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Interview with Black Rock Mining (ASX:BKT) MD John de Vries

May 2, 2022

BKT, Black Rock Mining, graphite

Black Rock Mining (ASX: BKT)

We spoke to John de Vries, Managing Director of Black Rock Mining (ASX: BKT), about the upside from the Mahenge Graphite Project in southern Tanzania, the advantageous position the company has in its relationship with POSCO of South Korea and the strategic decision to stay an upstream producer of graphite concentrate.

See transcription below.

Disclosure: Stocks Down Under/Pitt Street Research Director(s) own BKT shares.



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Stuart: Hello, and welcome to Stocks Down Under. My name is Stuart Roberts, and I’m one of the co-founders of our publication. And joining me from Perth on Monday, the 28th of March, 2022, is Mr. John De Vries, who’s the CEO of Black Rock Mining, BKT. John, good morning, your time, good afternoon, ours.

John: Good afternoon, Stuart. It’s good to see you, and it’s good to be in Perth.

Stuart: Yeah. So, we’ll talk about that in a moment. Took you a while to get back last time you went to Africa. Black Rock Mining is on the cusp of greatness, in our opinion. The Mahenge Graphite Project in the southern part of that country, you’ve completed a pretty compelling definitive feasibility study. You’re now in the process of looking for considerable amounts of bank debt to fund that. And it’s not unreasonable that before the year is out, you’ll be in a position to start doing some of the early construction work. Talk to us about some of the challenges you’re facing at the moment as you prepare Mahenge for the next big thing.

John: Well, the bank debt really comes back to our overall business strategy. And the business strategy we’ve put in place here is to try a de-risked project. And in graphite, that’s really about adding a lot of transparency. So, we did a very heavy-ended DFS with the view that we wanted to be able to attract banks to the project. Now we’ve got banks interested, we’re working through the IFC Principles and the Equator Principles to tidy that up to make sure we are completely ready for bank debt. But clearly, being able to bring a bank on, particularly an international bank, sends a message to the equity holders that we’ve done a lot of the work and a lot of the latent risks have been identified and managed.

And, critically, what it also means is the level of dilution that we need to go for as the construction round is significantly lower than if we’re doing an all-equity process. The logic of bringing bank debt on there is to minimize dilution. But to do that, we need to double down on the amount of work that we’re doing.

Stuart: Certainly. Now, I imagine there’s probably one or two costs in the feasibility study that would need to be revisited, given the inflation we’re seeing in parts of the economy, such as the price of steel, for example. How are you and your team working through that?

John: We’ve currently worked through re-estimation. So, this is an internal re-estimation based on the 2018 DFS. We’ve gone out now, we’re doing a tender process in Tanzania. We were going out tendering scopes of work, and mining contract, concrete, those sorts of things. And that’s going to allow us to calibrate the pricing much better. Once we’ve got that, we’ll talk about it publicly. Till then, it’s an estimate, and estimates we know are precisely wrong.

But one thing that does shift the dial a little bit is working around the the IFC and Equator Principles, just making sure that we are compliant with that. Again, we’ve seen that if you don’t get on top of that function properly, it can cost you a lot of money, maybe not in the first year of the project, but five years later, it can start to really cost you as you’ve missed something and you upset the community, or you upset government. So, that’s the area that’s occupying a lot of our focus at the moment.

Stuart: Certainly. And it’s an area that investors and mining executives haven’t had to grapple much with until recently. The idea of complying with IFC-type principles. What’s new for you, as you navigate this relative new world we’ve moved into?

John: Well, I guess, as an engineer, it’s the whole…just the sheer implication of the risk of not getting it right is pretty staggering, as we’ve seen, you know, Juukan Gorge, and certainly what happened in Serbia with Rio. So, the risk of not getting it right is probably the shocking point to me.

Fortunately, we have gone down that process pretty thoroughly. So we’re pretty confident that our community is happy and welcoming. We’re very confident, most of the elements that they are in place. But it is a very detailed piece of work that we need to be doing. So, I’m very confident, once we do that, we further differentiate the project. And you need to bear in mind here that, in the graphite world, China still accounts for 90% of the product supply. So, if we can come out with something that meets IFC standards that is outside of China, that’s a massive differentiator in the markets, and particularly positions us well to continue to place product into western offtake markets.

Stuart: Right. Now, you have a very strong competitive advantage vis-à-vis other players in the graphite space. Your friends over in Korea, at POSCO, have finally qualified your product, over a multi-year process. So you’ve done the hard yards to win a pretty important friend, who not only is a powerful offtake partner, but owns 15% of Mahenge, which is quite an achievement as well.

John: The qualification process is a pretty nuanced process. And I think that’s one of the differentiators of graphite is that it isn’t exchange traded, it is peer-to-peer sales. And when you have a customer that typically they need to modify their process or, in a battery customer, modify the battery chemistry to reflect what the raw material going into that process is. So, it’s a multi-year process.

Having POSCO sit there does two things for us. Firstly, it makes us bankable, in that we have a major Western offtaker there, and also a cornerstone investor in the company. But once we’re bankable, we’re able to extract debt, and that means there’s less dilution on the equity register. So, the whole thing fits into a singular strategy of de-risking, making this thing bankable so we don’t have to put as much stock out there when we come to construction round.

Stuart: Certainly. And it’s interesting to compare your experience with that of the company that a lot of people in graphite know very well is Syrah Resources. Recently raised a considerable amount of equity capital to fund some downstream infrastructure they want to build in the United States to sell anode material. You’ve chosen, as a company, to stay very much in the concentrate end of things. What’s your philosophy behind that?

John: The philosophy on that is, our project is 30% to 40% of our volume, and about 30% of our revenue comes from fines. So, taking our eye off the 60% to 70% of our product, which is large flake, which drives the profit line, is effectively the tail wagging the dog. And the way I like to think about it is, if you think of a typical graphite project, and you use an airline analogy, well, it’s large flake are the business class seats, and they drive the profit line, it’s the economy seats that pay for the costs of the business.

Well, what we have here is a business that is 60% to 70% business class, and 30% to 40% economy. Clearly, it’s a very different price point to if we were an all-economy airline. So, it just really lets us focus where we are. Our focus on anode at the moment is to team up with people who do know that space. POSCO knows that space, Urbix knows that space. So we’re happy to work with them, as opposed to compete against them. And, you know, it’s a much simpler process.

Stuart: Now, Tanzania has been a lot in the news lately, in terms of mining investors, and a lot of people are just getting used to the fact that Tanzania is a different place than it was two years ago. Now, my personal view was that it was always going to come back under John Magufuli, obviously had some goals for Tanzania in terms of the 16% of mining projects that would go to the Tanzanian state. He sadly passed away last year. But his successor, Samia Suluhu Hassan has done a lot of work to improve the visibility of Tanzania as an investment destination. What’s been your experience working with the country under both Magufuli and Samia?

John: Very, very different against each one of those leaders. Sort of Mama Samia has done an incredible job of opening up the economy and bringing in investment. And clearly, that’s had a massive sugar hit for Tanzania. When I was there in the country, you could see the place changing, certainly weekly, almost daily, you could see things improving.

Stuart: There’s been a big investment, for example, I think from BHP Billiton, is that right?

John: Yeah. So, if you think about BHP is a classic Bellwether here. BHP, very conservative organization, I know that, I’ve worked for them for four, five years. BHP has invested $100 million into the Kabanga project up in the lakes district. So, a very significant investment from BHP. But clearly, it signals Tanzania has come out of the cold. And I like to think of Tanzania effectively as being Africa-lite. It is Africa, but certainly we don’t seem to have many of the issues that plague other jurisdictions in Africa. With very, very stable legal regime…

Stuart: Never been a coup in the entire history of its independence.

John: No. It’s very stable. And that gets back to the founding president, Julius Nyerere. And Julius Nyerere’s rhetoric was always, “I am Tanzania, I’m not from a village.” So, in that process, he’s knocked out a lot of those tribal rivalries by saying, you know, “We are Tanzanian and our objective is to make Tanzania good.”

Stuart: Now, coming back to Black Rock, you’ve still got some offtake still to negotiate before this project can go live, would that be right?

John: Yeah. Look, at moment, we’ve got something like 60,000 tonnes. You nominally say 60,000 tonnes is under term sheet. So, 30,000 of that is going to POSCO, and then we have two Chinese entities sitting there for 30. Now, they have options to go to 45. So, if you want to take a bullish view on this, we’ve got 75,000 tonnes under term sheet out of an 83,000-tonne project. What we are trying to do at the moment is just put a bit more of that material as we can into Western markets with the view we go one-third, one-third, one-third. And that makes it really bankable from a bank perspective, and it’s also very good from an overall risk management perspective. So, that’s what we’re working on at the moment.

Stuart: Well, John De Vries, well done to you and your colleagues at Black Rock for all that you’ve achieved. And good luck in terms of raising the capital and delivering the next big thing in Mahenge.

John: Yeah, look, I’ll just leave you a couple of thoughts here. If you think about a lithium ion battery, two things, they’ve always got lithium and they’ve always got graphite, so, you want a low-risk entry into the EV market, graphite is a lot cheaper than lithium.

Stuart: All right. Well done.