Malagasy Minerals

Madagascan promise

Australian explorer Malagasy Minerals is seizing valuable tenements in underexplored Madagascar in its pursuit of becoming a significant graphite producer

Madagascar, a large island off the southeast coast of Africa, is perhaps best known for its biodiversity. Increasingly, however, it is attracting attention from miners and investors due to its vast and underexplored mineral deposits. Malagasy Minerals Limited (ASX:MGY), incorporated in September 2006, was one of the first few alongside Rio Tinto to seize upon the potential of the world’s fourth-largest island. Six and a half years later, MGY has a significant portfolio of high-quality exploration assets, including a 25% holding in a significant large flake graphite deposit for which production is in sight.

MGY co-founder and chairman Max Cozijn was attracted to Madagascar on account of its “mineral endowment, and the fact that it was very underexplored; a bit of a backwater in terms of international exploration”. The company picked up a few tenements of its own initially, but its big break came in acquiring Mada Aust SARL who owned leases on 2,500km2 of highly prospective land.

“Their tenements sat on top of an interesting geological structure with two massive intrusives, and they had existing labradorite quarries from which they were earning royalties,” Cozijn explains. “We thought that if we could do a deal with them, it would be a quick way to cement a strong position in the country.”

The MGY team was correct and the explorer now has four priority projects: the Molo Graphite Deposit, Ampanihy Graphite Project, Ampanihy Nickel-Copper-PGE Project and Vohibory VHMS Project.

Magnificent Molo

In the further-advanced Molo Graphite project MGY has a 25% free carried interest through to the completion of a Bankable Feasibility Study; Toronto-based exploration and development company Energizer Resources Inc. holds the other 75%. Exploration, resource development and preliminary economic studies have been fast tracked since discovery and produced some significant results.

Defined over a length of 2km, a width of 600m and a depth of 300m, the deposit has Indicated resources and Inferred resources of 124Mt at 6.3% carbon reported at a 2% cut-off grade, and 60Mt at 8.1% carbon reported at a 4% cut-off grade. There are wide intersections of high-quality graphite mineralisation and the deposit remains open, with near-surface positions that haven’t yet been tested.

The Preliminary Economic Assessment (PEA) completed in February 2013 calculated that Molo has a post-tax NPV of US$341 million; giving MGY a considerable share of $85 million, or approximately $0.54 per share. There is enough mineable resource for a 20-year mine life, producing 84,000 tonnes of concentrate per year at an average specification of 92% graphite. Test work undertaken by MINTEX and North Carolina State University (NCSU) indicate that +50 mesh graphite can be obtained through simple crushing.

“The best things about the Molo deposit are that carbon content is about 8.1% C; it’s a large deposit; it’s mineable as an open pit; and it upgrades to 98% graphite without too much trouble in terms of processing,” remarks Cozijn. “In addition, it’s got a low capex [capital expenditure]. Energizer is currently in talks with potential off-take partners, to take it to the next step.”

Lay of the land

Operating in Madagascar has its advantages and disadvantages. High-quality graphite, low operating costs and a great deal of unexplored potential are clear advantages; however, being in the wilderness means the transport infrastructure is lacking, leaving road freight as the only option for transporting produce to the Port of Toliara. Transport infrastructure will be upgraded as the project progresses, Cozijn says. With Madagascar gearing up for its democratic elections in July, it is expected that confidence will grow across the Madagascan mineral industry and that access to and security of tenure will be improved and consolidated.

MGY’s 100%-owned projects in the region are in the early stages of exploration but already delivering exciting results. The Ampanihy project is prospective for graphite, nickel, copper and platinum group elements (PGE). It contains major zones of graphite schist, identified along 100km strike length, and could host a large mafic-ultramafic intrusion related to a nickel-copper-PGE deposit. The company is undertaking low-cost exploration programs in the area, including mapping, rock chip sampling and estimation of likely tonnage characteristics, with initial assay results expected in May 2013. Cozijn says there are signs that Ampanihy could contain “world-class deposits”.

The Vohibory copper-gold project, located in a geological setting typical for hosting VHMS (volcanogenic massive sulphide) ore deposits, has likewise shown early promise with initial drilling identifying anomalous copper, gold and silver results. Exploration will recommence after the wet season ends in April.

Financially prepared

The year ahead is one overflowing with possibility for MGY and, fortunately, it has the funds with which to make the most of it. The company finished 2012 with approximately AU$1.2 million in the bank and, thanks to a land acquisition it made a few years ago, a constant flow of additional income.

When MGY floated in 2008, it bought a five-acre plot of land from BRGM, the French Bureau of Geological and Mining Research. This plot held not only MGY’s offices, but also BRGM’s workshops, laboratories and accommodation. Today, the land hosts other tenants as well; all of which pay MGY rent that comes to around AU$200,000 to $300,000 per year.

On top of that, MGY gains a similar kind of income through royalties paid by three companies quarrying labradorite within MGY’s landholdings and exporting it to India and Italy. These income streams go towards paying MGY’s local operating costs.

Action plan

MGY’s long-term aim is to get into economic production over the next two to three years, in which case it sees itself bringing in partners to raise the finance required. The market for natural graphite – set to be MGY’s primary export – is small, but Cozijn believes it will grow over coming years.

“The larger consumption is of synthetic graphite, but I believe the costs of producing this are increasing as the cost of power rises,” he explains. “So I think you’ll see a lot of manufacturers switching from synthetic to natural graphite, and that’s where the market growth will be.”

First and foremost, however, MGY sees itself as an explorer and this is reflected in its packed exploration program for the year ahead.

“In 2013, we aim to define a commercial-scale graphite resource on our 100% owned ground,” begins Cozijn. “We anticipate the Molo Graphite joint venture with Energizer moving to the completion of the BFS, potentially with an off-take partner.

“Third, we want to home in on the nickel-copper-sulphide ore bodies and hopefully we’ll have opportunity to put a few drill holes into those before the end of year,” he continues. “At Vohibory, we’ll follow up the anomalies and come up with some drill holes.

“If we can do all that, I think it’ll be a good year.”

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