Black Rock shakes off Tanzania’s asset grab with forecasts of strong returns from graphite project

Shares in graphite hopeful Black Rock were smashed following Tanzania’s asset grab. But a PFS finds its project will still deliver strong returns thanks to low costs.  Plus, Nzuri Copper gets hot and sweaty in the Congo as it prepares to release a feasibility study on its high-grade copper-cobalt project.  

Being the young son of an usherette at Melbourne’s grand Regent theatre in the late 1960s meant free access to the films on show over the summer months.

Sounds deluxe but no one should have to sit through 100 showings of the whimsical musical Chitty Chitty Bang Bang under the watchful eye of a torch carrying mother.

It should be no surprise then that the songs have stuck in the memory. One of them in particular has had a lasting impact, The Roses of Success.

The hook line is: “Up from the ashes, up from the ashes, grow the roses of success.’’

Strange how the mind works but the hook line was (again) being hummed during the week while digesting Black Rock Mining’s (ASX:BKT) optimised preliminary feasibility study for its Mahenge graphite project in Tanzania.

Black Rock chief executive and 30-year mining engineer veteran John de Vries sums up the findings succinctly, saying that he believes that Mahenge is the best undeveloped graphite project on the planet.

The figures from the optimised PFS (a two-stage development is now a three-stage proposal) do point to a project that has been sized to be highly investable yet small enough to be fundable.

“We continue to be highly confident we have the most compelling development stage graphite project globally and intend to quickly move into our DFS phase to ensure construction risks are minimised,’’ de Vries said.

Pre-production capex remains at $US90m for 250,000 tonnes of annual production from year five at lowest quartile FOB costs of $US378 a tonne, yielding upper quartile margins of $US863 a tonne based on a “credible’’ price deck, and an NPV of $US905m.

Interesting stuff for a company trading at 5.2c for a market cap of $19m. So what has that got to do with Chitty Chitty Bang Bang?

It’s all to do with Mahenge’s location. Tanzania trashed its reputation as a fiscally stable location for foreign mining investment earlier this year when it said it would be cranking up royalties from 3.3% to 4.3% and lifting the state’s free-carried interest from 10% to 16%.

Ahead of that, Black Rock was a 15c stock, so some serious damage was done. But as the optimised PFS demonstrates, the damage to Mahenge’s projected rates of return and NPV are not all that significant, which gets back to de Vries’ call that it is the best undeveloped graphite project in the world.

So while Tanzania’s messing with the industry’s fiscal terms (not unlike the WA government) has left ashes on the ground, the reality for quality projects like Mahenge is that from the ashes, up come the roses of success.

Congo copper-cobalt coming for Nzuri

Elsewhere in Africa, things are getting interesting for Nzuri Copper (NZC) and its copper-cobalt ambitions in the Democratic Republic of the Congo (DRC).

Nzuri is probably no more than a couple of weeks away from releasing a feasibility study into the development of its Kalongwe deposit as a likely producer of 20,000 tonnes of copper and 1,700 tonnes of cobalt (in concentrates) from a low-strip open-cut, and with processing through a dense media separation (DMS) plant.

Cash costs of around $US1.40 a pound won’t surprise and a likely capex cost of about $US50m makes the project very doable, with the renewed strength in copper prices and the absolute boom in cobalt prices giving the project additional momentum towards achieving first production in the back half of 2019.

For a company trading at 19.5c for a market cap of $45m, the proposed development is of itself interesting stuff, even after applying a discount for its location in the DRC with its political uncertainties and security concerns.

But what will be covered in the feasibility study will be only be part of the Kalongwe story. While the DMS processing route is quick and low-cost it comes with the penalty of low metal recoveries which is OK from a profits point of view when like Kalongwe, you start out with high-grade material.

The payability of the cobalt in the concentrates is also a problem. So with an eye on the future, Nzuri intends to stockpile 4.8m tonnes of DMS “rejects” grading 1.6% copper and 0.25% cobalt, and 1.2Mt of cobalt-only ore grading a super-impressive 0.64%, from the initial mining and treatment phase of the project for later SX-EW treatment.

On that score, it is worth noting that a couple of SX-EW toll treatment plants are under construction in the region which would not only offer up the potential for improved recoveries and metal payability, but also massively reduce one of the project’s biggest costs – concentrate transport.

The business cases for the third party toll treatment plants are based on feed supply from the DRC’s army of artisanal miners. In a world growing increasingly concerned around the ethical supply of cobalt in particular, a steady and ethical supply from an operator like Nzuri would be a welcome development for the toll-treaters, and their end-users - the world’s consumer electronics and battery storage giants.

More immediate than that post Stage 1 operational upside for Kalongwe is the exploration upside for Nzuri.

Its patch of ground sits on the north-western extension of the Central African copper belt which cuts through Zambia and the DRC, with the latter’s portion of the belt supplying 10% of the world’s copper and 50% of the cobalt.

The belt’s status as a Tier 1 address has continued to grow thanks to Robert Friedland’s Ivanhoe Mines discovering of a virtual  “ocean’’ of copper at its big tonnage and high-grade Kamoa–Kakula copper discoveries, with Kakula sitting all of 15km from Nzuri’s project areas.

So while Nzuri is already nicely positioned with the near-term development opportunity at Kalongwe, it is also sitting on one the world’s exploration hotspots for high-grade copper and cobalt. It is wild country, and during the wet season, very wet country. That means that there has been lots of road and bridge building and other logistical work required before Nzuri could hit its Kalongwe and regional exploration targets hard.

The benefits of getting all of that preparatory work out of the way will be begin to show in coming months as the hunt for more elephant sized orebodies in known elephant country steps up.