Both were released on Monday, with the first being another binding offtake agreement, this time with Sinosteel Liaoning, and the other being a prefeasibility study (PFS) for Magnis’ Nachu graphite project, located in Tanzania.
Though the two pieces of news were expected — a memorandum of understanding (MOU) for the offtake was signed in September and the company has made no secret of the fact that it’s put Magnis on the fast track to production — the market nevertheless reacted well, and Magnis’ share price initially rose nearly 20 percent, to AU$0.24, before falling slightly to $0.22.
Deal details
As mentioned, a MOU was signed for Monday’s offtake back in September, and it also follows this month’s announcement of a similar offtake with SINOMA, a subsidiary of China National Materials Group.
However, Magnis’ Sinosteel offtake differs in a number of ways from the one it has with SINOMA. For instance, it will see Sinosteel purchase an annual 100,000 tonnes of graphite across all size ranges for 10 years with the option to extend the agreement a further five years after that; in contrast, the offtake with SINOMA is for 80,000 tonnes of graphite per year for five years. Further, while the SINOMA offtake is expected to bring Magnis yearly revenues of over US$160 million, the one with Sinosteel should bring the company yearly revenues of $210 million, or a total of $2.1 billion over the full 10-year period.
On a different tack, it’s interesting to note that Sinosteel plans to use the graphite from Magnis’ Nachu project for “high tech graphite applications within the EV market, as well as other battery market applications” — certainly an industry that many graphite companies are interested in entering.
PFS numbers
Speaking to Graphite Investing News about the PFS for Nachu, Andrew Shearer, senior resources analyst at PAC Partners, described it as conservative and said the results are in line with his firm’s expectations.
The company identified the following highlights from the report:
Net present value of US$1.04 billion with an internal rate of return of 84 percent (at a discount rate of 10 percent).
Capital payback of 1.4 years.
Capital cost estimate of US$171.4 million.
Operating cost estimate of US$448 per tonne for the first three years.
The capital and operating cost estimates are based on a scenario in which Nachu produces 180,000 tonnes of graphite concentrate per year grading an average of 5.1 percent graphite. The PFS outlines a number of scenarios in which those costs could be improved, and the 16-year life estimate for Nachu is based on the indicated and measured categories of blocks F and FSL, which comprise just 36 percent of the project’s current total resource.
Watch for financing
Summing up Monday’s news, Frank Poullas, chairman of Magnis, said, “today’s news places Magnis Resources at the top of the pack. We now have 180,000 tonnes per annum of binding offtakes with SINOMA and Sinosteel, which are large household names. Our product is unique with a high percentage of large, jumbo and super jumbo flake graphite. We look forward to locking up financing in the near future and taking the project into production.”
Given Magnis’ timeliness in reaching the goals it sets for itself, it’s reasonable to assume financing will come in due course. Shearer is certainly optimistic, and noted, “with production targeting 180,000 tonnes per annum and two offtake agreements for the same amount, Magnis is in a strong position to attract project financing.”
Investors will no doubt be watching the company keenly heading into 2015.
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