ASX-listed graphite player Black Rock Mining’s strategy is ‘simply better’. This relates to the company’s laser focus on building a world-class graphite mine in East Africa that is profitable in its own right. The mine in question is at the Mahenge Graphite Project in Southern Tanzania, which hosts a ‘multi-generational’, high-grade graphite resource and is 100%-owned by Black Rock. In fact, with a 213 million tonnes (Mt) resource at 7.8% total graphitic carbon (TGC), and a reserve of 70 Mt at 8.5% TGC, Mahenge hosts the second largest graphite reserve in the world. Over the last five years, Black Rock has spent time qualifying the resource at Mahenge, fine-tuning the product via a succession of customer pilot plant operations and securing offtake agreements, while laying out the foundation for a phased entry into global natural graphite markets. The entire process has been framed by a modular strategy that is customer driven and underpinned by Black Rock’s upstream focus on getting a profitable mine up and running first and foremost. This is because the company recognised a growing trend towards vertical integration in the graphite sector, particularly as miners look to directly leverage growing demand for graphite powder used in battery anode chemistry for electric vehicles (EVs), as the clean energy transition ramps up.
“The traditional focus on vertical integration has actually led to quite a lot of uneconomic mines operating in the graphite space,” Black Rock’s managing director and CEO John de Vries claims. “All this does is turn people that could be your customers into competitors. Having said that, graphite is a complex business. We will eventually go downstream in a partnership mode.”
The offtake route
Black Rock has in fact already formed a strategic alliance with Korean steel-making giant POSCO as a cornerstone offtake partner and major shareholder, with 13% of the share registry. Interestingly, POSCO has agreed to purchase 100% of the graphite fines concentrate from Mahenge’s module one production, as it looks to build a leading position in the global battery chemicals arena.
Mahenge will produce both large and small flake (fines) graphite at an attractive ratio of 60:40, with the higher value large flake product set to be sold into a range of high performance markets including flame retardants, aviation and lithium-ion batteries, while the fines material is also sought after by battery manufacturers and steel mills alike.
Two Chinese entities have come in for a combined 30,000 tonnes per annum (tpa) of large flake graphite from the module one operation, which has a total production rate of 83,000 tpa. “If you put POSCO’s offtake in with the Chinese offtake, we’ve got around 60,000 tonnes out of 83,000 tonnes committed, and there’s another 15,000 tonnes of options under consideration.
“If the options come through, we’re about 90% sold out under contract, which is totally unheard of in this space and is something we’re very thrilled to be behind. If we can improve the mixture of that to get a little more geographic diversity, that’ll talk to the financing terms.”
Debt financing underway
This successfully executed offtake strategy has not only secured credible and reliable customers for the Mahenge graphite, but it has also helped the funding process for the first module, with POSCO’s equity investment supporting the front-end development of the project, in addition to the group providing a pre-payment facility of up to US$10 million from Export Credit Agencies.
The total capex for the first production module was estimated at $116 million in an enhanced definitive feasibility study published in mid-2019. Black Rock intends to have all of the required debt financing in place by mid-2022, having signed a Framework Agreement in December last year with the Tanzanian government confirming their free carried interest and commitment to jointly develop the Mahenge Graphite Mine.
“The financing conversations are going very smoothly, despite the peer-to-peer marketing nature of the graphite space, which makes things like price discovery a challenge for conventional financiers. The heating up of the electrification of transport theme has given us a strong tailwind though,” de Vries says.
“We certainly seem to have arrived at the right spot at the right time with the right project because there’s been a lot of interest in financing. Our debt advisors are doing a really good job. We’ve just completed independent technical expert site visits, so from there we start moving into detailed conversations and understanding who is going to be behind a term sheet and the magnitude of that. We expect the next month or two to be a particularly exciting part of that process.”
Partnering with Tanzania
Black Rock’s long-serving chief executive describes the December agreement with the Tanzanian government as a ‘watershed moment – not only for us, but for Tanzania’. For the company, the framework provided the long-awaited bridge to financing, in that it imbues a commensurate level of confidence in the project among its potential backers.
For Tanzania, the impact of the arrangement will be far more wide-ranging. In addition to the free carried interest, the first phase alone will generate 400 jobs. But over the course of the 26-year initial mine life, the project could deliver some $3.6 billion to the Tanzanian economy.
“But I think it’s more than that. When you look back at the massive transition from poverty to middle class that took place across Asia 25 years ago and see the impact that had on the global economy, we see the same thing happening across Africa now, with Tanzania leading the way by having transparent investment rules and encouraging foreign investment.
“We think the next decade is going to be a particularly exciting time to be in Tanzania and we’re happy to be at the forefront of that,” de Vries affirms. This forward-thinking attitude doesn’t, however, detract from Black Rock’s ongoing position with regards to upholding stakeholder satisfaction in the local communities and beyond.
From the outset, the aim has been to ensure as small an environmental and community footprint as possible. The availability of local hydroelectric power and the decision to use dry stack tailings, so as not to compete with local communities for water, will help the company achieve that ambition.
Black Rock has also sought to deeply integrate Mahenge into the local and broader economy in Tanzania. This includes the use of Tanesco (Tanzania Electric Supply Company) for power, and Tazara (Tanzania Zambian Railway Authority) for freight, amongst other local commercial and charitable partnerships.
Evaluating ESG performance
While the company is pleased with its position in the local community and the national economy, there is always room for improvement to maximise value across all stakeholders. That is why Black Rock has engaged with ESG accreditation provider Digbee to gain an objective assessment of its credentials.
Digbee’s industry standardised ESG service provides companies with a comprehensive assessment and reporting, which includes strengths and areas to improve on across multiple categories within the broader thematic.
Speaking candidly on Black Rock’s own Digbee ESG score, de Vries says: “Like all objective assessments, you don’t necessarily like everything you hear, but it gives you a starting point about what you have to do to improve. In our case, the reality is that our systems are still evolving, but you’d expect that in a project just coming out of study stage.
“Yes, those systems will be developing as we move forward, but fundamentally we are starting from a higher base compared to some of our peers, and the ESG benefits of the project are robust and well understood,” he maintains.
The chrome shovel event
The next big milestone at the Mahenge Graphite Project is the start of construction – or what de Vries calls ‘the chrome shovel event’, which is fast approaching. With the rainy season in Tanzania running until late May, Black Rock is targeting Q3 2022 for the ground-breaking ceremony. The construction period is slated at 15 months, a timeline which sees first graphite production from module one at Mahenge by the end of 2023.
Reaching the closing stages of the project cycle has necessitated some additions to the Black Rock team as it prepares to become a mine operator and graphite exporter. Project manager Daniel Pantany was last year appointed general manager of engineering & technical, with prominent mining analyst, Steuart McIntyre also joining as general manager, corporate development.
More recently, experienced resources executive Paul Sims was appointed chief financial officer in February, followed by Greg Wheeler as chief commercial officer in March. All resemble key appointments at this stage in the firm’s evolution.
By the same token, Black Rock has been keen to see Mahenge’s operating company – Faru Graphite – build its team out. “We have started to put people in the right places, so we can execute in-country. To me that’s the exciting part because that’s where we really start to make a difference in Tanzania,” de Vries concludes.
With three further modules set to come online year-after-year at Mahenge following the first module, Black Rock is perfectly positioned to scale up its graphite production in line with rapidly increasing demand from the battery market and EV manufacturers. At that stage, the hard work will have been done; it will simply be a case of putting larger quantities of the same high quality material into a market by no means short on demand.