Flinders gains on Woxna graphite PEA

VANCOUVER — Flinders Resources (TSXV: FDR; US-OTC: FLNXF) should be able to restart the mine at its fully owned and permitted Woxna graphite project in Sweden for US$16.7 million, which could be repaid in a few years by selling the mine’s high-purity graphite in the European market.

The Woxna mine was built in 1995 and operated until 2001, when graphite process fell. Prices remained weak until 2010, when stockpiles ran out just as new applications created fresh appetite for graphite. After peaking in 2012 prices eased, but commentators expect stable demand to support prices going forward.

Vancouver-based Flinders had planned to restart the Woxna mine earlier this year, but extended the schedule after metallurgical tests confirmed that Woxna could churn out higher-quality graphite than previously thought. In particular, the graphite mix produced from the test work far exceeded historical production purities and flake sizes, with 18% of the product reporting as extra-large or jumbo flake with 95% purity, a high-value product that the mine did not historically produce.

Now a preliminary economic assessment (PEA) has confirmed the value of that delay. The one-year trailing average price for those extra-large flakes is US$1,824 per tonne, which means Woxna’s almost 3,000 tonnes of +250-micron, 95% purity production will generate US$5.5 million in revenue annually. By comparison, the 32% of Woxna’s output that will comprise flakes smaller than 100 microns and averaging 88% purity will garner less than US$800 per tonne.

As such Woxna’s large-flake output will represent just 18% of output but contribute 27% of revenues, while the smallest flake product will bring in 21% of revenues despite representing 32% of production. Two other size-and-purity classifications will fill out the production and revenue profile.

Woxna’s ability to produce high-quality graphite strengthened an already strong mine plan. The fully permitted site has a functional processing plant with grinding mills, a flotation circuit and drying, sizing and packing facilities, and is already served by power, water and roads.

The site also has a stockpile of several hundred tonnes of flake graphite that Flinders has been reprocessing and selling into the European market. The sales are not only providing the company with cash, but also enabling Flinders to establish contacts with graphite consumers in Europe, where output from the Woxna mine would be marketed.

According to Flinders, the European graphite market represents 20% of global demand for flake graphite. Today more than 90% of that graphite is imported, most of it from China, where export limits and taxes are pushing prices up. China is happy to do so because Chinese mines produce 75% of the world’s graphite.

That near-monopoly has prompted several Canadian-listed exploration companies to pursue graphite opportunities. Some have been successful: Zenyatta Ventures (TSXV: ZEN) has seen its shares rise 1,250% in 12 months, based on its Albany graphite discovery in Ontario; while good metallurgical results from its Molo deposit in Madagascar caused shares in Energizer Resources (TSX: EGZ) to double in late July. However, Flinders is unique among Canadian graphite companies in advancing a past-producing project with ample infrastructure.

Woxna, which sits 20 km from the town of Edsbyn in central Sweden, is home to four graphite deposits along a 40 km stretch. One of these deposits, Kringel, hosts a modern resource of 2.8 million measured and indicated tonnes grading 10.7% graphite. The deposit at Kringel sits within 150 metres of surface and reaches along 1.2 km of strike. Mineralization remains open along strike and at depth.

The other three deposits collectively contain 5.6 million tonnes of historic resource grading 8.3% graphite (not compliant with National Instrument 43-101 regulations).

Ore from the Kringel open pit would be crushed and ground using the existing mill. The ground product would undergo flash and rougher flotation, which are best for recovering large-flake graphite; concentrate from these circuits would undergo two stages of regrinding and cleaner flotation. Tailings from the initial floats would be reprocessed in a scavenger flotation circuit to recover smaller-flake graphite, and the scavenger concentrate would be reground and clean-floated three times. Concentrates would then be dewatered, dried, screened and packed.

The new study concludes it would cost US$16.7 million to put Woxna back into production. Most of this money would go towards new flotation equipment, as well as a new filter press for dewatering graphite concentrates. The tailings storage facility would also need to be upgraded and enlarged.

Once operational, Woxna could produce a tonne of graphite concentrate for US$662. The operation would process 155,000 tonnes annually to produce 16,600 tonnes of concentrate grading between 88% and 95% graphite. Graphite recovery is expected to average 96% and 40% of the output from Woxna would rate as extra-large or large-flake graphite.

The Woxna PEA uses 12-month trailing graphite prices, which averaged US$1,199 per tonne after being weighted according to the size and purity distribution of Woxna’s output. Flinders decided against using the more common 24-month trailing average prices because those included the unusual price peak that occurred in 2012.

The 12-month average weighted price gives Woxna an after-tax net present value of US$26.6 million, using an 8% discount rate, and a 34% after-tax internal rate of return. That would enable Flinders to repay its capital costs in four years.

The resource at Kringel is enough to support 13 years of mining. Kringel is also the easiest to mine, as it sits adjacent to the processing plant, but the other deposits are within 25 km. Flinders says it will better define the resources at the other three deposits once Woxna is operational. The company is also  considering expanding the mine’s throughput capacity.

Flinders has C$12.3 million cash on hand, which is a substantial portion of the capital needed to restart Woxna. On news of the Woxna PEA Flinders’ share price gained 6¢, or 11%, to close at 60¢. The company has a 52-week trading range of 31.5¢ to $1.65, and 46 million shares outstanding.