With the finalisation in July of the $20 million loan agreement with Gemcorp, energy minerals developer, Walkabout Resources, remains on-track to deliver first production from its Lindi Jumbo graphite project in southeast Tanzania, early in 2024, CEO Andrew Cunningham tells Modern Mining’s Nelendhre Moodley.
Walkabout Resources’ 100%-owned high grade Lindi Jumbo Graphite Mine is located some 460 km from Dar es Salaam, Tanzania’s capital, within the highly prospective Mozambique belt, known for its world-class, coarse flake graphite deposits.
“After the changes to Tanzania’s mining laws in 2017, investors lost their desire to fund projects in that country,” Cunningham explains, adding that the deal has been a massive windfall for the company. To date about 50% of the project has been funded through equity.
“The $20 million deal with Gemcorp positions Lindi Jumbo as the first graphite project in the western world to be funded, in part, through debt. So far, all other graphite projects we know of that have been built or that are currently under construction, have been funded through equity,” says Cunningham, who adds that even though demand for graphite remains strong, funding graphite projects remains a huge challenge.
Having inked the deal, Walkabout Resources is cognisant that both investors and project developers alike will be keeping a close eye as the ASX-listed company develops its flagship project.
“We believe the debt funding deal is also good for our peers in the graphite space as it paves the way for them to access debt funding. However, it is important to note that the due diligence process is extremely intense.”
Investment firm, Gemcorp Capital, targets emerging market opportunities, particularly projects that are close to cashflow. The funding institution approached Walkabout Resources in February this year to negotiate a funding agreement.
“As a near-term, high-demand minerals producer, the Lindi Jumbo project fit the bill for Gemcorp. The project is economically viable, has significant upside and a fairly short timeline to production and cash-flow, which was essentially the attraction for the investor. Further to this, our decision more than a year ago to continue with construction meant that when we were approached, project construction was well advanced – over 60% complete – which added to its attractiveness.”
According to Cunningham, the company was not deterred by the funding challenges and had plans in place that ensured project construction continued unabated. However, finalisation of the debt facility provides the company and its shareholders with much comfort and peace of mind.
Walkabout Resources initiated the first drawdown on its debt-funding in mid-July, which it is using to fully fund the project to production, make repayments on its bridging loan, and paying its contractors, with some of the funds allocated towards working capital.
From a project construction point of view, virtually all the mechanical equipment is now on site, with the EPCM contractor undertaking mechanical installation of the key equipment.
Lindi Jumbo production status
The Lindi Jumbo project remains on-track for commissioning before year-end with first production scheduled for the first quarter of 2024.
Says Cunningham: “The Lindi Jumbo project is a one-of-its-kind project consisting of an extremely high reserve grade – almost 18% – which is the highest reserve grade of any other graphite development project in Africa. From the onset, our stance has been to keep the project manageable, producing 40 000 tpa of concentrate. As we are not resource bound on the long-life asset, which has a LOM of 24 years, this leaves us with ample growth opportunities, including the ability to increase production to 50 000 tpa in concentrate, without any further capital injection. However, this decision will depend largely on market demand.”
Once commissioned, the ASX-listed entity will have a full 12 months to ramp up to name-plate capacity.
“Once project construction is complete and production is ramped up to name-plate capacity, we will cast an eye towards expansion opportunities. We have 175 km2 of exploration tenure highly prospective for graphite under our control, and the knowledge and experience to develop another mineable resource quickly and cost-effectively, if we so desire.”
Graphite market fundamentals
Driven largely by the electric vehicle and energy storage market, graphite, which came off its recent ‘highs’ in terms of price, remains relatively attractive.
“Over the past few months, the price of graphite has come down slightly; however, the price remains robust, especially when compared to two years ago when the product was trading at a decade high”.
On the back of a predicted shortfall over the next decade, the commodity is anticipated to deliver healthy margins, at least for the next ten years. In fact, Benchmark Minerals Intelligence has flagged a deficit of close to six million tons of graphite in the next five years. The report suggests that 97 new graphite mines, each producing more than 50 000 tonnes per annum, will need to be built in the next 12 years if the shortfall is to be met.
“Further to this, and in line with the looming graphite deficit, the western world is pushing for alternative graphite supply aimed at reducing its dependence on Chinese production,” says Cunningham.
More recently though, the US identified graphite as one of four critical metals needed for the future, which is an impetus to develop more graphite mines. As it stands, not many graphite mines are being developed to meet the expected deficit.
Cunningham points out that though the US is not blessed with viable graphite deposits, Canada is and has graphite deposits that are currently under construction, with planned production scheduled to come online soon.
“Europe, Australia, and a few Scandinavian countries also contain some graphite deposits that are being developed. Though the appetite to develop graphite mines remains high, as with any mining project, operating costs need to be kept low to allow miners to compete with Chinese graphite production costs. We are fortunate that the high grade Lindi Jumbo project has some of the lowest quartile operating costs in the market, forecasted to produce at an all-in-sustaining cost of less than $500 per tonne of concentrate, which is extremely advantageous as our low operating costs provide us with a fighting chance to compete against Chinese production. Even if there is a severe downturn in the graphite market, we will still be able to make money and keep the project going.”
Speaking of graphite projects in Africa, Cunningham, reveals that there are a few graphite operators in Mozambique, Namibia, and Tanzania. Mozambique is home to the world’s largest graphite producer, Syrah Resources, which produces predominantly small flake.
Size matters
Large graphite flakes are the big money spinners trading at significantly higher prices than small flake sizes.
“Graphite flake size is the big differentiator between the Tanzanian graphite players and those in the rest of the world. Much of Tanzania’s graphite is in the large graphite flake size category, whereas projects in other parts of the world are not as fortunate.”
It is important to note that small graphite flake sizes sell at the same price even if procured for use in different applications, be it electric vehicles, battery energy storage, steelmaking or the lubricants market.
The Lindi Jumbo project’s high-grade deposit is skewed towards jumbo flakes (75% above 180 microns or 80 mesh i.e., large flakes) with around a quarter of the graphite from the project in the small flake size category. This means that the majority of Lindi Jumbo’s premium product will trade at the top end of the price range.
“The Lindi Jumbo project will deliver 40 000 tpa of graphite concentrate, which is still a substantial amount in a market currently delivering ~1 mtpa of graphite concentrate,” Cunningham says.
He explains that for graphite developers in the early stages of firming up their resources, it would take a further two-to-three years before the projects begin delivering graphite flakes. Moreover, the poor inclination to fund graphite projects will surely be a stumbling block that will delay production time-lines.
“Given the limited number of graphite projects currently under development, we believe that our advanced project will provide us with first mover advantage as a graphite producer, both in Tanzania and the world.”
Sustainability
Historically, Tanzania’s mining district lies to the north of the country and, given that the Lindi Jumbo project is located to the southeast of the country, it is set to inject much needed economic upliftment to the local community.
At peak production, the mine will employ roughly 100 people. However, Cunningham is quick to point out that the knock-on effects of secondary businesses will have a tremendous impact on the extremely poor region.
“Our philosophy is to employ people from the local community first and only if we are unable to source the requisite skillset, will we look further afield within Tanzania before we start recruiting from elsewhere. The area in which the Lindi Jumbo mine is located is an area that is not really a mining jurisdiction; however, it is rapidly being developed as one of the star regions of the country,” concludes Cunningham.