Energizer “demonstrates” how to be one of the leaders of the pack in the graphite space
The challenge for mining companies through the dark years since 2011 has been how to maintain forward momentum when the next step on the path is obviously production rather than just yet another iteration of a PEA or PFS. The solution for some has been small-scale mining (some gold players we have highlighted here have had that strategy) and the other is pilot mining.
Pilot plants come in various forms, some are just to test the mineralogy or mineability of a deposit, some are to test a technology and yet others are some form of “mining on the cheap” with the ultimate plan being that the pilot plant goes to the scrap yard when there is the eventual construction of the “real” plant. One company came to our attention as a perennial pilot miner because they did not want to report their lousy earnings from what was really a proper mine and just called it a pilot mine and reported their silver ounces to keep their stock price in play. They deservedly came to grief. In our opinion pilot mining should be regarded as a revenue (if the product is sold) and thus revenues and costs should be disclosed not hidden away in some R&D number.
Kicking it Up a Notch
As followers of the Molo Graphite development of Energizer Resources Inc. (TSX: EGZ | OTCQB: ENZR | WKN: A1CXW3) in Madagascar we were thus pleasantly surprised to see that last week they announced that they were moving to a “demonstration plant” at the deposit. Unlike the pilot plants that other companies trumpet, the set-up at Molo will be a wholly different scale of things with a throughput of up to 240,000 tpa. The stunning thing though is that the estimated CapEx is a mere US$8.5mn with an estimated build time of nine months for the first phase. This development will allow Energizer to provide off-takers with “run of mine” Molo graphite flake concentrate for final product test verification purposes, rather than mere samples. Energizer has reached the stage with several potential off-takers where they are awaiting final multi-tonne samples of Molo concentrate in order to run full-scale end production runs using Molo concentrate and, hopefully, then they will enter into definitive off-take contracts.
With cash in hand of nearly half of the required spend and the IFC getting behind the bigger project and offtakers nibbling at the bait, the ducks appear to be getting in a row for what was one of the less trumpeted plays in the Graphite space.
The FEED Study
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Like many others, Energizer found its PFS from the golden days of “build it big” was no longer fit for purpose. Therefore it launched a FEED Study, which was initiated in September, 2016. This was initiated as a part of a comprehensive value engineering exercise undertaken in order to examine ways of optimizing the mine plan as envisioned in the Molo Feasibility Study. All costing aspects were reviewed with the goal of providing a method to produce meaningful, multi-tonne test samples of Molo graphite concentrate to potential off-takers while reducing the CAPEX and time required to the commencement of commercial production.
Under an exploration permit, Energizer will initially be limited to an input of 20,000 cubic metres (or approximately 50,000 tonnes) of front-end feed into the demonstration plant for the purposes of verifying the flow sheet design process of the proposed Molo Project mine plan. Management have however already initiated the application process for a mining permit, which upon approval would remove the 20,000 cubic metre test limit. At full capacity, the demonstration plant would be capable of processing 240,000 tonnes of feed per annum. This equates to 30 tonnes per hour of feed, and roughly one to three tonnes of flake graphite concentrate per hour.
The company is called the “demonstration plant” the Phase 1 of Molo’s development. This will consist of the construction of a demonstration processing plant producing flake graphite concentrate. The plant will utilize dry-stack tailings in order to eliminate the up-front capital costs associated with a tailings dam. The demonstration plant is designed to be a “proof of concept” operation with the goal of optimizing the process circuit.
Base, essential-only infrastructure (shown in the schematic below) will be employed for this phase, with Energizer’s current camp being used for accommodation and offices, including accommodation for workers in the nearby town of Fotadrevo.
It is estimated that the nine-month build-out will include detailed engineering, equipment procurement, off-site fabrication and assembly, factory assurance testing, module disassembly, shipping, plant infrastructure construction, and onsite module assembly at a cost of approximately US$8.5mn (of which $7mn for the processing plant and $1.5mn for related infrastructure).
Phase 2 – Pushing “Demonstration” to its Limits
Once the process circuit has been proven and optimized in Phase 1, then Phase 2 will include the development of sustaining infrastructure required for long-term processing and the ramp up of production at the demonstration plant to its full capacity of 240,000 tpa (or 30 tonnes per hour) of ore. This will involve the construction of additional on-site accommodation and offices, upgrading of mine-site road infrastructure, and purchases to provide redundancy in the processing circuit.
Assuming Phase II operates at full capacity, it would produce 14,750 tonnes of graphite at the estimated operating costs below:
Assuming the successful completion of Phases 1 and 2, then Phase 3 of the development will involve additional mine build-out infrastructure and plant construction for a fully operational, large-scale mine as envisioned in the Molo Feasibility Study. This would include construction of a tailings dam facility and upgrading or maintenance of the regional road system used to transport graphite concentrate to the port.
The race to production was always more of a crawl in the Graphite space and some of the companies actually seemed to be running away from the goalposts. The perverse logic was that the bigger the capex the less the market thought they would build it and then managements thought that made themselves more attractive to acquirers. They had just made themselves less attractive, period. As no acquisitions have taken place and the companies in the mega-capex category are mired in inaction, we can’t say that was a successful strategy.
Energizer as we have noted before looked like one of the tortoises in this race where many fancied themselves as hares. The joke is now on the others as Energizer moves into the production phase with it’s thinly veiled “demonstration plant” which is actually just small-scale production and the start of the ramp up. The “demonstration plant” rather than being a throw-away will then become the base for the move to full production. Waste not, want not seems to be the motto in what are still tough times for graphite wannabes. Energizer is staking out its claim to being a “will be”.
Interestingly, Energizer has been pondering the inclusion of value-added processing for lithium-ion battery and graphite foil applications at the classification portion of the plant, which might very well be located at a port in Madagascar rather than at the mine site. This is the first time we have heard a company espousing such close linkage to the value-added chain.
The “demonstration plant” seems destined to demonstrate that Energizer is going to be one of the leaders of the pack in the graphite space.
Christopher Ecclestone is the EU Editor for InvestorIntel and is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten ... <Read more about Christopher Ecclestone>