Project Economics, Graphite Pricing and Markets

The PEA projects a Net Present Value (“NPV”) for the Project on a pre-tax basis of US$1,037 million using a 10% discount rate, with an Internal Rate of Return (“IRR”) of 27%. 

On a post-tax basis, the NPV is projected at US$616 million using a 10% discount rate, with an IRR of 22%.

Table 9: Project's PEA Pre-Tax Results

Summary of the Project’s Pre-Tax Financial Results (US$ Million)
NPV of Net Cash Flow (10% Discount Rate)
$1,037
Internal Rate of Return
27%

Table 10: Project's PEA Post-Tax Results

Summary of the Project’s Post-Tax Financial Results (US$ Million)
NPV of Net Cash Flow (10% Discount Rate)
$616
Internal Rate of Return
22%
Payback Period in Production Year
4

Annual production of CSG and other graphite specialty materials is projected at 55,350 metric tonnes when full production is reached in Year 6.  A minimum of 40 years of indicated and inferred resources grading 7% Cg (graphite) have been identified in the target exploitation zone to sustain full scale operations, notwithstanding additional potential resources immediately outside the target zone or the broader Property.

The global market for graphite products is relatively small compared to that for other materials and sales contract details are typically confidential and closely held by buyers and sellers.  Contract prices are a function of supply and demand, material quality compared to specifications and quantities purchased.  The industry relies on personal contacts, specialist consultants and government trade data to obtain market details.

The PEA estimates the CSG price (as of November 2016), to be $6,200 per tonne, FOB the Manufacturing Plant.  This is based on the Chinese export value, at that time, for uncoated spherical graphite plus an estimated charge for coating that a coating facility might reasonably charge considering its cost, profit margin and competitive environment.  The estimated price for purified graphite powders was set at $1,500 per tonne, FOB the Manufacturing Plant and was based on TRU’s experience.  Changes in the PEA’s average product selling price have the greatest impact on its NPV and IRR.  A 10% change in the average selling price results in a change of about $210 million in the NPV and 2.9% in the IRR.

Feedback to the Company on the PEA pricing from analysts and industry advisors was that the assumed CSG pricing is conservative.  Canaccord Genuity (Australia) Ltd. stated that the price of CSG was “between US$7,000/t - US$10,000/t”1.  Syrah Resources Limited, in its presentation at the BMO Capital Markets conference in February 2017, stated the same range based on its market inquiries.

The Project’s pre-tax NPV and IRR are $1.037 billion (10% discount rate) and 27% respectively at the PEA’s assumed CSG price of $6,200 per tonne.   Figure 5 shows the impact on the Project’s pre-tax NPV and IRR of changes in the CSG price from the PEA’s $6,200 per tonne through Canaccord’s range of $7,000 to $10,000 per tonne.

Figure 5 : Project Pre-tax NPV & IRR at CSG Prices from $6,200/t to $10,000/t
Figure 4 : Project Pre-tax NPV & IRR at CSG Prices from $6,200/t to $10,000/t

PEA’s $6,200 per tonne through Canaccord’s range of $7,000 to $10,000 per tonne.

1 Canaccord Genuity (Australia) Ltd.; Specialty Minerals and Metals, Industry Overview; November 20, 2016; page 20.

Benchmark Mineral Intelligence (Benchmark) forecast in November 2017 that the demand for lithium ion batteries for all uses would increase from about 110,000 Wh in 2018 to 750 Wh in 2015 as shown in Figure 6.

Figure 6: Benchmark's Lithium Ion Battery Forecast to 2025, November 2017

Benchmark forecast that to meet this demand, the annual production of battery grade flake graphite would need to increase from about 200,000 tonnes in 2018 to about 1,240,000 tonnes in 2025 as represented in Figure 7.  Supplying this projected demand would require an estimated 17 large flake graphite mines of the size proposed by Graphite One (60,000 tonnes/year). The Company believes the Project’s scope and timeline fits well into this demand profile.

Figure 7: Benchmark’s Battery Grade, Flake Graphite Forecast to 2015, November 2017

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