Chilalo Graphite Project

Chilalo Graphite Project

The Chilalo Graphite Project is located in south-east Tanzania, within the Mozambique belt, which is well known for hosting some of the world’s highest grade and coarse flake graphite deposits. Chilalo is host to a high-grade, coarse flake graphite deposit, where there is a Probable Ore Reserve (4.7Mt @ 11.0% TGC) and a high-grade Indicated and Inferred Mineral Resource (16.9Mt @ 10.2% TGC). Chilalo is a fully permitted and development ready project.

Strategy

Since the initial discovery of Chilalo in 2014, Graphex has adopted a clear and differentiated strategy of understanding end markets and partnering with strategic investors to enable delivery of the Chilalo Project. Underpinned by the coarsest flake graphite in the world with exceptional expansion characteristics, the Company has targeted the expandable graphite market, which among many applications, is ideally suited to the manufacture of flame retardant building materials, for which there is a sizeable market – in China alone, this is estimated to be 2 million tonnes per annum.

Market leading product

Testwork carried out by Suzhou Design and Research Institute for Non-Metallic Minerals (‘Suzhou’) has confirmed that Chilalo graphite is the coarsest flake graphite in the world. In general, coarser flake graphite attracts premium prices. The prices below have been provided by CN Docking Joint Investment and Development Co Ltd, a subsidiary of China National Building Materials Group who is in advanced negotiations with the Company on the joint development of Chilalo.

Premium prices deliver industry leading margins

Graphite companies produce products with different flake size distributions. Margins are therefore more relevant for peer comparison than cost curves. A comparison of the margins generated by ASX listed graphite companies is shown below. The comparison is based on publicly released information and uses the same graphite prices used by Graphex that deliver a basket price of $1,914 per tonne.

Feasibility Study work

Graphex completed a Pre-Feasibility Study in November 2015 and Suzhou, on behalf of CN Docking completed its own study in December 2016. These two studies are now in the process of being optimised and are expected to deliver material improvements from the results of the November 2015 PFS. Since completing the PFS in November 2015, there has been significant improvements in the flake size distribution, graphite prices and the size of the Chilalo Mineral Resource.

Chilalo Ore Reserves and Mineral Resources

Chilalo hosts a high-grade Mineral Resource (Indicated and Inferred) of 16.9Mt @ 10.2% TGC, inclusive of an ore reserve, with mineralisation predominately at or near surface.

Resource upside

With less than 10% of the strike length drilled and the Mineral Resource open in all directions and at depth, there is significant resource upside. The exploration upside is confirmed by the existence of an exploration target tonnage of 100-350Mt at 3-11% TGC and provides potential for a multi-decade mine life.

Expandable graphite

Expandable graphite is a compound of graphite that expands or exfoliates when heated. This material is manufactured by treating flake graphite with various reagents (such as acid) that migrate between the layers in the graphite. When the graphite is heated, it rapidly expands to several hundred times its original size (the expansion ratio).

The expansion ratio is the volume of expandable graphite produced per gram of graphite product at a specified temperature. In general, coarser flake graphite typically has higher expansion ratios than smaller flakes. Producing expandable graphite is a relatively inexpensive process. Importantly, excellent rates of expansion can be achieved at low temperatures.

The expansion rate represents the volume growth of the graphite once it is mixed with acid and other reagents and then heated. Higher expandability, and higher expandability at relatively low temperatures, is more valuable to end users on a value-in-use basis. Testwork carried out in China has shown that Chilalo graphite possesses industry leading rates of expansion.

Expandable graphite is one of the fastest growing markets for graphite and has multiple uses, including:

  • With its unique fire and heat resistant characteristics, expandable graphite is being increasingly used in the manufacture of flame retardant and thermally efficient building materials, such as insulation for example, with a rapidly growing market for these products. A video demonstrating the flame retardant characteristics of expandable graphite can be viewed on the Graphex website at: http://www.graphexmining.com.au/graphite-video-gallery/.
  • The production of high-value graphite foils which are used as heat shields in electronic devices such as mobile phones, laptops and TV screens.
  • The production of graphite paper used in the manufacture of heat shield gaskets and other products such as fire and thermal seals for machinery and electronic parts.
  • The radiation resistant properties of expandable graphite also have military applications.

Testwork commissioned by CN Docking has confirmed that Chilalo product is suitable for multiple expandable graphite products including graphite foil, graphite paper, seals, gaskets and flame retardants.

Targeting the expandable graphite market

Graphex has deliberately and strategically targeted the expandable market based on its attractive growth and value characteristics. While future optionality to supply the battery market exists as that market develops, the size of the expandable graphite market, its premium prices and the suitability of Chilalo graphite for the production of expandable graphite has meant that the expandable graphite is a priority.

Traditional markets for graphite, such as refractories, which is the primary existing market for graphite requires medium to large flake material and is a lower growth market. While the battery market is a clear growth market, it uses fine material, has readily available supply (both existing and in the pipeline) and as a result, attracts relatively low prices.

China is the major producer and consumer of expandable graphite, however is facing critical supply issues. China’s flake graphite reserves are increasingly subject to lower grades, higher costs, diminishing flake size and with the enforcement of environmental measures in China, there is increasing mine closures, further restricting supply. These factors have been behind a trend for higher graphite prices, which has seen prices increase by approximately 50% since the first quarter of 2017.

Flame retardant building materials – a demand source that may outstrip batteries

Demand for expandable graphite is growing rapidly, particularly given its application in the manufacture of flame retardant building materials. This demand growth is being driven strongly by China, where the Government is encouraging the use of flame retardant materials in the construction of all new buildings. This source of demand for expandable graphite represents a shift from a small, specialized market, to a large volume market.

The demand for expandable graphite based flame retardant building materials is being driven by a number of factors including:

  • High profile fires that have resulted in substantial loss of life and property – Grenfell Apartment Tower in the United Kingdom, Dubai skyscraper fires, the Port of Tianjin and the Lacrosse apartment building in Australia – with the rapid spread of such fires attributed to the use of flammable external cladding
  • Chinese building regulations which mandate the use of expandable graphite based flame retardant building materials, however these are scarcely enforced due to a lack of flame retardant supply
  • A review of building regulations in a number of major countries
  • Issues associated with obtaining insurance for buildings that do not have expandable graphite based cladding
  • The absence of a competitor product for expandable graphite based flame retardant building materials

In December 2017, at a graphite industry and graphite building materials conference held in Xingshan, Hubei Province, China, Mr Jiang Yang, Group Vice President, China National Building Materials and President, China Building Materials Application Technology Research Institute, stated that “China needs 40Mtpa of FRBMs, which will contain 5% expandable graphite”. This represents an annual requirement of 2 million tonnes of expandable graphite.

Status of offtake and finance discussions

Graphex is in advanced negotiations with CN Docking on a transaction the represents a comprehensive development solution, comprising finance, offtake and EPC. Should that transaction complete, Graphex shareholders will be effectively free-carried to production. The proposed transaction leverages Chinese processing expertise and market understanding. Final agreement is subject to satisfactory agreement being reached with the Tanzanian Government

In addition to negotiations with CN Docking, Graphex continues to receive strong interest from alternative financiers.

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