Syrah Resources (ASX: SYR) has received a vote of confidence from investors, raising $35 million through an institutional equity placement to further progress its Balama graphite project in Mozambique.
This follows the company upgrading 90% of the Indicated Resource, or 11.6 million tonnes at 19.9% total graphitic carbon and 0.4% V2O5, at the Ativa Zone of Balama West to the Measured category.
Proceeds from the placement will be used for:
- Finalisation of the Balama Feasibility Study, expected in the first quarter of 2014;
- Pre-ordering long lead time items for Balama;
- Early stage development work at Balama;
- Working capital requirements and corporate overheads; and
- Transaction costs associated with the Placement.
The Placement of about 13.7 million shares was offered to institutional investors in certain jurisdictions at a fixed price of A$2.55 per fully paid ordinary share, which represents a 2.9% discount to Syrah's 5-day VWAP of A$2.626 per share.
Settlement of the Placement is scheduled to occur on 19 December 2013 and the new shares are expected to be allotted and commence trading on 20 December 2013.
Credit Suisse and Canaccord Genuity acted as joint lead managers to the placement.
The company had earlier this week upgraded the majority of the Indicated Resource at the Ativa Zone to the higher confidence Measured category.
Notably, the Measured Resource of 11.6Mt grading 19.9%TGC and 0.4% V2O5 and the remaining Indicated Resource is currently sufficient for 11 to 12 years of production.
Overall Resources at Ativa stands at 51.32 million tonnes at 19.9% TGC and 0.38% V2O5.
Syrah also said it was confident that it would be reporting an upgraded Resource including Measured and Indicated for the Mualia Zone in Balama West and the Mepiche Zone in Balama East soon.
With different Balama zones having varying flake size characteristics, the company is developing a mine plan that will enable different zones to be selectively targeted to meet customer requirements.
It added that it has reasonable grounds to believe the project, which has an estimated initial capital cost of US$92 million, can be funded and is in discussions with several debt financiers.
Previous testwork has demonstrated that a graphite concentrate grading over 96% could be produced using simple flotation and that concentrated magnetic vanadium bearing minerals to between 4% and 5% V2O5 can be produced by simple processing of the tailings from the graphite extraction process.
Further tests have upgraded non-magnetic mineralisation - dominated by roscoelite - by 4-5 times to achieve a V2O5 concentrate grade of about 2-2.5%.
Infill drilling has also continued to deliver wide, high grade zones of graphite mineralisation with the latest holes from the Mepiche Zone in Balama East returning results including:
- 119.8 metres at 14.8% TGC and 0.36% V2O5 from 2.7 metres;
- 109.6 metres at 18.1% TGC and 0.36% V2O5 from 12.7 metres; and
- 139.5 metres at 15.9% TGC and 0.36% V2O5 from 2.5 metres.
Mepiche currently has an Inferred Resource of 145 million tonnes at 15.1% TGC and 0.43% V2O5.
Drilling at the Sushi Zone indicated that it comprises moderate to high grade graphite (10% to 15%) and vanadium (0.26% to 0.38%) over widths of about 20 metres.
Graphite flakes at Balama East are on average considerably larger than that at Balama West.
The Scoping Study released in November 2013 has also highlighted the relatively low development cost and payback period of less than six months.
The study also estimates average mine gate cost of production at US$101.58 per tonne and FOB Port of Pemba cost at US$198.01 per tonne.
This is based on the Resource at the Ativa Zone with independent consultants Snowden Mining Industry Consultants advising that there is potential to reduce project costs further given the parameters used were conservative.
Syrah Resources continues to put in place all the pieces needed to develop the Balama Graphite Project with the $35 million placement funding completion of the key Feasibility Study, long-lead items and early development work.
The successful placement also highlights the confidence investors have in the company and its project, which has resources that are top rank globally.
Profit margins from graphite production is projected to be high and there is potential for vanadium credits to increase cash flow an minimal cost, a result that will just serve to make the project that much more attractive.
Share price catalysts ahead include:
- Updated Resources for the Mualia and Mepiche zones;
- Completion of the Feasibility Study;
- Further drilling results; and
- Securing project financing.
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