Evolution Energy signs "strategically significant" MoU for graphite offtake and downstream JV

Evolution Energy Minerals (ASX: EV1) has signed a “strategically significant” memorandum of understanding (MoU) with Chinese graphite specialist, Yichang Xincheng Graphite Co (YXGC). 

The MOU intends to finalise a binding offtake agreement in the coming weeks for 30,000 tonnes of Evolution’s planned coarse flake graphite production over three years - representing 56% of planned production and over 70% of concentrate revenue for the first three years. 

For context, Evolution’s flagship Chilalo Graphite Project is located in Tanzania. It’s a late stage exploration project currently undergoing a tender process for front-end engineering design, which focuses on the project’s technical requirements and costs. Evolution expects to make a final investment decision for the project in the second-half of FY22.

Beyond the bread-and-butter offtake agreement, the MOU paves the way for a potential joint venture of a downstream manufacturing facility in Europe, utilising YXGC’s technology to produce high-value graphite products.

YXGC Products Showroom (Source: YXGC)

Running up the value chain

Evolution and YXGC are working on an agreement for YXGC to initially act as a processing agent to toll-treat graphite concentrate from Cilalo into expandable graphite, graphite foil and other related products for sale to western customers.

In parallel, the parties intend to jointly assess the feasibility of a downstream manufacturing facility in Europe. Evolution intends to explore aspects including:

• Site selection study

• Source and cost of power, with a focus on clean energy

• Timeframes for required permits and regulatory approvals

• Availability of government funding and tax incentives

YXGC will provide the technical knowledge and equipment to the joint venture, as well as market support including connections to its existing customer base.

“What really excites us is this second phase to our relationship, which advances the Company’s unique strategy to target a diverse set of downstream product,” said managing director, Phil Hoskins. 

It goes without saying that potential downstream operations are highly lucrative and could further enhance the economics of the Chilalo Project.

Chilalo’s 2020 definitive feasibility study assumed average graphite concentrate sales price of US$1,534 a tonne (current spot prices are much higher). Whereas value-added products are priced at: 

• Expandable graphite: up to US$6,500/t

  • Sold to fire-retardant customers

• Expanded graphite: up to US$13,000/t

  • Sold to battery manufacturers 

• Graphite foil: up to US$30,000/t

  • Sold to producers of electronic devices for use as a heat sink or in nuclear applications, also has applications for hydrogen batteries 

Near-term catalysts

• Translate MoU into binding offtake agreement

• Further resource expansion for Chilalo

  • Trending program carried out to determine surface projections, grades and thickness of prospective graphite deposits. Results expected in the second quarter of 2022

  • Results will be used to identify targets for a drilling program, expected to kick off in May

• Final investment decision for second half of 2022

Evolution had $7.5m cash at the end of the March quarter.

Evolution Energy price chart

Disclaimer: Evolution Energy was a Market Index client at the time of publishing. All coverage contains factual information only and should not be interpreted as opinion of financial advice.