Red Flag? No Existing Water Supply in the Bankable Feasibility Study:
"The Competent Person (Mr Carel Moormann) has visited the Nachu project site in December 2014. The following observations were made ... Apart from road access there is no other infrastructure such as power or water supply." (Page 21)
Red Flag? Rainwater is the water source?
"The project water supply will primarily be from surface harvesting of water on the project site during the wet season." (Page 25)
What happens to the Nachu Graphite Project when there's a drought?
Using a map provided by Magnis, you can see that the Nachu Graphite Project is near the town of Ruangwa in the Lindi Region of Tanzania:
According the the Chinci World Atlas, at Ruangwa "There is a medium-high occurence of periods with extreme drought. Flooding risk is low."
Other sources discussing drought in Ruangwa/Lindi, Tanzania:
1) "Drought has caused a serious problem to [the] agriculture sector." Source
2) 2010: "Southern Tanzania is experiencing prolonged drought, a problem weather forecasters accurately predicted." Source
3) 2010: "Climate change is thought to be playing a key role in worsening droughts across east Africa ... Local ward councilors estimate over 60,000 people in remote parts of Mtwara and Lindi regions are suffering serious food shortages." Source
4) 2003: "Driest conditions on record have been experienced over some parts of central and coastal areas ... in southern coastal regions (Mtwara and Lindi), only drought resistant crops like cassava will benefit from the little rains received." Source
5) 1997: "Harsh drought swept through the country during November, December and January, rendering some 670,000 people in urgent need of relief food. Many Tanzanians described the drought as the worst in living memory.
Then after having seen an entire season's crop wither away, more than fifty thousand of these same drought-stricken people in the Lindi region fell victim to sudden and torrential rains. Several thousand of these people saw their homes swept away along with livestock and personal belongings." (Source)
I'm not saying that Lindi has droughts all the time, it doesn't. But what happens when there is an extreme drought?
Observation:
1. Graphite mining is water-intensive.
2. Magnis has an enterprise value of approximately AUD$688 million (assuming a fully funded mine).
3. There's a risk that Magnis would have to cease operations in the event of a prolonged drought with insufficient water.
4. Magnis could default on debt repayments in the future if a prolonged drought reduced free cash flow and/or operations for too long.
Questions for existing holders:
1) What is Magnis Resources' backup plan for water when the next severe drought hits in Lindi?
2) Can Magnis prudently/responsibly/conservatively obtain debt funding with such water-risk present?
Disclaimer: All in my opinion, do your own research.
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