Company Overview -  Magnis Resources Limited, formerly Uranex Limited, is engaged in prospecting and exploration for graphite on its Nachu Project in Tanzania. The Nachu Project is located near Ruangwa in southeast Tanzania, circa around 220 kilometers from sea port town of Mtwara. The project consists of mineral resource estimate of around 156 metric tons at 5.2% graphite carbon (Cg) at 3% Cg cutoff grade. It consists of around 100 metric tons measured and indicated resources. The Nachu Tenement covers around 199 square kilometers area. The mineral resources are split into five deposits, which include block B, D, F, FSL and J. The Company's other projects include the Ruangwa tenement, located 35 kilometers north east of Nachu Project; the Mkuju project, which is located in southern Tanzania and comprises six granted licenses plus applications; the Manyoni Uranium project, located in central Tanzania, and the Thatcher Soak project located within Yilgarn Calcrete province of Western Australia.


MNS Details
 
Solid mineral resources for Nachu Graphite Project: Magnis Resources Ltd. (ASX: MNS) with regard to its license for core Nachu project, located at west of the coastal city of Lindi, South East Tanzania, reported a strong update of the resources. As per the recent update, Nachu Mineral Resource delivered an increase of 11.5% to 174 Mt at 5.4% Graphitic Carbon (Cg) at 3% Cg cut-off grade. The project’s Block F comprised core orebodies and are accordingly getting evaluated at the BFS for preliminary production to deliver the outstanding quality of graphite flake which is Nachu project’s core differentiator. In fact, the Mineral Resource Estimate with 61 Mt in the Indicated Resource and 63.5 Mt in the Measured indicates that these resources are among the major flake graphite across the globe. Moreover, the Block F deposit with 39.3 Mt in the Indicated Resource category and 59.5 Mt in the Measured confirms the solid metallurgical results of Nachu graphite concentrate as compared to synthetic graphite that are used in lithium-ion battery anodes.
 

Nachu Graphite Project’s Bankable Feasibility Study is almost finished (Source: Company Reports)
 
The increase in Mineral Resource Estimate indicates a major resource confidence as Measured or Indicated resource categories now comprised over 71% of the tonnes in the Mineral Resource Estimate against the 66% of the earlier updates. The Mineral Resource Estimate which is under Measure enhanced to 36% of the tonnes against the earlier update of 3%, confirming a major potential of resources. Accordingly the Mineral Resources contained graphite enhanced to 9.3 Mt against 8 Mt of the earlier update. Even the Micronised coated graphite purity improved to 99.8% TGC excluding chemical or thermal purification, which indicates the at most purity of the resources. Therefore, Magnis Resources intends to leverage the excellent performance for synthetic graphite while planning to maintain margins by focusing on the cost efficiency of the project. The recent project update indicated 97.1% efficiency for the first cycle and given the first charge capacity loss of 2.9%, there has been a 42% enhancement against the synthetic graphite.
 
Positioning Nachu Graphite Project to leverage the booming graphite opportunity: Magnis Resources is seeking to position itself to leverage the booming Graphite market which is a major resource for demand and consumption for many industries like technology. In fact, the demand for natural, extraordinary purity flake graphite in big flake sizes is the major driver for the group as there is a lot of scope for extremely high quality graphite products in the future. Moreover, the group would be able to easily withstand major competitors especially from China, who are the major producers of graphite. Accordingly, the group is already in talks with customers across Asia, Europe and North America. Major demand is estimated to be from Lithium-Ion battery mega factories given the heavy forecast of production rise of Lithium-Ion batteries by more than triple by 2020. Magnis Resources have already made a binding offtake agreement for 80,000 tpa of high quality flake graphite with SOE, China National Materials Industry Import and Export Corp (SINOMA) which is a five year agreement having an option to increase. The group would receive the payments based on the market prices. The group also made a binding offtake agreement for 100,000 tpa to provide high quality flake graphite for Sinosteel Liaoning Co Ltd. This is a ten year agreement which also has an option to prolong for another five years, while the payments would be as per the market prices. Meanwhile, the group is also seeking all the relevant licenses for its Nachu Graphite Project and got Special Mining License (SML) from Ministry of Energy and Minerals of Tanzania. This Special Mining License was further strengthened by a finalized Mineral Development Agreement (MDA) that comprises environmental conditions, dispute resolution mechanisms and fiscal stability. The Government of Tanzania has a 5% free carried shareholding in the Project.
 

Strong quality of Graphite, key differentiator for Nachu Graphite Project (Source: Company Reports)
 
Offloading non-core assets: The group proposed a demerger of its non-core uranium assets to further enhance its focus on its core Nachu Graphite Project as well as divert these proceeds for the Nachu Graphite project development. Recently, the group released its update to transfer 200 million UAL shares to its Shareholders with regards to its proposed demerger of its non-core uranium assets. On the other side, the group is making efforts to strengthen its balance sheet to mainly divert these funds for developing its Nachu Graphite Project. Accordingly, MNS raised $3.0 million through a placement of ordinary shares to institutional investors in Australia and across the globe. With regards to the solid prospects for high purity graphite, the group received strong response from the placement which has 8,571,429 shares issued at A$0.35 per share. The group intends to divert these funds to finish the Bankable Feasibility Study and build the Nachu Graphite Project. The group entered in to a memorandum of understanding with POSCO E&C for senior debt which would generate a major amount for Nachu Graphite project construction. MNS is also in talks with other project funders as well as signed a US$150 million of debt finance term sheet with major SOE, China National Materials Industry Import and Export Corp. Meanwhile, Magnis Resources maintained its cash balance as of December 2015 at $1.58 million. The company reported a net loss of $7 million in view of the exploration expenditure of about $4 million.
 

Focus on Nachu Graphite Project (Source: Company Reports)
 
Stock Performance: The shares of Magnis Resources Ltd (ASX: MNS) have surged over 39.13% (as of March 29, 2016) in the last one year as its Nachu Graphite Project is well positioned to leverage the booming graphite market, given its solid resources and quality. On the other hand, the stock had been under pressure in the last six months and fell by 28.1% (as of March 29, 2016) given the volatile conditions across the globe and slowdown in China. The stock continued to face pressure and fell by 15.8% (as of March 29, 2016) during this year to date. However, the MNS stock regained its momentum in view of efforts to maximize returns from Nachu Graphite Project coupled with the positive resource update in the project. The Pre-Feasibility Study highlights indicate the project’s NPV to be US$1.04 billion with 84% IRR while the Capital cost is forecasted to be over US$171.4 million. The group intends to maintain its margins in the project while achieve cost efficiency. Accordingly, operating costs for the project is forecasted to be US$448 per tonne while the Basket price is US$2,110 per tonne. Cash margins for the project were estimated to be over US$1,600 per tonne. On the other side, the group is also building clients as well as is in talks with several potential clients to build a strong pipeline. Magnis Resources is also offloading its non-core assets to entirely focus on its core Nachu Graphite Project development. As a result, the stock surged over 8.5% (as of March 29, 2016) in the last four weeks alone. Meanwhile, the earlier correction in the stock placed MNS at attractive valuations and investors who are seeking for growth potential stocks at attractive levels could consider entering into Magnis Resources. The stock has also been added in the All Ordinaries Index as per the March quarterly updates by S&P Dow Jones Indices. Based on the foregoing, we give a “BUY” on this stock at the current price of  $0.36
 
 
MNS Daily Chart (Source: Thomson Reuters)

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