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Sovereign PFS highlights classy graphite project

Sovereign Metals’ says it can turn out an EBITDA profit of AUD$57m a year for 16 years by investing just AUD$67m in initial CAPEX at its Malingunde graphite deposit in Malawi. The numbers are contained in the company’s recently tabled PFS that shows off a high grade, low CAPEX operation with exceptional operating margins.

The Africa focussed ASX listed junior delivered a lovely set of numbers this week that lever off a mouth-watering stripping ratio of just one to one at its saprolite-hosted graphite play.

Headlining the impressive set of figures in the PFS is the project’s miniscule CAPEX figure of only USD$49m, or around AUD$67m and its very low life of mine operating cost of just USD$323 per tonne, placing it towards the bottom end of the global graphite cost-curve

Sovereign used a conservative long-term average graphite basket price assumption of USD$1216 per tonne of concentrate produced in its PFS.

The project has a low technical risk too, with free-dig mining, an enviable stripping ratio and a proven straightforward processing route that produces high quality concentrates suitable for the traditional and emerging industrial graphite market sectors.

Malingunde is expected to produce a pre-tax NPV of USD$201m and an IRR of 56% over its projected 16-year mine life, which results in an average production of 52,000 tonnes annually from start-up.

The company says that payback on the project should be 3 years from the start of production and the average EBITDA over the life of mine is USD$42m per annum which equates to around AUD$57m a year.

Sovereign also declared its maiden ore reserve estimate at Malingunde this week and the numbers did not disappoint with the reserve grade holding up at a very respectable 9.5% total graphitic carbon across the 9.5 million tonne reserve estimation.

With a global resource of 45.7 million tonnes grading 7.2% TGC, just in the very soft and easy to dig saprolite and saprock portion of the deposit, Malingunde looks to have some legs beyond its initial ore reserve too.

Sovereign says it has a number of options at the project too given that it is blessed with a basket of flake sizes that covers a significant portion of the different graphite sectors including lithium-ion batteries, fire retardancy and the refractory market to name just three.

Concentrate samples have been provided to a significant number of potential partners for assessment, with larger volumes of samples being requested by a number of these groups in order to validate and qualify Sovereign’s flake graphite concentrates for their own requirements.

The Malingunde project’s bias towards large, jumbo and super-jumbo flake graphite concentrates has resulted in the company receiving significant interest from potential purchasers of these higher value graphite products and Sovereign is also pursuing credible sales agreements with tier 1 organisations to support the project’s development.

Coarse flake products are quite scarce globally and command higher premiums than finer grained concentrates. A continued supply constraint in the coarse flake market sector could result in continued strong pricing in the near to medium term, according to Sovereign management.

Managing Director Dr Julian Stephens said: “… Malingunde is the world’s best flake graphite project. The high-grade, soft, free-dig saprolite-hosted ore, requiring no primary crush or grind combined with a simple and proven flowsheet results in low capital intensity and extremely low operating costs.”

“Malingunde is an unparalleled, low technical risk, high margin project that provides significant cashflows with substantial upside scalability into a growing graphite market.”

Malingunde is somewhat of a rare beast, being the world’s largest reported saprolite-hosted flake graphite deposit and its reserve grade of 9.5% TGC would have most of its Madagascan based peer group green with envy.

The project is also able to boast excellent existing infrastructure with the recent upgrade and refurbishment of the railway line from the landlocked Malawi to Nacala Port in northern Mozambique, about 800km to the southeast.

The deposit is located just 20km from Malawi’s capital Lilongwe and just 10km from a planned electricity sub-station at Bunda, expected to be completed in 2024.

The region also has a high-quality road network to site which is mostly bituminised, with a 10km all-weather gravel road branching to the project site, which has plentiful process water available.

The company also holds the Duwi flake graphite project near Lilongwe, which has a combined mineral resource estimate of 85.9 million tonnes grading 7.1% TGC in three separate deposits, located about 30km northeast of Malingunde.

Sovereign is onto something pretty neat in Malawi and the timing of the project could not be any better with the lithium-ion battery market exploding around it and the refractory and fire-retardant markets still able to do a lot of the heavy financial lifting.

Perhaps the biggest single advantage of Sovereign Metals Malingunde graphite project is its sublimely low CAPEX figure that the company says it can clean up in just three years.

Whilst CAPEX is often the biggest killer of otherwise good mining projects, at just USD$49m, Sovereign should be able to jump this hurdle at a canter.

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