Africa has not been a happy place for foreign investors of late. The French have been copping grief in Niger on the uranium front and gold producers – including our own Resolute (ASX:RSG) – are having to cough up in Mali.
Mozambique can now be added to the list in the wake of violent protests against the disputed return of the ruling Frelimo party in the October general election. The BBC has filed reports of a killing spree, with children banging pots and pans along with their protesting parents being shot by government forces.
The response by Frelimo leaders has been to blame youths high on drugs being deployed by opposition forces to destabilise the southern African nation, more than it already is.
Mozambique’s woes hit home on the ASX during the week, with South32 (ASX:S32) withdrawing production guidance for its Mozal aluminium smelter because it’s become too dangerous getting alumina supplies from the port to the smelter.
South32 described the climate in the country as an evolving situation. Mozal is a key earnings spinner for the company, indeed the country. That the company reported its workforce was safe and there had been no security breaches has restricted the share price hit to a hardly alarming 4.4%.
SYRAH:
It is a different story for the AustralianSuper-backed Syrah (ASX:SYR), which has been feeling the heat at its Balama graphite operation in the south of the country, both from unhappy displaced landowners and from the national protests.
On Thursday, Syrah was left with no option but to declare force majeure at Balama.
That required a warning that the company was now in technical default on funding from the US International Development Finance Corp (it has pledged $US150 in support of Balama), and funding from the Department of Energy ($US102m in support of Syrah’s battery anode material plant in Louisiana).
The market responded by slashing an already-depressed Syrah’s share price by 28% to 19c, much to the chagrin of the managers of members’ funds at AustralianSuper, which is now good for 32.9% of the share register.
The biggest of our super funds has been a long-time supporter of Syrah. In an extreme averaging down exercise, it has put its hand up for numerous capital raisings, as well as providing debt financing via convertible notes.
Syrah has needed that kind of support – and that which has come from the US – because graphite prices have long made Balama something of a struggle town, to the point where production has been spasmodic and massively short of its 350,000tpa capacity.
To move up the value chain, the conversion plant in Louisiana was decided upon, but without a supporting cashflow from Balama.
The smarties at AustralianSuper and strategic thinkers in US departments have nevertheless continued to support the company because a combination of Balama (at full-scale) and the Louisiana plant was the western world’s best shot at busting China’s stranglehold on graphite supplies.
That ability hasn’t disappeared. It’s just that force majeure is in place at Balama for an indeterminate time.
What can be said though is that basing a challenge to China’s graphite dominance on an integrated supply chain stretching 14,500km from Mozambique to Louisiana was never going to be risk-free.
AUSSIE GRAPHITE:
While Syrah waits for its day in the sun, it does so knowing that of all the critical metals, it is graphite that is likely to encounter a price-changing supply deficit first.
Benchmark Minerals Intelligence in October estimated $US7.5 billion would need to be invested to meet battery demand in 2035 in its base case scenario. Put another way, 300 average sized mines need to be built by 2035.
It is not going to happen, creating a leveraged response in graphite prices.
Africa was seen as a major future supplier from Balama and elsewhere but foreign investment for the required build out is going to be more circumspect given the continent’s clearly growing sovereign risk issues.
But the imperative to meet the forecast surge in demand while also reducing China’s grip on the market remains.
China recently stepped up its export controls on the battery material to ensure its own needs for EV’s and stationary batteries are met, and to hit back at the US for existing trade sanctions and those to come under the Trump-Musk government.
All that has got to be good news for the band of Aussie graphite juniors, particularly those with projects that have an Australian address. Some of that thinking came through in Thursday’s market with the 1c or 8% share price pop to 13.5c for Kingsland Minerals (ASX:KNG).
Having said, it was an 18c stock at the start of November when it was mentioned here on the strength of a 23c a share placement to Quinbrook Infrastructure Partners, a renewable energy specialist. The placement gave Quinbrook 15.3% of Kingsland.
Quinbrook’s vision is to buy graphite concentrate produced by Kingsland’s undeveloped Leliyn graphite project in the Pine Creek area of the NT and match it up to a downstream processing plant in Darwin powered by solar energy.
Leliyn was discovered not long after Kingsland listed in June 2022. It’s some 250km by road south-west of Darwin and is a globally significant graphite resource, in a Tier 1 location.
The resource stands at 194.6Mt at a grade of 7.5% for 14.2Mt of contained graphite, making it the second-biggest in the world for graphite deposits without an African address.
But the potential is much bigger given the current estimate is based on only one quarter of the host schist. A scoping study is expected in the second half year of next year.
As noted last week by Kingsland MD Richard Maddocks, all that for $14m (the company’s market cap at 18c a share) on the day. In Thursday’s market it was a case of all that in a $10m (13.5c) company, notwithstanding the price kick for the stock in response to Syrah’s Mozambique drama.
Lots of Balama’s and Leliyn’s are going to be needed to meet the graphite supply challenge, let alone the challenge of reducing the world’s dependency on China for supplies.
GATEWAY MINING (ASX:GML):
A nice bit of work again by BDO in its quarterly survey (September quarter) of the health of ASX-listed explorers across various metrics.
Cash positions are always of interest, with BDO finding average cash balances are down to the lows seen in the March 2022 quarter at $9.5 million.
It is quite a healthy figure, on average. But there are now 48% of the 767 explorers holding cash of less than $2 million which is enough to keep the doors open for a year or so and not much else.
It has got tougher to raise funds so if it is an active explorer that an investor wants, it’s best to have a look at its September quarter cash/liquids balance first.
Hardy explorer Gateway Mining passes the test following the sale to the acquisitive Brightstar (ASX:BTR) of its Eastern Montague gold project for $5 million in cash and 466.66m Brightstar shares, with another $2 million in shares on certain milestones being met.
Add it all up and stand it against Gateway’s market cap of a little more than $9m at 2.3c a share and it can be said Gateway has a negative enterprise value of more than $8 million.
It’s a nice position to be in and means Gateway can get busy in the new year at its Barrelmaker gold project to the west of Eastern Montague and at its Montague Range base metals project to the nnorth.
Executive chairman of Jubilee Mines/Northern Star/Capricorn fame, Peter Langworthy, reckons there is some real merit in the ground positions.
He is also keen on Brightstar’s outlook following its Pacman-like string of acquisitions which have given it hub status in the Sandstone region, as well as at Laverton and Menzies. Brightstar last traded at 2.2c.
Taylor Collison also likes the story and initiated coverage of Brightstar on November 27, setting a price target of 4c a share.