Company Overview: Magnis Resources Limited is an Australia-based graphite producer company. The Company is engaged in the business of exploring for, developing, and mining natural flake graphite for use in various industries, including batteries for storing electrical energy. Its segments include Australia and East Africa. The Company is focused on the graphite or battery powered industries. The Company is involved in prospecting, exploration and pre-development for graphite on its Nachu Project. Its Nachu Project is located near Ruangwa, in Southern Tanzania and approximately 220 kilometers to the Tanzanian port of Mtwara. Its other projects/tenement names include Ruangwa, Rutamba North, Lihehe East, SML Nachu, Issuna, Mkuju 1, Ilongo North and Manyoni East. Its graphite end uses include battery anodes, expandable graphite, composites, refractory and foundry, steel markets, gaskets, seals, brake linings and lubricants.
 

MNS Details

Magnis Resources Ltd (ASX: MNS) has recently been seen to kick-in its lithium-ion strategy that extends MNS’ involvement in downstream battery raw material product development. The group aims to benefit from the direct exposure to lithium-ion battery manufacturing at the back of involvement in multiple gigafactories’ development. This can help the group transition in terms of value proposition.

Sales agreements for NY Gigafactory: Magnis had lately reported that Imperium3 NY, has made  Binding Sales Agreements with several end users for 40% of the targeted initial years 3GWh of production with regards to the New York Gigafactory. The group has a one third stake in Imperium3 New York consortium which was formed to develop a lithium-ion battery plant at Huron Campus. The sales agreements were signed for terms ranging from 3-5 years while end users are from a diverse range of industries including the automotive and energy sectors based in the United States, Asia and the Middle East. This project is supported by New York State Government through the financial assistance package of US$13.25 million. The production of the gigafactory is forecasted to generate hundreds of employment positions for the local Endicott area in New York which encouraged the government to release funds. The recent scoping study priced the capital costs for Stage 1 at US$130 million, with the initial production date targeted by the second half of 2019. Post the first stage production of 3GWh, an aggressive Stage 2 ramp up to 15GWh is being planned.
 

Global Lithium-ion Battery Consortium (Source: Company reports)
 
Positive BFS results for Nachu Graphite Project: The group’s major asset is the Nachu Graphite Project – placed at the west of the coastal city of Lindi and over 220km by road from port city of Mtwara in south east Tanzania. BFS (Bankable Feasibility Study) results confirmed the project to be a high returning graphite project with premium product quality. The project promises an average 220ktpa graphite concentrate produced over an initial reserve-backed 15-year mine of life. The results also indicated a strong potential high-grade resource conversion. The project’s post-tax NPV is 10% of US$1.69b while the project internal rate of return is 98%. The project’s operating margin is expected to be US$1,791/t while basket price is estimated to be US$2,350/t indicating for high value products. MNS’ spherical graphite produced from Nachu Battery Feedstock is expected to generate a better performance over leading synthetic graphite.
 

Advantageous product streams and pricing (Source: company reports)
 
Funds raised for feasibility study at Townsville Lithium-ion battery gigafactory: Palaszczuk Government is investing up to $3.1 million from the Jobs and Regional Growth Fund to help investigate the feasibility of forming a $2 billion battery manufacturing plant in Townsville, which could support up to 7,000 jobs. The proponents of a potential Townsville battery factory are Boston Energy and Innovation (BEI) and Magnis Resources. BEI is targeting to build a 15 Gigawatt-hour battery factory that could produce up to 250,000 electric vehicle batteries with a range of up to 400 kilometres or over one million home battery units designed to store solar power or 300 ‘Microgrid’ batteries capable of powering the entire remote communities.
 
Tanzania legislative changes: The group is the only firm to hold a Special Mining Licence (SML) and Special Economic Zone status (SEZ) in Tanzania via subsidiaries. MNS has got the confirmation in writing by the Export Processing Zone Authority that the new legislation would not impact the subsidiary, Magnis Technologies Tanzania Ltd. The group is awaiting the formation of the actual Mining Commission to assist with mining license agreements post the appointment of a new Minister of Mining, Angellah Kairuki. Uranex Tanzania Limited (UTZ) is the exploration and mining entity that would offer a graphite concentrate of 90% to 95% purity at the Nachu Graphite Project while Magnis Technologies Tanzania Ltd (MTT) would further process the material into higher grade graphite products using Magnis proprietary technology. The graphite concentrate produced by UTZ would be sold at market rates wherein the current market transfer price would be between US$600 - $650 per tonne (based on the recent quarter update).
 
Developing German Gigafactory: The group had also announced about the signing of a Memorandum of Understanding (MoU) for a 30GWh Lithium-ion battery with integrated Lithium-ion battery recycling plant in North Rhine Westphalia, Germany, in the industrialized Emscher-Lippe region. The agreement is supported by the North Rhine Westphalia (NRW) government and has been signed by Magnis Resources and Public-Private Partnership (PPP) entity, WiN Emscher-Lippe GmbH (WIN). The Agreement is for a 30 GWh Lithium ion battery manufacturing with integrated Lithium-ion battery recycling facility in NRW. The Emscher-Lippe region already has infrastructure in place to house future industries like the proposed gigafactory. The development of new industries, like battery manufacturing, is regarded as a major prerequisite for potential employment and economic activity in NRW, especially in the Emscher-Lippe region. The Townsville Enterprise 2017 State Government Election Priorities Report as well as Local Government is committed to fund for the Lithium-ion battery gigafactory on the Lansdown site at Woodstock. The Report recommends funding of A$103M for stages 1 and 2 with Stage 1 to develop a detailed Feasibility Study, detailed design and studies while Stage 2 would deliver major infrastructure (Roads, Power, Water, Sewer, Telecommunications, etc.). Stage 3 is about building the proposed Lithium-ion Battery Plant. Meanwhile, the group is also planning for a Second Germany Battery Plant and a MOU with German Lithium-ion battery consortium TerraE – Holding GmbH (TerraE) for suppling raw materials to the TerraE Gigafactories has already been signed. TerraE intends to build 34GWh of production capacity across two locations in Germany, and is targeting the first stage production to start by late 2019.
 

Magnis’ Pipeline (Source: Company reports)
 
Solid target market opportunity: With many players like Volkswagen aiming for a structural shift towards electric vehicles, MNS seems to be setting itself for future opportunities. For instance, Volkswagen is aiming for a significant growth in group sales in 2025, indicating annual sales of 2-3 million of “e-cars” as compared to 2015 Volkswagen global total sales of 9.93m. For this, Volkswagen expects the fleet requirement of ~150Gwh by 2025 which is equal to ~150ktpa anode material or ~150ktpa spherical graphite. Currently, the Chinese flake yields into spherical graphite is expected at 30-40%, which equates to ~450ktpa of natural graphite. Considering this, the Nachu graphite test work that has indicated spherical graphite yields of over 75%, represent a significant potential opportunity for Magnis. Meanwhile, the demand for Lithium-ion Batteries from other industries is also growing.
 

Rapidly growing market (Source: Company reports)
 
Stock performance: The group has transformed itself into a major Consortium Member and owner in developing Lithium-ion battery plants globally. The group has been winning sales agreements for the consortium’s proprietary patented cathode technology, which eliminates the need for cobalt and nickel, while delivering comparable performance in terms of energy density and life at a major lower cost. Magnis has a World Class Nachu Graphite Deposit in Tanzania with an initial 15-year ROM at 240kt graphite concentrate. The group has strong growth potential as it is targeting to take Nachu project into production and progressively help in developing Lithium-ion battery plants. Given the potential, we put a “Speculative Buy” recommendation on the stock (which has otherwise corrected by about 16% in last five days as at November 21, 2017), at the current price of $0.415 


MNS Daily Chart (Source: Thomson Reuters)

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