and 7.5M$ profits annually. At 10x earnings we will be taling about 75M$ fair value of market cap, or 15x bagger from current levels. AND THAT IS AN EXTREMELY CONSERVATIVE FIGURE.

The more optimistic scenario is 12k production of large flakes at 96% purity (probably achievable in 2 years timeline if the mine is adequately refurbished) for some 2000$ per tonne, meaning 24M$ annual revenues. I dont believe the costs per tonne will exceed 500$ including capital sustaining costs. Bringing us an unheard for margins of 400% or 18M$ profits per year. At 10x earnings, we will be talking about 180M$ fair valuee market cap. Or 36 bagger from current levels. Not even mentioning the possibilities for value added graphite and expansions (if Bass management plays it right that is).

There are two reasons why GraphMada could well be the lowest cost producer of large flake 96% purity graphite in the world :

1- Very low labor costs in Madagascar.

2- very low mining and processing costs due to the following : extremeky low stripping ratio (near surface graphite), very low cost of mining due to clay deposit (no need for energy and time intensive blast-drilling or crushing), high 8% grade, with majority of large flakes resulting in even lower costs of processing (rinsing, flotation, drying, screening).


All this sounds too good to be true, but it all depends on management execution. The teething technical problems that stratmin management suffered from (it took them 3 years) are now a thing of the past with 94% consitent quality already achieved, after the acquisition the ball will be in the Bass management terrain, for them not to under-capitlize the mine, and finish the full refurbishment program, modernization of the mine and expansion of production.

It happens all the time in mining, many mines are unrpfitable until a turnaround with 2-3 owners and 1 or 2 bankruptcies. Stratmin management knew they lost access to capital markets and they had no choice but sell the mine to avoid bankruptcy before it is too late. But the package is smart and incentivize them to still care about imrpoving production after the transfer of property (tranche 2 and 3 criterias). Stratmin will benefit greatly from this sale in the form of higher market of Bass, and thus higher value for Stratmin shares in Bass. The will eventually cash out and become completely independant of graphmada. But for the time being if the deal is well executed its a win-win situation for all players.