New Valuation: A$1.63/share - Bridge Street Capital

Site visit confirms quality of Chilalo Graphite Project
Bridge Street Capital Analyst: Chris Baker

INVESTMENT HIGHLIGHTS
Graphex Mining Limited (GPX) is an ASX-listed graphite developer, focused on advancing its 100% owned Chilalo Graphite Project, located in Tanzania. GPX completed an updated Pre-Feasibility Study (PFS) on the Chilalo Project in September 2018 that highlighted strong project economics and robust financial returns. Following the PFS, GPX signed a binding term sheet with US based private equity firm Castlelake L.P for up to US$80m in debt and equity. One of the conditions precedent to the Castlelake funding is the completion of a Bankable Feasibility Study (BFS), which GPX expects to complete in 2H 2019. Our un-risked valuation remains largely unchanged at A$1.63/share.

• Site Visit. We joined Managing Director Phil Hoskins, In-country Manager Dr Heavenlight Kavishe and Project Manager Warren King on a two-day site visit of GPX’s 100%-owned Chilalo Project and returned with favourable views both of the project, and of Tanzanian political risk.

• Imminent resolution of Government issues. Clarity has recently been provided regarding fiscal terms attached to the Chilalo Mining Licence, which requires a 16% free carried interest by the Government. Our visit to the proposed site of the Chilalo mine confirmed that there appear to be no showstoppers. Critical to a go-ahead is the Relocation Action Plan and, with it, compensation to local landholders. Importantly no local villages are impacted.
• Large flake advantage. Final design of the process flow sheet is nearly complete. Here the focus is aimed at maximising the proportion of large flake size and therefore the basket price of the product. This will be assisted by the friable nature of the oxide ore and relatively soft and non-abrasive nature of the primary ore. Product marketing is firmly focussed on maximising graphite quality (coarse flake size and purity).
• Meeting the Minister. We participated in a meeting with the Government of Tanzania Minister for Minerals and around ten of his senior management group, including the Permanent Secretary for the Department and the Commissioner for Minerals. We came away from this meeting with a more positive view on Tanzania than we had expected. The current president, John Magufuli, is popular and does appear to have made some positive steps forward for the country.
• Valuation: A$1.63/share. We are now very confident that the Government of Tanzania free carry will be set at 16%, and we have used that figure in the above valuation. Our base case unrisked valuation therefore remains largely unchanged at A$1.63/share.

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