Black Rock shows it has the right stuff as it heads towards graphite production
Mining & Resources
Special report: Black Rock Mining is heading towards production with a top-notch team, the right project and at a time when graphite demand is taking off, says chief executive John de Vries.
The developer (ASX:BKT) owns the Mahenge graphite project in Tanzania, which is on track to deliver first product in 2020.
“We have the trifecta, geology that delivers the best concentrate on the market, geography that delivers the lowest cost to customer in East Africa, and the team to put it together,” said Mr de Vries.
Bringing it all together Black Rock has just announced the biggest “offtake” deal (or sales agreement) of any graphite developer with cornerstone customer Heilongjiang Bohao Graphite Company (http://en.cnbohao.cn/), one of China’s biggest vertically integrated graphite processors.
“What is really pleasing about this outcome is that it underlines our strategy of operating a pilot plant ten times larger than any other, at the study stage,” Mr de Vries said.
“The 90-tonne pilot plant generated eight tonnes of concentrate which was sent to 24 customers for evaluation. On the back of that, we have just secured the largest offtake of any graphite developer.
“The problem with graphite offtake is that it is like selling apartments off the plan.
“What we did differently was deliberately generating a large volume of concentrate though the pilot plant — effectively giving us a “display apartment” to engage customers with.
“On the back of having meaningfully-sized samples to engage customers with, we generated the largest offtake in the sector.”
First class team
For a junior developer, Black Rock’s executive team packs a punch. The team is dominated by the type of experience needed to transition the developer into a producer, Mr de Vries said.
Mr de Vries is a mining engineer with more than 35 years of experience. He’s worked with some of the biggest mining companies globally including Orica, BHP (in its Nickel West operations) and gold heavyweight St Barbara.
He has worked across projects in Africa, the Pacific, the former Soviet Union, North America and South America.
The board is chaired by Richard Crooks — a geologist who worked for Macquarie Bank and has more than 30 years experience in the industry.
Mr Crooks is also an investment director for one of the biggest private equity investors in the resources space, EMR Capital.
Black Rock’s strategy advisor is Anthony Hall, who set up and managed Spain-focused potash developer Highfield Resources (ASX:HFR) for five years.
Also on the board is multi-billionaire Stephen Copulos, who has 30 years of experience in a range of businesses and investments across mining, manufacturing, property development, food and hospitality.
He has been the managing director of private investment business Copulos Group since 1997 and has extensive experience as a company director of listed and unlisted public companies in Australia, UK and the US.
Mr Copulos is also on the boards of Crusader Resources (CAS:ASX), Consolidated Zinc (CZL:ASX) and New Zealand’s Restaurant Brands (RBD:NZX).
Major supply deal
The new three-year offtake deal with Heilongjiang Bohao covers the supply of 30,000 tonnes of blended graphite concentrate in the first year, 50,000 tonnes in the second year and up to 90,000 tonnes in the final year.
“A large pilot plant fundamentally de-risks the entire business,” Mr De Vries said.
“It gives us meaningful data for design and cost estimation and volume for marketing. Having confidence in our design and meaningful offtake simplifies a lot of the conversations around financing for this type of project.”
At 90,000 tonnes per annum, this is the biggest off-take agreement signed by any developer by an order of magnitude and substantially underwrites Black Rock’s “crawl, walk, run” staged development strategy, to deliver steady state operations of 240,000 tonnes per annum, Mr de Vries said.
Black Rock’s Mahenge project – which is almost as big as Syrah’s Balama project — cold produce “industry-leading” graphite of up to 99 per cent concentrate and was expected to do so for 31 years, Mr de Vries said.
Heilongjiang Bohao is one of China’s largest integrated graphite processors, requiring up to 100,000 tonnes of flake graphite annually.
“What we have done differently here is take the time to segment the market and ask the question: who in the graphite space can obtain value from switching to our concentrate?” Mr de Vries explained.
“It is important to know our customers and understand who can gain value out of our product.
“They are the people we want to talk to. To do anything else is to shift from a Value in Use conversation to a simple commodity price conversation, a space we don’t want to be in ”
Black Rock skipped the MoUs and went straight for conditional off-take agreements.
“Conditional offtake means the customer will buy our product if we get built,” Mr de Vries said.
“Then they convert an initial trial period to a permanent contract once we have demonstrated that the commercial plant can produce the same graphite we mailed out to them from the pilot plant.”
This strategy makes it easier to secure financing to build the project.
Location, location, location
The Mahenge project is located close to the Tanzania Zambia railway which runs to the fourth largest Indian Ocean port in Africa — the Port of Dar es Salaam.
In 2017 the port had some 1300 vessel movements and shipped 12 million tonnes.
As the main port to Tanzania, Zambia, The Congo, Burundi, Mawali and Uganda, Dar es Salaam is not only big, but it has lots of available containers.
“We have a railway 60km away, which gives us an incredibly low-cost freight solution to a port that has many empty containers — and has many empty ships going back to our customer base. Mr de Vries said.
“Our target of 10 days plant-to-port drives home the geographical leverage we have.”
Black Rock also has access to low-cost grid power.
The company estimates it will have a steady state operating cost of around $US400 ($560) per tonne, but its product will likely fetch $US1,301 per tonne – which gives it an operating margin of $US900 per tonne according to a new definitive feasibility study.
The Mahenge project can produce large, pure flake graphite — which is highly sought after, Mr de Vries says.
ASX graphite stocks could get a much-needed filip next year when Chinese exporters of the battery metal get hit with a 25 per cent US tariff.
The US is not a major graphite producer and has to import most of its supplies.
Last year, about 95 US companies consumed 24,000 tons of natural graphite worth $US43 million, and imports totalled 50,000 tons, according to the US Geological Survey.
While US manufacturers will be on the hunt for new supply — so will Chinese manufacturers because of dwindling graphite production resulting from environmental crackdowns on illegal and polluting operations.
Demand for graphite is set to more than double over the next decade driven by the increased demand for batteries for electric vehicles and stationary storage.
Market forecaster Roskill predicts graphite demand from battery makers will grow by around 25% per cent each year through to 2028.
There is also rising demand coming from specialty applications such as for use as a fire retardant.
When treated with acid and heat, graphite flakes split apart and increase in volume by up to 300 times. This “expandable graphite” can be pressed into sheets and used for heat and fire protection in applications ranging from building materials to consumer electronics and fuel cells.
“The strength of Mahenge is that we have around 30 per cent of our product that is sized for the battery market,” Mr de Vries said.
“That means we are not waiting for the battery market to take off before we have a business.
“We have real demand from current markets today. We also have the option to capitalise on the battery market as that grows.
“Think of Mahnge as not only winning the development trifecta, but also having an each-way bet on product markets.”
Black Rock is a Stockhead advertiser.