EDITOR: | December 9th, 2016 | 6 Comments

“Bold decision” on graphite pays off for Energizer

| December 09, 2016 | 6 Comments
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In 2012 Energizer Resources Inc. (TSX:EGZ | OTCQB:ENZR) (“Energizer”) took a bold decision to halt its vanadium prospects in south-central Madagascar and focus its efforts entirely on developing its nearby full feasibility-stage Molo graphite deposit. This decision is certainly paying off.

The location – a sparsely populated dry savannah grassland region, far away from any rainforests, endemic wildlife and villages, makes it as idyllic as any prospector can hope for to ensure low cost, open-pit mining. In my experience in working with mines in Africa, some of the biggest upfront hurdles and costs is the relocation of villages. This process too often becomes a long drawn out one that could hold up a mine’s development for years. Often mere rumour that a mine is underway and will be relocating people brings more people from outside the area in the hope of being able to get a free pass. For investors thinking about investing in African mining projects, the fact that the Molo project is situated in an scarcely populated area and at the same time far away from any natural reserves, cannot be underestimated.

As far as African mining jurisdictions go, Madagascar is a pretty sweet deal. It has an Indonesian-based culture with French and Malagasy as official languages whose government recognises mining as a key growth engine, and as such is a mining-friendly jurisdiction with codified mining laws, thanks to two major billion-dollar projects already established and operational in the country by Sherritt International and Rio Tinto. On November 27th of this year, Madagascar hosted the 2016  Francophonie Summit, where France and other Francophonie countries attended to promote bilateral trade and investment into the country. The Canadian government sent a large delegation, headed by Prime Minister Justin Trudeau himself. The Molo project is regarded as one of top five mining projects in the country expected to reach production and I’ve even noted it listed on a few of Madagascar’s tourism sites. Major countries are currently invested in Madagascar (U.S., France and China) and regard it as a strategic location for mineral wealth opportunity. Madagascar’s laws on large scale mining investments incentivise mining companies with larger operations to invest in the country in return for various fiscal benefits. These benefits include a temporary exemption from minimum corporate tax and no VAT on imports. Furthermore, Madagascar’s distance from all Africa’s conflict zones provide investors with confidence in the project’s stability.

Molo is home to one of the largest primary sources of crystalline flake graphite in the world. Those readers who have been following InvestorIntel for a while have seen the stellar projections for flake graphite over the next four years.

To satisfy the steel market alone, annual graphite demand is expected to rise 8% CAGR to 2020 from 1.1 million tonnes to 1.5 million tonnes. Batteries and high-tech application needs are projected to be dramatic enough to require a 600% increase in annual flake graphite production. Only flake graphite can be used in the over 200-known applications that require graphite as an additive and is the only natural form of graphite that can be used to make the spherical graphite used in lithium-ion batteries. Thus, purified, spherical graphite currently sells for between $4-6,000/tonne, more than twice the price of high quality flake graphite.  Furthermore, the British Geological Survey listed graphite, along with antimony and rare-earths, as most at risk of a global supply disruption.

To this end, Molo is well poised to take advantage of the highly anticipated demand growth in flake graphite. The project hosts one of the largest, high-quality crystalline flake graphite deposits ever discovered and extensive independent testing by various third-party end-users verified that the flake graphite concentrates from the Molo deposit met or exceeded quality requirements for all major end-markets for natural flake graphite – namely refractories, lithium-ion batteries, specialty foils, and graphene ink applications.

The company announced last month a three-phased approach for the development of its world-class Molo project using a modular approach, which looks to significantly accelerate the company’s original timeline to production. The first phase will be the construction of a 15,000 tonne per annum demonstration plant for the project, which is expected to commence in January 2017 and be completed in only 9 months time. As outlined in the company’s November 7th, 2016 Front-end Engineering and Design (“FEED”) Study, Energizer is taking a sensible phased approach to production, with phase one being the demonstration plant, thus providing a cost-effective solution to test and verify the mine flow sheet design process ahead of the planned expansion to the 53,000 tonne per annum mine as envisioned in the company’s 2015 full feasibility study. Once the demonstration plant’s process has been proven and optimised, phase two will include the development of additional sustaining infrastructure required to achieve the planned capacity, with phase three being the expansion to the 53,000 tonne per annum mine as market demand requires. As the company’s feasibility study indicated, the Molo project is estimated to have one of the lowest graphite processing costs in the industry.

The demonstration plant in Madagascar will have an estimated capital cost (CAPEX) of just US$7,000,000 will provide a front-end processing capacity of 240,000 tonnes of ore per annum with an expected mine life of over ninety years, based on ore reserves alone. This will permit the company to provide off-takers with multi-tonne “run of mine” flake concentrate for final product testing and verification. Energizer will be immediately initiating the required steps to implement the primary phase. During this time, the plant’s capabilities will be assessed and a comprehensive costing review exercise undertaken to ascertain the possibility of utilising a similar modular build for the full-scale Molo mine.  Energizer’s implementation of a modular build plan and phased approach is truly unique to the industrial minerals industry and provides a significant competitive advantage in terms of speed to market and reducing overall financial risk. We expect to be hearing much more from Energizer in the months to come.


Lara Smith

Editor:

Lara has been an analyst for over ten years, starting her career as an equity analyst at Foord Asset Management and more recently as the ... <Read more about Lara Smith>


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Comments

  • Bill Horpyniuk

    Hi Lara,
    Your knowledge and educational background make me feel envious. I am new to reading the articles put together by you and your phenomenal teammates and all I can say is SUPER!!!!
    Please add me to your distribution list for all of your reports.
    Lara, something is happening in South Africa with Homeland Energy Group; HEG.H but they are thermal and not met coal.
    More so, in your area of expertise, with met coal, Corsa Coal; CSO, sounds like a good emerging company.
    I could go on and on but I do not want to bore you.
    Keep up the excellent work,
    Bill

    December 11, 2016 - 3:07 AM

  • Lara

    Thank you Bill. You make me blush, but it’s nice to wake up on a Sunday morning to such positive feedback. I’ll look into Homeland Energy Group- SA coal if not RB1/RB2 quality is necessarily sold to Eskom which to date has been a bit of a stuff up. Let’s see. I’ll take a look.

    December 11, 2016 - 3:41 AM

  • JIGGS 616

    First, Lara this is a very fine piece of writing. It is so positive I have to ask -were you paid to write it or is it independent of Energizer ? Energizer’s CEO owns zero shares of stock in his own right which I take as a serious negative. Do you agree ? Third are there other graphite producers coming on line who will absorb all of the graphite demand growth and how does Energizer compete if that is the case ? SYAAAF comes to mind.

    December 13, 2016 - 3:23 PM

    • Tracy Weslosky

      All of our editors are paid by InvestorIntel Corp.

      December 19, 2016 - 10:19 AM

  • Jiggs

    Lara Smith has a rare talent. She not only writes wonderfully informative pieces like the recent Galaxy Report, she humanizes mining to a bunch of investors like myself who follow the mining business and try to decipher what will happen next. Nice to see a person get excited about seeing a 2010 business development – even tho it was rudimentary and then have the guts to share her excitement memory with her readers. My wife and I toured a mine on surface and underground in Matachewan Ontario and it was wonderfully exciting although everyone told us beforehand that it would be very boring. I hope she maintains her fascination with mining and mine development because it makes her reports incredibly interesting to read.

    December 20, 2016 - 12:26 PM

  • Stan Wilson

    Hi Lara, thank you for the article on Energizer. I have been a big believer in them and am quite puzzled on their continued low stock price. However it has allowed me to slowly purchase a nice stake. Here’s hoping this will be their year!! Thanks again.

    January 5, 2017 - 4:50 PM

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