Taylor Collison Research Update

21st October 2015
Kibaran Resources Limited (ASX: KNL) – Update
Target Price 41c
Graphite Production into Europe with Strong German Partnerships
Ryan Armstrong
(02 9210 1338)
[email protected]
Key Points

The Epanko Graphite Project (Tanzania) has
advanced quickly over the past year. Major
milestones for Kibaran in recent months
include;
 Finalising 20ktpa off-take of graphite
production with ThyssenKrupp (at
Epanko). This is on top of the binding offtake agreement (with a “Major European
Graphite Trader” (EGT) for 10ktpa) already
established.
 KNL has received confirmation of “inprinciple eligibility for cover” for the
Epanko Graphite Project by the German
Government.
 Signed a mandate letter with Germany’s
KfW IPEX-Bank under which the Bank will
provide advice and subject to due
diligence; consider an initial senior loan of
up to US$40 million towards Epanko’s
capex.
 Further evaluation has confirmed that
Kibaran’s Epanko and Merelani-Arusha
graphite projects have the potential to
produce a combined 150,000tpa of
concentrate by the 6th year of mining and
processing operations

Mining licence granted with all regulatory
environmental approvals in place.

We believe Kibaran Resources (KNL) presents
tremendous value with KNL still remaining as
the only ASX-listed company to secure binding
off-take agreements outside of China. We have
significantly increased our price target; based
on the finalisation of the ThyssenKrupp off-take
agreement, further information with regards to
German government-backed potential financing
and Kibaran’s intention to boost production.
We maintain our Speculative Buy rating.
Capital Summary
Ordinary Shares
169.1m
Unlisted Options
11.3m
Unlisted Performance Shares*
15.0m
Market Capitalisation (m, undil.)
$35.5
Cash & equivalents (m)
$3.0
Share Price (20/10/2015)
$0.21
52 week high/low
Speculative Buy
$0.295/$0.12
*Related to KNL’s nickel tenements and unlikely to be
converted before expiry
Share Price Graph
Directors & Key Management
Andrew Spinks
Managing Director
Grant Pierce
Executive Director
John Conidi
Non‐Executive Director
Robert Hodby
Company Secretary
Cristoph Frey
Technical Specialist
1|Page
Kibaran Resources Ltd.
Epanko Graphite Project NPV
(Taylor Collison estimate – using proposed production profile)
Graphite Price (US$/t)
Exchange Rate (AUD/USD)
Post Tax NPV (US$m) - 10% DR
Debt/Equity Split
1,300
$0.70
141
70/30
NPV/share (fully risked/diluted)
52c
Target Price (20% discount)
41c
Capex
Working Capital
Total
(US$m)
(US$m)
(US$m)
FY16
27.5
5.0
32.5
Mining
Ore
Grade
(kt)
(% TGC)
0
-
250
9.5
500
9.5
750
9.5
(kt)
(%)
(%)
(t)
0
0
200
93.3
96.3
18,427
434
93.3
96.3
39,988
651
93.3
96.3
59,981
(US$/t)
(US$/t)
(US$/t)
(US$/t)
-
11.1
26.3
9.7
6.6
11.1
26.3
9.7
6.6
11.1
26.3
9.7
6.6
(US$m)
(US$m)
(US$m)
0
24.0
52.0
78.0
0
0
0
0
10.7
0
0.7
11.5
23.3
0.5
1.6
25.4
23.3
0.5
1.6
37.9
Production Details:
Milled
Recovery
Carbon Content
Graphite Concentrate
Cost Details:
Mining
Processing
Transport
G&A
FY17
50.0
5.0
55.0
FY18
0
0.0
0.0
FY19
20.0
5.0
25.0
Valuation:
Revenue
Operating Costs
Exploration (near-mine)
Royalty
All-In Cash Costs
EBITDA
(US$m)
(US$m)
(US$m)
0
12.5
26.6
40.1
Interest
Depreciation/Amortisation
Finance Costs
Tax
(US$m)
(US$m)
(US$m)
(US$m)
0.2
0
1
0
0.0
4.4
0
2.4
0.3
8.8
0
5.4
0.5
9.7
0
9.3
Profit after income tax
-0.8
10.1
21.5
31.3
Proceeds from Borrowings
Equity
Payments of Borrowings
(US$m)
(US$m)
(US$m)
(US$m)
6.2
26.3
0
55
0
0
0
0
6
0
0
6
Net Cash Flow
(US$m)
-7.0
-44.9
15.5
0.3
2|Page
Kibaran Resources Ltd.
Financial Model Assumptions
Table 1 – Epanko Graphite Flake Size Distribution/Pricing (Source: based on independent guidance by Roskill – with a US$2,000/t top cut)
FLAKE SIZE
Name
Super Jumbo
Jumbo
Large
Medium
Small
Fine
Microns
> 500
> 300
>180
>150
> 106
> 75
< 75
Mesh
>35
>48
>80
>100
>150
>200
<200
FOB PRICE BASIS AND CALCULATION (US$/t)
PRICE (US$/t)
Retained (%)
Grade
Basket Price
2,000
20
97.1
400
1,440
35.4
96.7
510
950
30.3
96.2
288
840
580
7.4
6.9
95.3
92.6
62
40
$1,300
Table 2 – Epanko Project (forward production guidance)
FY17
FY18
FY19
FY20
~40ktpa (half year)
~40ktpa
~40ktpa + 40ktpa upgrade (half year)
80ktpa
*Note: Production from the Merelani Project has not been factored into the financial model.
Graphite Comparables
Table 3 – East African Graphite Company Valuations (Source: Taylor Collison)
3|Page
Kibaran Resources Ltd.
Off-take and Sales Agreements
Kibaran Resources (KNL) secured a binding off-take agreement with a “Major European Graphite Trader” (EGT) in
December 2013. This was established on the back of a due diligence program that established the quality of the
Epanko graphite concentrate. Under the terms of the binding off-take agreement, the EGT guarantees the
purchase of 10,000 tonnes of graphite concentrate per year from Kibaran, for an initial period of five years with
the option to renew for a further five years, on a market-based pricing mechanism. The agreement provides
Kibaran with a significant partner in the graphite industry to jointly market and sell graphite with the security of
an over-riding off-take guarantee from the EGT.
In August 2015, Kibaran executed an off-take agreement with ThyssenKrupp Metallurgical Products GmbH (part
of the Materials Services business area of ThyssenKrupp group - a diversified industrial corporation based in
Germany) for a long-term commercial agreement for the sale of Kibaran’s natural flake graphite products.
Key Highlights:

Exclusive long-term commercial agreement between the parties for the sale of a minimum 20,000tpa of
refractory grade natural flake graphite in Europe, Turkey, Russia, Ukraine and Korea.

The term of the agreement is 10 years with a 5 year option

ThyssenKrupp Metallurgical Products will endeavour to assist Kibaran to obtain debt or equity funding
for development of the graphite projects.
ThyssenKrupp Metallurgical Products GmbH
ThyssenKrupp Metallurgical Products GmbH is a leading commodity trading company and is a division of the
global ThyssenKrupp corporate group. ThyssenKrupp AG is a major German-based diversified industrial group
with over 155,000 employees in nearly 80 countries and generated sales of around €41 billion in FY14.
After finalising the binding off-take with Kibaran, Kai-Norman Knötsch (Chairman of the Management Board of
ThyssenKrupp Metallurgical Products) commented; “Graphite is an extremely good fit within our Mineral Unit
portfolio. The collaboration with Kibaran Resources Limited will enable us to further expand our activities in the
refractory industry in Europe, Russia and Korea” (Kibaran Resources – Announcement on 25th August 2015).
German Loan Guarantee and Financing
Kibaran Resources received confirmation of “in-principle eligibility for cover” for the Epanko Graphite Project
from the German Government, which is considered a major milestone in the financing process.
Kibaran has met the first important condition to receive an Untied Loan Guarantee from the German Government
in combination with financing by German state-owned KfW IPEX-Bank. For financing to be eligible under the
Untied Loan Guarantee Scheme, the German Government required Kibaran Resources to enter into a contract
with a German off-taker for the delivery of graphite concentration. On top of this (part of the due diligence for
the scheme) KNL was also required to outline a commercially/technically feasible project that will contribute to
the economic development of the host country. KNL achieved this step with the release of the Bankable
Feasibility Study and continues to show strong support for the local community.
Securing project financing from the KfW IPEX-Bank (strong track record in the mining and infrastructure sector)
will now be the prime focus for Kibaran. KfW has signed a formal mandate letter to explore financing options to
4|Page
Kibaran Resources Ltd.
fund the construction cost of the US$77 million Epanko graphite mine in Tanzania. They will provide advice and
structuring support in relation to the loan guarantee and, subject to due diligence, consider an initial senior loan
of up to US$40 million towards Epanko’s capex. An example of another investment in Africa by the bank includes
the Gibson Bay Wind Farm in South Africa, where a loan agreement was signed for around €160 million with
Italian renewables developer Enel Green Power (EGP) to finance construction (announced in March 2015).
Production Target Upgrade (Epanko + Merelani)
KNL recently announced a resource increase/upgrade at Merelani (coupled with the established resource at the
Epanko Project – see Table 4). This supports the company’s growth strategy to lift total staged production targets
from the two high grade Tanzanian projects to a rate of 150,000tpa.
Table 4 – Kibaran’s Global Resource – Epanko + Merelani (Source: KNL Announcement)
The production upgrade represents a significant increase on the initial 40ktpa target at Epanko and will be
progressively staged over the initial 6 years of mine life. Kibaran has stated the production schedule is in line with
new global demand forecasts for natural flake graphite and battery grade spherical graphite (see Figure 1) and
growth is expected to be internally funded after initial start-up. Kibaran updated its growth strategy modelling on
the “Roskill Natural & Synthetic Graphite: Market Outlook to 2020” report which includes details of anticipated
future increases in global demand for premium quality large flake graphite.
Figure 1 – KNL Production vs. Demand Growth in Natural Flak Graphite (Source: KNL Announcement)
BFS – Operating/Financial Summary
Kibaran Resources (KNL) used high quality consultants to oversee all the parameters used within the BFS. These
included:
 GR Engineering (Study Manager and Engineering Design)
 CSA Global (Mineral Resource and Geology)
 Knight Piesold (Hydrology and Infrastructure)
5|Page
Kibaran Resources Ltd.






ECG Engineering (Power and Electrical Engineering)
Independent Metallurgical Operations (Metallurgy)
Intermine Engineers (Mining and Ore Reserves)
George Orr & Associates (Geotechnical Mine Design)
MTL Consultants (Environment)
Trinity Promotions (Social and Community)
All of the consultants have previously worked on African based projects and the majority are engaged under
various exclusivity arrangements. The BFS also had significant technical input from Mr Christoph Frey, Kibaran’s
Specialist Graphite Consultant.
Christoph Frey is a qualified process engineer who has worked exclusively in the natural graphite industry for the
past 22 years. Previously Christoph was engaged at Magnezit Group Europe GmbH (Germany) and served as
Project Manager at Dalgraphite Limited in Russia. From 2010 to 2013 he served as Technical Director at Graphit
Kropfmuehl AG where he worked on the Ancuabe graphite mine in Mozambique. From 2007 to 2009 he was
General Director of Qingdao Kropfmuehl Graphite Limited based in Qingdao, China.
The Epanko Project is now at an advanced stage, particularly with a mining licence in place (as announced on 15th
July 2015). The calibre of both off-take partners, potential debt funders coupled with the de-risking of the
sovereign and commercial risks associated with the project has put KNL in a strong development position.
According to the BFS (also released in July), the Epanko Graphite Project was scheduled to produce an annual
concentrate production for the first 15 years of 40,000tpa, with the remaining 10 years averaging 31,300tpa
(mainly due to lower grades). The economics showed a robust mining scenario (see Table 5), even before the
proposed production upgrade.
Table 5 – Financial Summary (Source: Kibaran Resources - BFS)
Items
Plant throughput
Parameters
(tpa)
434,000
Plant Recovery
(%)
93.3
Feed Grade
(%)
8.6
Carbon Grade
(%)
96.3
Production Concentrate
(tpa)
36,400
Base Price Assumption
(US$/t)
1,446
Cost per tonne of Concentrate
(US$/t)
570
(Yrs)
25
Pre-Production Capital
(US$m)
77.5
Strip ratio
(W:O)
1:1
Discount Rate
(%)
10
Pre-tax IRR
(%)
41.2
Pre-tax NPV
(US$m)
197.4
Mine life
KNL expects to be able to maintain a consistent head grade at Epanko in the upgraded mine plan, whilst
increasing throughput to eventually achieve the goal of 150ktpa of concentrate production (between both Epanko
and Merelani). Due to the geological (and metallurgical) consistency of the ore body (as highlighted in the
resource model of the BFS), we believe the new production target is achievable on a longer term basis.
6|Page
Kibaran Resources Ltd.
Implementation Schedule
First production is scheduled to commence ~17 months from the completion of project financing. Project
financing could now be fast-tracked on the back the off-take agreement with ThyssenKrupp being finalised. With
this in mind, we are scheduling for commercial production at Epanko to start in the 1H CY17.
1
2
3
4
5
6
7
8
9
Months
10 11
12
13
14
15
16
17
18
Front End Engineering
Detailed Design
Procurement
Construction
Fabrication
Delivery
Construction
Commissioning
Operations
Production
Figure 2 - Implementation Schedule at Epanko (Source: Kibaran Resources - BFS)
Management
Andrew Spinks
Managing Director
B.App.Sc (Geol), Grad. Dip (Mining), W.A Quarry Managers Certificate, FAusIMM
Andrew Spinks is a geologist with over 25 years professional experience in a range of
commodities in Australia and Africa. Andrew has worked with a number of mining
companies including Resolute Limited, Plutonic Resources, Dominion Mining and
Whim Creek Resources in diverse roles from exploration, project development and mining.
He is a co-founder of Tanzgraphite Pty Ltd and was responsible for the strategy, target
generation and acquisitions of that company.
Andrew lived and worked in Tanzania at Resolute's Golden Pride Project for several years
and was a key member of the management team that won the inaugural Presidential
Award for Environmental Excellence and Leadership, awarded by the then President of
Tanzania, His Excellency President Benjamin William Mkapa.
Grant Pierce, OAM
Executive Director Projects
BEng. (Mining), First Class Mine Managers Certificate (WA & NT), FAusIMM, Assoc AICD
Grant Pierce is a mining engineer with over 25 years of experience in both open-pit and
underground mining operations and in a range of commodities including gold, copper,
copper/cobalt, nickel, iron ore and rare earth elements. He has extensive management
experience, having held numerous senior operational management roles with both mining
and exploration companies operating in Africa. Grant was a member of the development
team that built Tanzania's first modern gold mine, Resolute's Golden Pride Project and was
7|Page
Kibaran Resources Ltd.
Operations Manager of the mine for its first 6 years of production. Other senior roles
include Executive General Manager (Tanzania) for Barrick Gold Corporation during which
time the Tulawaka Gold Mine came online and General Manager (Operations) for Perseus
Mining Limited, from the environmental permitting phase through construction, to the
Edikan Mine's first gold pour.
Grant was awarded the Order of Australia Medal in 2003 for his personal contribution to
social development in rural Tanzania. Her Majesty Queen Elizabeth II is the Sovereign Head
of the Order. In 2006 he was also awarded Tanzania's Zeze Award, the highest accolade for
outstanding contribution to Tanzania's cultural development.
John Conidi
Non-Executive Director
BBus, FCPA
John Conidi is a Certified Practicing Accountant and Managing Director of ASX-listed Capitol
Health Ltd (ASX:CAJ) which he co-founded. He has over 14 years of experience developing,
acquiring and managing businesses in the technology and healthcare sectors. Mr Conidi’s
role in strategy, management and business development has driven the sustained
expansion of Capitol Health, increasing its market capitalisation from $20m to over $500m
in the past 8 years. John has extensive interests in the graphite space. He is an experienced
investor specialising in technology and resources. He is also the Chairman of 333D Pty Ltd
which together with Kibaran jointly owns 3D Graphtech Industries Pty Ltd. 3D Graphtech is
exploring mechanisms for the deployment of graphite and graphene in emerging
technologies.
Robert Hodby
CFO/Company Secretary
Robert Hodby holds a Bachelor of Commerce from Murdoch University and is a member of
CPA Australia and the Governance Institute of Australia with over 20 years industry
experience in financing and administration of public and listed companies gathered at both
operational and corporate levels. During his time, he has held numerous executive and
project management positions as well as CFO, Board and Company Secretarial roles with a
number of companies involved in the resource and energy industries.
Christoph Frey
Technical Graphite Specialist
Christoph Frey is a qualified process engineer who has worked exclusively in the natural
graphite industry for the past 22 years. Previously Christoph was engaged at Magnezit
Group Europe GmbH (Germany) and served as Project Manager at Dalgraphite Limited in
Russia. From 2010 to 2013 he served as Technical Director at Graphit Kropfmuehl AG where
he worked on the Ancuabe graphite mine in Mozambique. From 2007 to 2009 he was
General Director of Qingdao Kropfmuehl Graphite Limited based in Qingdao, China.
Christoph has been involved in all facets of development and production of natural flake
graphite with expertise in the supervision of graphite mining and processing, managing the
development of product portfolios from graphite concentrate to higher value graphite
products, graphite sales and in evaluating and procuring graphite projects.
8|Page
Kibaran Resources Ltd.
Disclaimer
The following Warning, Disclaimer and Disclosure relate to all material presented in this document and should be
read before making any investment decision.
Warning (General Advice Only): Past performance is not a reliable indicator of future performance. This report
is a private communication to clients and intending clients and is not intended for public circulation or publication
or for the use of any third party, without the approval of Taylor Collison Limited ABN 53 008 172 450 ("Taylor
Collison"), an Australian Financial Services Licensee and Participant of the ASX Group. TC Corporate Pty Ltd ABN
31 075 963 352 (“TC Corporate”) is a wholly owned subsidiary of Taylor Collison Limited. While the report is based
on information from sources that Taylor Collison considers reliable, its accuracy and completeness cannot be
guaranteed. This report does not take into account specific investment needs or other considerations, which may
be pertinent to individual investors, and for this reason clients should contact Taylor Collison to discuss their
individual needs before acting on this report. Those acting upon such information and recommendations without
contacting one of our advisors do so entirely at their own risk.
This report may contain “forward-looking statements". The words "expect", "should", "could", "may", "predict",
"plan" and other similar expressions are intended to identify forward-looking statements. Indications of and
guidance on, future earnings and financial position and performance are also forward looking statements.
Forward-looking statements, opinions and estimates provided in this report are based on assumptions and
contingencies which are subject to change without notice, as are statements about market and industry trends,
which are based on interpretations of current market conditions. Any opinions, conclusions, forecasts or
recommendations are reasonably held at the time of compilation but are subject to change without notice and
Taylor Collison assumes no obligation to update this document after it has been issued. Except for any liability
which by law cannot be excluded, Taylor Collison, its directors, employees and agents disclaim all liability
(whether in negligence or otherwise) for any error, inaccuracy in, or omission from the information contained in
this document or any loss or damage suffered by the recipient or any other person directly or indirectly through
relying upon the information.
Disclosure: Taylor Collison was paid a fee by Kibaran Resources Limited for the production of this research report.
Analyst remuneration is not linked to the rating outcome. Taylor Collison may solicit business from any company
mentioned in this report. For the securities discussed in this report, Taylor Collison may make a market and may
sell or buy on a principal basis. Taylor Collison, or any individuals preparing this report, may at any time have a
position in any securities or options of any of the issuers in this report and holdings may change during the life of
this document. Taylor Collison was the Lead Manager in the July 2014 KNL Placement to raise $3.1m and also
participated in the April 2015 Placement to raise $4.1m. Taylor Collison received a fee for their services.
Analyst Interests: The Analyst(s) may hold the product(s) referred to in this document, but Taylor Collison Limited
considers such holdings not to be sufficiently material to compromise the rating or advice. Analyst(s)’ holdings
may change during the life of this document.
Analyst Certification: The Analyst(s) certify that the views expressed in this document accurately reflect their
personal, professional opinion about the financial product(s) to which this document refers.
Date Prepared: October 2015
Analyst: Ryan Armstrong
Release Authorised by: David Cutten
9|Page

Download Report