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3 reasons to add Armadale Capital #ACP to your Vox Markets Watchlist

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

Armadale Capital #ACP 
Share Price: 2.13p
Market Capitalisation: £5.2m

Armadale Capital plc is an AIM listed investment company focussed on resource projects in Africa. Its primary interest is the high grade Mahenge Liandu Graphite Project in Tanzania.

3 REASONS TO ADD ARMADALE CAPITAL #ACP TO YOUR WATCHLIST

Elon Musk, CEO of electric vehicle producer Tesla recently said, “Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide… [there’s] a little bit of lithium in there, but it’s like the salt on the salad”.

Graphite is the largest input raw material into a lithium ion battery.

In fact, there is 10-30 times more graphite than lithium, in an lithium ion battery and because of losses in the manufacturing process, it actually takes 30 times as much graphite to make the batteries.

 

Sales of light-duty plug-ins electric vehicles only achieved a 1.3% market share of new car sales in 2017 but the battery markets are large and growing rapidly, regardless of general economic conditions, annual growth is estimated at 20%+.

The Clean Energy Ministerial have announced a new campaign called EV 30@30 to speed up the deployment of electric vehicles and target at least 30% new electric vehicle sales by 2030.

If the 30@30 target is achieved then this would mean EV sales 23 times greater than the level achieved in 2017. As you can imagine this will require a lot more graphite.

SPHERICAL GRAPHITE

The anode material used in Lithium ion Batterys is called spherical graphite.

It is manufactured from flake graphite concentrates produced by graphite mines. Only flake graphite which can be economically rounded and upgraded to 99.95% purity can be used. The process is expensive and wastes up to 70% of the flake graphite feed – Northern Graphite

According to Benchmark Mineral Intelligence, demand for graphite is set to increase by over 200% in the next four years as global cell production surges on the back of maturing pure electric vehicle demand and the inception of the utility storage market.

 

GRAPHITE SUPPLY DEFICIT LOOMS

China is the biggest producer of natural spherical graphite.

Benchmark Mineral Intelligence analyst Andrew Miller said, “At the start of the year (2017), China removed its export duty (on graphite) which dragged prices to new lows,” he explained. “Subsequently, the environmental restrictions China has imposed on production have had the opposite effect creating some major challenges for the country’s producers moving forward.”

Luke McFadyen of Syrah Resources expects China to gradually turn from being the single largest exporter of the mineral to an importer while the battery sector in the country develops.

Greg Bowes, CEO and Director of Northern Graphite Corp said, “Just before Christmas (2016) the Chinese government announced that they’re building a stockpile equal to 80% of their annual production. They’re telling the rest of the world they have a graphite supply problem and they produce 80% of the world’s graphite, 100% of the anode material for lithium-ion batteries. The lithium price has already responded to that battery demand. Finally, we’ve seen cobalt respond and graphite should be next.”

“If shortages for lithium and cobalt are looming large, shortages of graphite are even scarier” according to Safehaven, an investment service.

 

On 7th February Armadale Capital announced a resource upgrade at their Mahenge Liandu Graphite Project in Tanzania.

It was upgraded to a (JORC compliant) Inferred mineral resource estimate of 51.1Mt @ 9.3% TGC, including 38.7Mt Indicated at 9.3% and 12.4Mt Inferred at 9.1% TGC.

Over 75% of the resource now in the Indicated category.

TGC grade and quantum of indicated resource confirms Mahenge Liandu as one of the highest-grade graphite deposits in Tanzania and the rest of the world.

Areas of high-grade, near surface mineralisation have been confirmed, allowing a staged approach to development, which lowers the capital development and operating costs early in the mine life

The deposit remains open to the north south and down dip, meaning there is significant potential to increase the resource further, with further drilling planned for later in 2018.

 

On 2nd January 2018 results from test work completed on a bulk sample from the Mahenge Liandu Graphite Project in Tanzania showed:

– Excellent flake distributions confirmed with 48.2% in the high value Large, Jumbo and Super Jumbo categories.

– Very high purity achieved averaging 98.2% Total Graphitic Content.

 

PEER COMPARISON

Kibaran Resources, a neighbour of Armadale Capital, in Tanzania, has a JORC indicated mineral resource estimate of 12.8Mt at 10% TGC, for 1.28Mt of contained graphite.

Here’s some of the figures from Kibaran’s bankable feasability study:

 Pre-tax NPV10 of US$211m
 Annual EBITDA of US$44.5m

Kibaran Resources have market capitalisation of A$36.63m (£20.2m) and Armadale Capital’s Indicated Resources are 3 times the size and their current market capitalisation is just £5.2m.

 

On 7 February 2018 in their RNS entitled, “Mahenge Liandu Resource Upgrade” the company stated:

The deposit remains open to the north south and down dip, meaning there is significant potential to increase the resource further, with further drilling planned for later in 2018.

Mine planning has now commenced and the results from this and the updated resource will be incorporated in the Scoping Study being carried out by experienced engineering consultancy BatteryLimits, which is currently underway – results of the Scoping Study are expected by the end of Q1 2018.

On 23rd November 2017 Armadale Capital released an RNS entitled, “Appointment of Study Manager and Development Update”, the compan stated

Completion of an initial scoping study is expected early 2018. On completion Armadale will move directly into a feasibility study which is expected be completed in the first half of 2018. The project is being scoped at 400,000tpa throughput targeting an initial head grade in the range of 10-15% TGC making it one of the highest-grade graphite projects in Tanzania.

Feasibility will adopt a staged approach with the intention of delivering lower initial capital cost and expansion funded from cash flow

Stage 2 will increase production in line with the growth of the expanding graphite market

Staged approach is expected to result in lower initial capital cost and expansion will be funded from cash flow.

 

Whenever commodities are mentioned in regarded to electric vehicles, lithium and cobalt seem to be get all the coverage whereas the demand for nickel and graphite could be far greater. In fact there is 10-30 times more graphite than lithium, in an lithium ion battery. This is compounded by the manufacturing process needed to produce appropriate high levels of purity. It takes 30 times as much graphite.

This massive loss is because high levels of purity are needed to be included in a battery anodes (for electric vehicles) which excludes any graphite miners whose graphite is smaller flake and lower grade. Drill results from Armadale’s Mahenge Liandu project show excellent flake distributions in the high value Large, Jumbo and Super Jumbo categories and very high purity achieved averaging 98.2% Total Graphitic Content.

Even though their JORC resource is impressive at 51.1Mt at 9.3% Total Graphitic Carbon (including 38.7Mt Indicated at 9.3% and 12.4Mt Inferred at 9.1% TGC) the deposit remains open to the north south and down dip, meaning there is significant potential to increase the resource further.

The team at Armadale seem to be progressing the project well and have stated, “Completion of an initial scoping study is expected early 2018. On completion Armadale will move directly into a feasibility study which is expected be completed in the first half of 2018″.

Taking all this into account, at a market capitalisation of £5.2m  Armadale Capital seem to present decent upside especially when you compare them to a peers in Tanazania. For example Kibaran Resources are valued at A$36.63m (£20.2m) when Armadale Capital’s Indicated Resources are 3 times the size and yet their current market capitalisation is quarter of theirs.

To add Armadale Capital #ACP to your Vox Markets Watchlist, click here and tap the, “Follow”, button 

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

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