Short Term Trading Week Starting: 19 Sept, page-230

STTCOMP BSM, FA Long    

Graphite Producer in Madagascar – only ASX-listed graphite producer

SOI: 1.19b (excluding options – majority of options are ex 2.5c)
Last traded SP: $0.014
Market cap: $16.7m
Cash at bank: approx. $7m
EV: $9.3m


Bass recently completed acquisition of the Graphmada large flake graphite mine in Madagascar from Stratmin Global, an AIM listed company. The mine is fully operational and product is being sold to India, USA and Europe. The mine comes with a 6,000tpa processing plant and full support facilities including accommodation, medical centre etc. The mine has 4 known deposits within its permit:

Loharano – the flagship deposit where main operations are being
Mahefedok – trial mining underway with product already being sold to market
Mahela – to be developed
Ambatofafana – to be developed

The main operation goal is to make this mine profitable. When Stratmin was running it, they did not have the funds to improve on the mine (well documented if you visit the AIM forums that Stratmin have minimal cash available and hence had to divest). As such, they only managed to produce 1,500t in 2015. Of all the product sold in 2015, 60% of the product was large to jumbo flake.

What Bass is currently undertaking is an enhancement and expansion product. What I like about them at the moment is that they have a clear path to profitability, which includes a full implementation of Operational Optimisation Program. This includes improving processing infrastructure and increasing quality of graphite produced (>94% purity which attracts premium pricing).

They will also be undertaking drilling next month to update their JORC resources. At the moment, all mining is done within 8m of the surface but the deposit is known to go past depths of 30m with grades increasing with depth. Depending on JORC update and the subsequent study, their aim is to construct a 2^nd processing plant at Mahefedok, with a capacity of 12,000 to 20,000 tonnes per annum.

Tim McManus, the CEO of Bass Metals just recently in an interview at the Africa Down Under Conference mentioned that they have also achieved 3,600tpa which is already a 140% improvement. In addition, the quality of the product is also expected to increase with improvements in infrastructure.

Funding for the acquisition is to be done in 3 tranches, the first of which has already gone through. The 2^nd tranche is $3m in Bass shares (when 1,250t is achieved over 3 month period = 5000tpa) and the 3^rd tranche is $5m in Bass shares (when 2,500t is achieved over 3 month period = 10000tpa).

Initial cap raising of 7m at 1.2c was led by Paterson Securities and Bizzell Capital. Noting that future tranches are in Bass shares, they would want this SP as high as possible to limit dilution.

Reasons for SP movement shortly

• Patersons Securities and Bizzell Capital heavily invested at 1.2c
• Over 300m options with ex price of 2.5c
• Future payments to Stratmin Global are in shares and hence management would want this SP as high as possible to avoid dilution
• Mining to update JORC resource to commence Oct 2016
• Improvements already evident in production
• Only graphite producer on the ASX
• Highly undervalued compared to market peers