Evolution Energy Minerals (EV1) - Graphite Developer's Binding Off-Take

Evolution Energy Minerals Limited is a junior mining company aiming to supply graphite to the global green energy market. The company is focused on the development of its principal asset, the Chilalo project. The project is a fully permitted and construction-ready graphite project located in southeast Tanzania. The project has a Definitive Feasibility Study (DFS) which was published in 2020, with the company planning to make its final investment decision (FID) by the end of H2 2022.

The DFS of the Chilalo project boasts an 18-year life of mine (LOM), with a 50,000 tons per annum (tpa) production rate of coarse flake graphite concentrate. The project has a post-tax NPV8% of USD$ 331 million, a post-tax internal rate of return (IRR) of 36%, a post-tax payback period of 3.5 years, a pre-production capital cost (CAPEX) of USD$ 87.4 million and earnings before interest, taxes, depreciation, and amortisation (EBITDA) of USD$ 74 million.

Matthew Gordon spoke with Phil Hoskins the managing director (MD) of Evolution Energy Minerals Limited (ASX: EV1) to discuss the company and its recent activities. 

Company Overview

Evolution Energy Minerals Limited announced at the beginning of May 2022, that it had entered into a binding offtake agreement with Yichang Xincheng Graphite Co Ltd. (YXGC), for the sale of 30,000 tpa of coarse flake graphite concentrate for a minimum of three years. Yichang Xincheng Graphite Co Ltd. is a global leader in the manufacture of high-value expandable graphite and associated high-value graphite products, such as graphite foil. The announced binding offtake agreement will encapsulate 60% of the Chilalo project’s production for its initial three years. The offtake agreement will also represent 70% of the project’s forecast revenue for the first three years of operation.

The company believes the offtake agreement will support its financing initiatives enabling graphite concentrate production at the Chilalo Project before 31 March 2024.

Management team

The company is led by Phil Hoskins who is the Managing Director (MD) of Evolution Energy Minerals Limited. Hoskins has more than 16 years of financial and commercial experience across various project stages including exploration, development and production.  Hoskins has experience in the management of Australian as well as International listed companies. He currently also serves as the Managing Director of Marvel Gold Limited.

Trevor Benson serves as the Non-Executive Chairman of the company’s board. Benson has been involved in the banking and stockbroking industry for more than 30 years with him specialising in the resource sector. Benson has been involved with various ASX-listed companies, with him most recently holding the position of Executive Chairman for Walkabout Resources Ltd. Benson, during his time in investment banking, specialised in mergers and acquisitions as well as equity capital market transactions and served as an advisor to various southeast Asia and Chinese companies.

Chris Knee is the Chief Financial Officer (CFO) of the company and has over 15 years of experience in a multinational chartered accounting firm as well as holding various senior finance positions across the resources industry with projects in Africa, Canada and Central Asia. Knee holds experience in joint ventures, international tax structuring, accounting and compliance, commercial contracts, project divestments and acquisitions.

Stuart McKenzie serves as the Company Secretary and has more than 30 years of experience in senior commercial roles. McKenzie previously held the position of Company Secretary at Anvil Mining Limited for approximately six years, before that he held various senior positions with Ok Tedi Mining Limited, Ernst and Young and HSBC.

Vickey Puncheon is the General Manager of Corporate Services for the company and previously held the position of General Manager of Business Services for Syrah Resources Ltd. She was a key part of the development and operation of the company’s Balama graphite project in Mozambique.

Heavenlight Kavishe is the Country Manager of Evolution Energy Minerals Limited and has extensive experience in governmental relations, community engagement and operating in Tanzania. Kavishe has held numerous positions within Tanzanian governmental agencies, which include positions at the National Development Corporation and the Parastatal Sector Reform Commission.

Michael Bourguignon is the Executive Director of the company’s board and has extensive experience in the resource sector of both Australia as well as internationally. Bourguignon is a project management professional with extensive experience in providing strategic direction and leadership in the successful delivery of projects. He was the Project Manager for Glencore’s 3.6Mtpa copper concentrate facility at the Mopani Copper Mine in Zambia as well as for the construction of Syrah Resources’ Balama graphite project in Mozambique.

Amanda van Dyke is the final member of this esteemed management team and is the Non-Executive Director of the company’s board. Van Dyke, who is currently the Managing Director of ARCH Sustainable Resources Fund LP, has more than 20 years of experience in commodity markets. She started her career in mining-focused roles for Dundee Securities, Ocean Equities and GMP Securities and moved towards fund management as the manager of the UCITS Gold and Precious Metals Fund at South River Asset Management. She has raised more than USD$ 500 million in debt and equity-related finance throughout her career and has been appointed to the company’s board as ARCH’s nominee.

The management team is tasked to advance the company’s Chilalo Graphite to a final investment decision (FID) by the end of the second half of 2022.

The Graphite Market

Graphite has been designated as a strategic critical mineral by the United States of America, the European Union and Japan due to its use in Lithium-Ion batteries. The Lithium-Ion battery industry has seen exponential growth due to the global initiative to move towards cleaner forms of energy, which include electric vehicles. Graphite plays a crucial part in Lithium-Ion batteries, as it serves as the anode of the battery. The Electric Vehicle (EV) market is set to drive the global natural graphite demand to a 700% growth by the end of 2025. The use of graphite in fire protection materials as well as in graphite foil only adds to its demand.

The European Union (EU) in December 2020 announced the EU taxonomy for sustainable activities. The taxonomy includes various new initiatives and measures to enable a responsible supply chain. The new initiatives include new mandatory procedures to ensure sustainable and ethical sourcing of raw materials such as graphite. The taxonomy also aims to give traceability to all minerals used in the production of batteries and requires all raw materials used in batteries to be produced according to OECD recognized guidelines for sustainable sourcing.

Evolution Energy Minerals Limited aims to meet the new taxonomy regulations as well as play a fundamental role in the graphite production sector through its Chilalo Graphite project, located in Tanzania.

The Chilalo Graphite project

The Chilalo Graphite project of Evolution Energy Minerals Limited is a fully permitted and licensed coarse flake graphite deposit located within Tanzania. A Definitive Feasibility Study (DFS) of the Chilalo Graphite project was published in 2020 and shows an 18-year life of mine (LOM) based on the existing ore reserves. The project is envisioned to have a USD$ 87.4 million capital cost, with a USD$ 331 million NPV and a post-tax 3.5-year payback period. The project further has a post-tax internal rate of return (IRR) of 36% and average annual earnings before interest, taxes, depreciation, and amortisation (EBITDA) of USD$ 74 million. The Chilalo project will process 500,000 tons per year of ore reserves at an average feed grade of 10%. Which results in the production of 50,000 tons of concentrate per year.

The company is underway with the development of an updated DFS for the project, with the company anticipating the capital cost of the project to increase to approximately USD$ 100 million due to the high inflationary environment.

Binding offtake agreement

Evolution Energy Minerals announced in Early May 2022, that it had entered into a binding offtake agreement with Yichang Xincheng Graphite Co Ltd for the sale of 30,000 tons per annum of coarse flake graphite concentrate produced at the Chilalo Graphite project for its first three years of operation.

Yichang Xincheng Graphite Co Ltd and Evolution Energy Minerals Limited have been underway with extensive product qualification testing of the project’s graphite since 2015. The outcome of the testing showed the project is able to produce a coarse flake graphite concentrate, which is suitable for the production of fire-retardants, graphite foil and various battery technologies.

The offtake agreement consists of the production and supply of coarse flake graphite concentrate with a +100 mesh coarseness. The market price of the produced coarse flake graphite concentrate is to be determined by both parties at least 30 days before the beginning of each quarter. The offtake agreement also includes the creation of a joint venture downstream processing facility in Europe, which will produce various graphite products. The binding offtake agreement is subject to Evolution Energy Minerals Limited notifying Yichang Xincheng Graphite Co Ltd that it has obtained the necessary financing for the project as well as commenced construction at the Chilalo Graphite project before 31 December 2022. The binding offtake agreement is further subject to the initiation of commercial production at the Chilalo Graphite project as well as the first delivery of the coarse flake graphite concentrate before 31 March 2024.

Recent Activities

Evolution Energy Minerals Limited is currently underway with a trenching program at the Chilalo Graphite project, which is aimed at determining surface projections, grade and thickness of the graphite deposits. The results of the trenching program are expected to be published by the end of Q2 2022. The trenching program results will enable the company to initiate a drilling program at the Chilalo Graphite project in June 2022. The drilling program was delayed from May 2022 to June 2022 as a result of unfavourable weather conditions.

The company has also commenced a tender process to award the front-end engineering design (FEED) contract for the project's processing plant and associated non-processing infrastructure for the Chilalo Graphite project. The tender process has through a pre-qualification stage been able to identify three companies for the submission of tenders. The tender is expected to be awarded before the end of May 2022. The FEED phase design will include the completion of a revised mining schedule, the review of power supply options and the evaluation of alternatives for tailings storage.

Future

Evolution Energy Minerals Limited announced in early May 2022, that it had appointed Auramet International to advise and secure an optimal financing solution for the Chilalo Graphite project. The advisory services will include the determination of the optimal debt to equity financing ratio for the project to follow. The key milestones to secure project financing include the execution of further binding offtake agreements, finalising a framework agreement with the Tanzanian Government which will provide legal and physical security and the completion of an updated Definitive Feasibility Study (DFS) of the Chilalo Graphite project.

The company plans to initiate a drilling program at the Chilalo Graphite project, which is aimed at expanding the mineral resources of the project by the end of June 2022. The results of the drilling program will lead to the publishing of the project’s updated DFS by September 2022.‍

To find out more, go to the Evolution Energy Minerals website