Graphite deal delivers 24pc gain for Mineral Commodities investors

Investors were delighted with news that Mineral Commodities had inked an initial $4.6 million cash and scrip deal for investment holding company Gold Terrace’s Munglinup graphite project in Western Australia.

The stock (ASX:MRC) gained 24 per cent to close yesterday at 14c following news of the “farm in” deal which allows MRC to initially acquire 51 per cent in the project for $3.2 million cash and 10 million MRC shares.

A farm-in deal allows a buyer to pay for a project with services such as drilling and exploration.

MRC can earn 90 per cent of the project for $4 million from operating cash flows, the issue of 40 million MRC shares and completion of a feasibility study within two years of finalising the agreements.

Gold Terrace can also divest its remaining 10 per cent to allow MRC to obtain full ownership of Munglinup.

The Munglinup graphite deposit lies 42 km east of the Ravensthorpe nickel mine and 105 km from the port of Esperance. It has a high-grade measured and indicated mineral resource of 3.6 million tonnes at 15.3 per cent graphite for 554,000 tonnes of contained graphite.

On top of this, a feasibility study completed by Gwalia Consolidated in 1991 and a recent due diligence study by Battery Limits, a recognised graphite industry engineering leader, indicated the project could be among the lowest cost and highest-grade operations compared to global flake graphite deposits.

The project has a mining lease valid to August 2031 and an adjoining exploration licence. The tenements lie in a fully gazetted mining reserve, with no native title or private land ownership issues.

MRC executive chairman Mark Caruso said Munglinup was consistent with its high-grade industrial mineral operating profile and complements its Tormine mineral sands project in South Africa.

“Munglinup presents an excellent near term development opportunity to enter the growing battery commodities market at a time of future demand and production uncertainty, mainly due to unfavourable mining industry regulatory changes in Tanzania and Mozambique and tightening of Chinese supply,” he said.

“MRC will be looking to bring Munglinup into production as soon as possible to take advantage of a looming coarse flake graphite supply shortage.”

MRC has a market cap of around $53 million.

A bit about graphite

Most current world demand for graphite is driven by steel making, refractories and lubricants. The market is growing at about 3 per cent per year.

Within the industrial sector, new applications such as expandable graphite, and specialist applications including micronised graphite and graphene, are leading to an increase in demand.

There is also significant demand from the battery markets which requires high purity product.

It is estimated that the 2015 global natural flake graphite production was around 650kt with most supply coming from Chinese domestic production.

These operations, mainly located in the Shandong, Heilong and Jixi regions of China are usually small, of low grade and quality, and prone to poor environmental practices.