Triton secures $2bn offtake with Yichang Xincheng Graphite

By Laura Syrett
Published: Monday, 27 April 2015

Chinese company agrees to buy 100,000 tpa Triton graphite; deal follows hook up with AMG to explore Ancuabe.

Triton Minerals Ltd has signed a binding offtake agreement to supply China’s Yichang Xincheng Graphite Co. with 100,000 tpa graphite from deposits in Mozambique, Madagascar, Tanzania and Malawi for a period of 20 years.

The terms of the deal, which was inked at the start of April, state that Yichang Xincheng will pay a floor price of $1,000/tonne for material with a minimum flake size of 150μm,, equating to +100 mesh (medium flake), with a purity of 90% total graphitic carbon or above, making the contract worth at least $2bn to Triton.

The ASX-listed explorer, which so far only has graphite assets in Mozambique, said that although the deal provides Yichang Xincheng will source its graphite concentrate exclusively from Triton, the offtake does not prevent Triton from selling graphite to other customers.

"We wanted to lock them down so that they have to go through us if they want to source graphite from these countries," Triton’s managing director, Brad Boyle, told IM

Execution of the contract terms requires Triton to begin producing graphite commercially, and to notify Yichang when it intends to start deliveries, within 36 months of signing the agreement.

Boyle explained that the 100,000 tpa figure is an annualised average and that the company is unlikely to commence deliveries at this level. "We could start at 20,000 or 30,000 tpa – the structure of this deal allows us the flexibility to scale up."

"In the next six to 12 months, we will have more clarity on how we will service the deal," Boyle said.

He added that Yichang Xincheng had agreed to pay a premium price of $1,000/tonne for Triton’s graphite based on the product’s quality and guaranteed security of long-term supply.

Privately-held Yichang Xincheng is a supplier of high purity engineered graphite products, including micro-powders, expandable graphite, graphite sheets, gaskets and flame retardant materials, and has contracts with companies in the petroleum, steel, automotive and technology sectors.

Yue Bin, Yichang Xincheng’s chairman, said that Triton’s graphite "performed well beyond our highest expectations" in laboratory tests. "We feel that [Triton Minerals] is ideally suited to support and build our range of expandable graphite products," Yue added.

Analyst reaction

News of the offtake was given a mixed reception by analysts, some of which questioned the minimum sale price, while others queried why Yichang Xincheng, which reportedly had a turnover of around $230m in 2012, would sign a deal for $100m-worth of graphite annually.

Duncan Hughes, mining and metals analyst for GMP Securities, called the deal "an excellent result for Triton and a potential game changer".

"I think the floor price is certainly favourable, but realistic," Hughes told IM. "I believe there is likely more demand for graphite, especially expandable graphite, out of China than is generally appreciated."

Other analysts have cast doubt on the projected value of the contract, however.

"The price they are quoting looks a bit on the high side," one London-based analyst told IM.

He speculated that Triton may need to mine 3-4m tpa graphite ore to fulfil its order from Yichang Xincheng and that the company’s quoted capex of $315/tonne FOB to the Port of Pemba from it Nicanda Hill site in Mozambique could double as a result.

According to IM Data analyst, Shruti Salwan, the $1,000/tonne floor price is well above current market levels.

"By way of comparison, prices for 94-97% C, +100 – 80 mesh material on a CIF Europe basis are presently hovering at $1,050-1,150/tonne – it is not clear why a buyer would agree to pay more than this, even for security reasons," she said.

One US-based market observer said that logistics and transport could make up a "meaningful part" of the price Yichang Xincheng has agreed to pay for Triton’s graphite.

He added that the agreement’s condition precedents were not "too onerous" for Triton, which is a positive for the company.

Triton’s share price jumped from Australian dollar (A$) 0.24/share ($0.18/share*) to $0.57/share in trading on the ASX, following the release of the news.

The Yichang Xincheng offtake was announced a day after Triton revealed that it has teamed up with Germany-based AMG Mining AG to explore graphite deposits in the Ancuabe region of Mozambique, where both companies hold mining licences.

The deal locks Triton into an initial two-year exclusive agreement with AMG’s subsidiary, GK Ancuabe Graphite Mine SA, to create what Boyle described as a "joint task force" to examine the potential to restart graphite mining in Ancuabe.

Triton currently holds a 60% interest in three exploration licences and two licence applications in the area. AMG was granted a 15-year mining concession for Ancuabe in 2012, which included a past-producing open pit mine and a processing plant, presently on care and maintenance.

AMG has previously estimated that its portion of Ancuabe was capable of producing 6,000 tpa medium-flake graphite concentrate. Under its previous owners, Ireland-based Kenmare Resources Plc, the mine had a peak production of 7,500 tpa flake graphite, with a capacity of 10,000 tpa.

AMG declined to comment on the deal.

*Conversion made April 2015