Evolution Energy Minerals Limited (ASX: EV1) has obtained robust results of the front-end engineering design (FEED), incorporated into an updated Definitive Feasibility Study (DFS) for its Chilalo Graphite Project, located in south-east Tanzania.
Key deliverables of the FEED work included detailed engineering, cost estimation, schedule optimization, development of Project Execution and Operational Readiness plans, and tenders for long lead equipment items. The completion of FEED is a key requirement of financiers and enables the company to further progress the debt finance process.
The results demonstrate that Chilalo is a robust project, underpinned by exceptional margins and product quality.
Strong project economics
• Post-tax NPV8 of US$338M and post-tax IRR of 32%
• High margin of US$841/t (52% operating margin), driven by world-leading flake size
• Capital cost of US$120M (including contingencies) is low compared to other development-ready graphite projects
“We are extremely pleased with the results of the FEED process and the updated DFS, confirming Chilalo is a high-margin, low-capex development option, poised to become a meaningful producer of high-value graphite products and take advantage of the looming graphite supply shortage,” Managing Director, Phil Hoskins, said.
“The compelling case for the development of Chilalo is simple:
• Chilalo’s coarse flake graphite drives leading operating margins (US$841/t) at current prices (predominantly fine flake mines are not economically viable at current graphite prices);
• Chilalo presents a low capex (US$120M), financeable development option;
• Evolution’s commitment to customer testwork and qualifications since 2015 confirms the suitability of Chilalo graphite for high-value applications, yielding quality offtake arrangements;
• Evolution has built a team with previous graphite development and operating experience, thereby de-risking development and ensuring DFS assumptions are based on real-world graphite experience; and
• The Company’s sustainability commitment has attracted a substantial cornerstone investor committed to following their investment through to financing.
“This FEED and updated DFS, under the oversight of Executive Director, Michael Bourguignon (ex-Syrah Resources project manager for construction and commissioning), CPC Engineering (the engineering firm engaged by Syrah Resources) and experienced graphite processing expert Oliver Peters, has predominantly retained the flowsheet used in the previous DFS.
“This is a strong vote of confidence in the technical work undertaken, including substantial variability testwork and pilot plant tests, confirming Chilalo’s ability to produce a high-value concentrate product. This work is part of the significant investment that has been made into the development of the Chilalo project since its discovery almost nine years ago.
“Graphite represents approximately 45% of a battery’s mass (some seven-10 times the amount of lithium). As widely reported, battery related demand for graphite is growing rapidly, expected to grow from ~50% of the graphite market to ~70% of the market in the coming 24 months. When this threshold was crossed in the cobalt and lithium markets in 2016 and 2020 respectively, price increases of ~350% and 1,300% then followed respectively for those commodities over the ensuing 24-month period. Combined with the substantial under-investment in new supply, it is difficult to see how graphite will not experience a supply deficit and rising prices over a similar period.
“Moreso than any other battery material, the mining and processing (with the exception of coating) of graphite is dominated by China. During 2022, China moved to a net importer of flake graphite reinforcing its strategy to dominate the anode supply chain end-to-end. This has resulted in increased demand for ex-China supply sources and with sustainability a key requirement of any new supply sources, both of these factors work in favour of the sustainably produced graphite products from our Chilalo Project.
“The need to secure an ex-China supply chain also extends to the processing of fine flake graphite into CSPG. The US Government has introduced a number of policy initiatives designed to bring critical mineral processing onshore in the US. Evolution has intentionally left its fine flake graphite uncontracted to an offtake agreement and intends to pursue vertically integrated downstream processing into CSPG in the USA. Further information on the development of Evolution’s US-based downstream processing initiative is expected to be announced in the coming months.
As an alternative to vertical integration, a portion of the fines offtake could be contracted if the counterparty meaningfully assisted with the Company’s project financing plans for Chilalo.
“Historically, securing the finance for development of graphite projects has proven to be challenging. However, the five bullet points mentioned above combine to make Chilalo’s case for financing a compelling one. We have been particularly encouraged by the multiple expressions of interest received from potential financiers in the process being run by our debt advisor, Auramet International. With the DFS completed, engagement with these potential financiers will now ramp-up as they accelerate their due diligence.
“The timing couldn’t be better to be bringing the development-ready Chilalo graphite project towards a financing and construction decision. I couldn’t be more excited by what 2023 holds in store for Evolution’s shareholders as we strategically assess the financing and development options available to us.”
For further information please visit: https://evolutionenergyminerals.com.au/