Pre-Feasibility Study

PRE-FEASIBILITY STUDY COMPLETED
US$1.31 BILLION PRE-TAX NPV | PAYBACK 1.4 YEARS



"Volt has a very robust project. The task from here is to focus on our high quality product and to fast-track into production. Leveraging off incoming CEO Trevor Matthew’s extensive experience in project development ensures we are well positioned to achieve our corporate objectives.” - Former Chairman Stephen Hunt

PFS Highlights

  • PFS concludes robust technical and financial viability of the Bunyu Project
  • Pre tax NPV of US$1.31B, 87% IRR and pay-back of 1.4 years based on 22-year LOM based on optimised Measured, Indicated and Inferred Resource categories
  • JORC compliant Mineral Resource Estimate update of 461Mt @ 4.9% TGC
  • Forecast annual production of 170kt/y of graphite concentrate, with non-binding MOUs for 100kt/y from three China based end-users
  • Maiden JORC Ore Reserve is 127Mt @ 4.4% TGC
  • Blended basket price of US$1,684/t against US$536/t OPEX (FOB Mtwara), translates to annual US$195M EBITDA
  • Relatively low US$173M CAPEX for Project development, due to Bunyu’s close proximity to infrastructure and sealed roads to Mtwara port
  • Volt’s Board endorses the Project Consultant’s recommendation to immediately progress the Bunyu Graphite Project and undertake a Definitive Feasibility Study (“DFS”) in 2017, paving the way for finalising off-take agreements and project finance
  • Substantial planned production of high quality, large flake, high TGC product

KEY FINDINGS FROM THE PRE-FEASIBILITY STUDY

Our recent release of the Pre-Feasibility Study (“PFS”) confirms strong technical and financial viability of the Bunyu Graphite Project in south-east Tanzania, with an 87% IRR and pre-tax NPV of US$1.31B.

This is based on 3.8Mt of ore being processed annually at an average 4.7% TGC, with a 1.4 waste-to-ore ratio to produce 170kt/y of graphite over a 22-year mine life. 

Other key conclusions from the PFS include:

  • Annual OPEX is estimated at US$93M which equates to LOM average of US$536/t (FOB Mtwara), which translates to annual US$195M EBITDA.
  • Total initial CAPEX for the processing plant and all other required infrastructure requirements such as road upgrades and port warehousing are estimated at US$173M; this is relatively low due to Bunyu’s close proximity to critical existing infrastructure.
  • Project-specific risks such as staffing, securing offtake agreements/finance and finalising access to an adequate water source will be mitigated as the project progresses.

Financially Robust Project

The PFS represents a combination of inputs from numerous sources and is a holistic view of the Bunyu Graphite Project’s commercial viability. The base case production profile and price assumptions deliver an attractive prospective financial performance (Table 1), with a 87% IRR and the pre-tax NPV US$1.31B (based on ore material from Measured, Indicated and Inferred Mineral Resource categories).

Key Financial Parameters Units Metric
IRR - before tax (%, real) 86.9%
IRR - after tax (%, real) 66.5%
NPV @ 10.0% - before tax (US$ M, real) 1,310
NPV @ 10.0% - after tax (US$ M, real) 890
Payback Period from 1st ore to process plant (years) 1.4

Table 1: Key Project Financial Parameters

Based on this analysis, it is readily apparent the Bunyu Graphite Project should continue to be developed and a DFS undertaken. Refer to Appendix A for greater detail on the project’s background.

The project’s key parameters are detailed in Table 2. The main highlights include a 22-year mine life, annual throughput of 3.8Mt @ 4.7% TGC resulting in annualised production of 170kt/y of graphite concentrate.

Parameter Units Design
Mine Life Y 22
Nominal ore feed tonnes Mt 83.4
Average grade TGC % 4.7
Oxide ore % 40
Fresh and transition ore % 60
Nominal strip ratio Waste : Ore 1.4
Process throughput Mt/y 3.8
Recovery % 93
Concentrate grade TGC (average) % 95
Average graphite production kt/y 170

Table 2: Nominal Key Project Parameters

Largest JORC Compliant Resource in Tanzania

Volt recently completed a JORC Compliant Mineral Resource Estimate for the project of 461Mt @ 4.9% TGC (Table 3) which updates the 446Mt @ 5.01% TGC announced on 12 Oct 2016. The update resulted from lowering the resource cutoff grade to more closely reflect the economic cut off grade at Namanagle South.

Volt has the largest graphite Mineral Resource in Tanzania among peers. The updated Mineral Resource Estimate was completed by ROM Resources in accordance with the guidelines of the JORC Code (2012 edition)

Bunyu Graphite Project Mt TGC (%)
Inferred
North 264 5.0
South 23 3.6
Total Inferred 286 4.9
Indicated
North 122 5.2
South 33 4.3
Total Indicated 155 5.0
Measured
North 20 5.3
Total Resource 461 4.9
Note: Bunyu North previously Nam 1; and Bunyu South previously Nam 2 & 3
The Mineral Resource is inclusive of the Ore Reserve

Table 3: JORC resource estimate for the Bunyu Graphite Project

Ore Reserve

The Ore Reserve for the Bunyu Project is stated in Table 4.

Ore Reserve Classification Ore (Mt) TGC (%) Contained Graphite (Mt)
Proved
Bunyu 1 (North) 19.3 4.32 0.8
Bunyu 2 (South) - - -
Bunyu 3 (South) - - -
Subtotal – Proved 19.3 4.32 0.8
Probable
Bunyu 1 (North) 95.8 4.40 4.2
Bunyu 2 (South) 6.4 5.11 0.3
Bunyu 3 (South) 5.8 3.05 0.2
Subtotal - Probable 108.1 4.37 4.7
Total Ore Reserve 127.4 4.36 5.6
Note: Bunyu North previously Nam 1; and Bunyu South previously Nam 2 & 3

Table 4: Bunyu Project Ore Reserve Statement as at December 2016
Refer to Notes accompanying the Ore Reserve Statement

Basket Price

Volt will produce a nominal 170kt/y of natural flake graphite concentrate, consisting of two products, with Bunyu South producing a premium quality larger flake. The blended basket price has been calculated at US$1,684/t, based on the weighted average of Bunyu North (previously Nam 1) and South (previously Nam 2 and 3) that is shown in Table 5.

Size Bunyu 1 Bunyu 2 Bunyu 3
Weight Price* Weight Price* Weight Price*
(µm) Label (%) US$/tonne % US$/t (%) US$/tonne
+500 Super Jumbo 1 3,968 9 3,968 5 3,968
300 Jumbo 13 3,220 29 3,220 26 3,220
180 Large 29 2,070 29 2,070 30 2,070
150 Medium 12 1,389 8 1,389 10 1,389
75 Small 27 1077 16 1077 19 1077
-75 Fine 18 403 9 403 11 403
Total   1,594   2,205   2,032

Table 5: Flake distribution and basket prices for Bunyu North and South deposits
*Source: Pricing based on BMI, IMR, Macquarie Investments and discussion with end-users

Securing off-take agreements is a key risk to developing the project. However, management have had extensive engagement with end users, traders and intermediaries across China, Japan, Korea, Europe and North America. Of these, China is a critically important market with three MOUs signed with end-users for the potential sale of graphite concentrate totaling 100kt/y.

Going forward, a key priority will be converting these to binding off-take agreements. For the North American and European markets, Volt’s in-house marketing expertise has been bolstered with the appointment of an advanced materials specialist as Vice President Business Development based in New York.

Implementation Schedule

Volt has adopted a seamless approach to its study stages that accommodates change through the PFS and into the DFS work flow. This form of project management reduces the development schedule as there is less ‘gating’ to pass through; however, it may involve more risk that is ultimately mitigated during execution phase.

On completion of the DFS, the project implementation plan will be developed to provide certainty of strategy and design. Further, this will aim to ensure the project is delivered to schedule and the ramp up capacity to full production is achieved in an efficient and productive timeframe (Figure 1). 

Implementation Schedule

Capital and Operating Cost Estimate Breakdown

The capital and operating cost estimates have been prepared to an accuracy of ±25%. To build the processing facility and supporting infrastructure to VRC’s specifications, the capital cost is estimated at US$173M (Table 6), which is relatively low due to the Bunyu project’s close proximity to infrastructure and sealed roads to Mtwara port.

Description

Capital Cost (US$M)

% of TOTAL
Process Plant 65 37
Power 19 11
Water 11 6
Site Infrastructure 24.5 15
Indirect Costs 31 18
Contingency 22.5 13
TOTAL 173 100
Note: Excludes sustaining sustainable capex

Table 6: Capital cost estimate summary

Based on assessing fixed and variable cost elements for producing 170kt/y of graphite flake concentrate, the operating cost estimate is US$536/t over the mine life (Table 7).

Annual Operating Costs Total Total Cost Feed Product
  US$’000/y % US$/t US$/t
Technical Services and Mining 42,100 45% 11.2 243
Processing 31,500 34% 8.37 182
Total General & Administration 6,000 7% 1.58 34
Product Logistics 13,300 14% 3.35 77
Total 92,900 100% 24.7 536

Table 7: Operating cost estimate summary

Source of PFS data - As described in ASX Announcement dated 15th December 2016

Disclosure

The Company confirms that it is not aware of any new information or data that materially affects the information included in this document and that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed.

Competent Person’s Statement

The information in this report that relates to Exploration Targets, Exploration Results is based on information compiled by Mr Matt Bull, a Competent Person who is a member of Australian Institute of Geoscientists. Mr Bull is a Director of Volt Resources. Mr Bull has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’.  Matt Bull consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The information in this report that relates to Mineral Resources is based on information compiled by Mark Biggs, a Competent Person who is a Member of the Australasian Institute of Mining and Metallurgy. Mark Biggs is a Director of ROM Resources Pty Ltd. Mark Biggs has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’. Mark Biggs consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The information in this report that relates to Ore Reserves is based on information compiled by Mr Andrew Law, a Competent Person who is a Fellow and Chartered Professional of the Australian Institute of Mining and Metallurgy.  Mr Law is a Director of Optiro.  Mr Law has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Mineral Resources and Ore Reserves’.  Mr Law consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

Notes accompanying the Ore Reserve Statement:

  1. The Ore Reserves are based on a processing cut-off which varies by deposit (different product specifications dictate different financial parameters and distance from the mill dictate varying trucking costs, both of which alter cut-off grade), the processing cut-off grade is:
    • 29% TGC for Bunyu 1,
    • 52% TGC for Bunyu 2,
    • 76% TGC for Bunyu 3.
  2. It should be noted that the Ore Reserve process has demonstrated that the cut-off grade for economic material is significantly lower than the cut-off grades used in reporting the Mineral Resource. As such there is material, (in the measured and Indicated Mineral Resource categories) that is in the Ore Reserve that has the appropriate geological confidence to be reported as such, that is not included in the numbers tabulated for the public release of the Mineral Resource dated 12th October 2016.
  3. The Ore Reserves optimisations are based upon average basket prices of (different product specifications dictate different financial parameters):
    • $US 1,259 per tonne of Graphite concentrate for Bunyu 1,
    • $US 1,800 per tonne of Graphite concentrate for Bunyu 2,
    • $US 1,631 per tonne of Graphite concentrate for Bunyu 3,

Slight variations of this price structure exist in the financial analysis due to a different forward estimate of graphite pricing. This however is not considered material nor expected to yield a different outcome. This material would still be considered for the purposes of an Ore Reserve at either revenue estimate.