High margin, low cost Graphite project greenlit as definitive feasibility study completed

A key “de-risking” hurdle for further financing of the Chilalo project has been cleared by the completion of the Definitive Feasibility Study (DFS). The DFS was completed alongside project partner CPC Engineering, which will undertake the front-end engineering and design of the project.

In broad terms, the DFS process spanned:

• detailed engineering,

• cost estimation,

• schedule optimisation,

• development of Project Execution and Operational Readiness plans, and

• tenders for long lead equipment items.

Chilalo management summed up the study results as demonstrating that “Chilalo is a robust project, underpinned by exceptional margins and product quality.”

Some of the standout project economics of Chilalo include:

• 32% initial rate of return

• US$120m pre-production capital

• US$338m net present value

• 52% operating margin

• 3.3-year payback period

• Average annual plant feed of 500 kilotonnes per annum, at 10.6% total graphite carbon cut-off grade.

Why flake graphite is important

There is rapidly growing demand for graphite, which comprises around 45% of each typical EV battery (up to 10 times more than the lithium volume).

Most of the supply currently comes from China, and there is a big need to diversify this supply to other regions.

As Evolution managing director Phil Hoskins emphasises, this battery-related demand is tipped to grow to around 70% of the total graphite market, from 50% currently, in the next two years.

“When this threshold was crossed in the cobalt and lithium markets in 2016 and 2020 respectively, price increases of around 350% and 1,300% then followed respectively for those commodities over the ensuing 24 months,” he says.

Chilalo's main strengths

• Lower capex - Chilalo’s advantage is that the project requires lower capex than many other graphite operations, which are often not not feasible at current prices

• Quality of the team, including ex-Syrah Resources (ASX:SYR) project manager Michael Bourguignon, Chilalo’s executive director, and others with deep experience in graphite processing, including Oliver Peter.

• Testwork and qualification of the mine area has been running for eight years, since 2015, meaning it’s been thoroughly assessed and the quality confirmed.

What’s graphite worth?

Getting a firm hold of flake graphite prices is tricky because the characteristics of the product can vary so much.

For example, even graphite with more than 895 – or +80 mesh, 95% carbon – is not always suitable for broader value-added applications. Other varying characteristics, which are desirable, affect the range of “value-added” products that can be produced from flake graphite – a challenge acknowledged by analysts.

And because the price of the above product is considered intellectual property, producers are often cagey about public disclosure.

Evolution uses a broad mix of graphite pricing metrics to arrive at its pricing assumptions, as outlined in the following chart. 

Several other appealing attributes of Chilalo

The project’s economics can be further improved in the following ways, with geophysical surveys finding 33km of high and ultra-high “conductance targets” – this ability for potential drill sites to conduct electricity are an important way of determining metals such as graphite.

At Chilalo, deposits are near-surface, high-grade, thick graphite deposits which can:

• Boost cash flow and project valuation, but expand output in line with customers’ expectations for production growth

• Reduce mining costs, and

• Extend the mine life.

Management also cited the project’s 

• reduced logistics and road transportation costs;

• accessibility to a recently expanded Mtwara Port (180km from Chilalo);

• alternative route to Dar es Salaam via road

• lower power costs due to the use of solar-generated power for around 10% of the project’s total needs.

Chilalo price dynamics

What’s next?

Evolution is targeting 0.5 Mt per year, at a grade of more than 10% TGC (what is TGC?), from the Chilalo project. This is expected to be achieved in year two, based on full construction and commissioning works.

Production is on track to start in Q4 of 2024, as indicated in the following table.

Project timeline estimates

DISCLAIMER: Market Index helps small-cap ASX-listed companies connect with Australian investors through clear and concise articles on key developments. Evolution Energy was a client at the time of publishing. All coverage contains factual information only and should not be interpreted as an opinion or financial advice.