***Updated with the latest share price data as of 9:50am ET***
Energizer Resources (TSE:EGZ)(OTCBB:ENZR)(FRANKFURT:YE5) has released the highly anticipated results of its preliminary economic study on its Molo graphite deposit in Madagascar, showing a post-tax IRR of 41%, with the company saying the results are still conservative.
The news follows Energizer's unveiling late last year of an NI 43-101 resource estimate for its giant Molo graphite deposit, part of its aptly-named Green Giant project.
Shares of the graphite explorer popped almost 10% in early deals to 23 cents in Toronto on Tuesday.
"This PEA provides the necessary information to the market for quantified evaluation of the Molo deposit," said president and COO Craig Scherba.
"Preliminary test work conducted by South Africa's national mineral research organization, Mintek, demonstrated that we were able upgrade our concentrates to purities between 98% and 98.6% graphitic carbon.
"We are now moving forward with additional metallurgical testing as part of a full feasibility study which will look to enhance beneficiation to obtain battery grade material with target purity levels of >99%."
This work, he said, along with the optimization of flake size distribution through pilot plant test work, should "positively" affect the blended graphite sale price and flake size distribution.
"As such, we believe this PEA to be conservative."
The economics of the report, done by DRA Mineral Projects of South Africa, showed a post-tax net present value of $341.8 million on a 10% discounted basis, with a 41% internal rate of return (NYSE:IRR) and a payback period of three years.
Pre tax, the net present value was calculated at $421.5 million, with an IRR of 48%.
Capital costs were pegged at about $162 million, while mining costs were seen at $4.76 per tonne mined, with processing costs of $22.29 per tonne and transportation expenses of $105.00 per tonne concentrate.
The graphite sale price was estimated at $1,564 per tonne, using 24-month average graphite prices provided by Industrial Minerals along with the flake size distribution derived from metallurigical work, with average annual production seen at 84,000 tonnes over a mine life of 20 years.
According to the preliminary report, the average specification of the graphite to be produced is 92% carbon (NYSE:C), with average mill recovery estimated at 89%. The company said Tuesday, however, that it was also able to extract +50 mesh flake graphite through crushing alone - a unique aspect of the project - and will therefore do additional metallurgical test work before including this in an economic analysis, hence the "conservative" initial results.
Flake graphite - the most actively pursued type and associated with next-generation technologies - is made up of layers of graphene, which is the minerals' base structural element.
Graphite is a mineral form of the element Carbon (C), and forms in veins inside metamorphic rocks as a soft black material. It has many applications today, ranging from refractories, brake linings and steel-making uses, to lithium-ion batteries and fuel cells. Demand for the industrial mineral is projected to grow as lithium-ion battery adoption continues.
Indeed, companies like Energizer are taking advantage of what is perceived as a huge potential for graphite demand. The company has certainly wasted no time in developing what it calls a "world class" graphite resource, having first identified graphite as a potential mineral of interest on the Green Giant property in December 2011.
Indicated resources at the Molo deposit total 83.99 million tonnes, grading 6.36% C, above a 2% C cut-off grade, with inferred resources totalling 40.32 million tonnes grading 6.3% C.
The deposit is located in the Tulear region of southern Madagascar, 145 km southeast of the city of Toliara. The company says it is in a sparsely populated, dry savannah grassland area, which has easy access through a network of secondary roads that lead to both the regional capital and port city of Toliara, and to the port of Soalara.
The conventional open pit project is expected to mine 1.17 million tonnes per year of ore, at an average head grade of 8.5%, with a stripping ratio of 1.65 due to "minimal overburden pre-stripping requirements", the company said, as mineralization is exposed at surface.
Energizer also noted Tuesday that based on the latest available updates on the Sakoa Coal Field projects in the area, which are anticipated to be in production by 2017, further development of infrastructure is necessary - significantly reducing operating costs for the potential Molo mine.
The Molo project is part of the joint venture property with Malagasy Minerals, with Energizer owning a 75% interest as operator of the asset.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.