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Date : 16/03/2022

Black Rock Mining Ltd



Market Cap : $204.92 Million


52 Week Range : $0.120 - $0.285

Share Price : $0.225

The recent strategic alliance with POSCO is a strong industry validation. Given that, BKT could exhibit tremendous upside potential, a “Buy” for us.

Company Analysis

Black Rock Mining (ASX: BKT) is an Australian-based company with a 100% interest in the Mahenge Graphite Project located in Tanzania. The Project has a JORC compliant Mineral Resource Estimate of 213 million tonnes at 7.8% of Total Graphitic Carbon Content or TGC. Black Rock also has Ore Reserves of 70.5 million tonnes at 8.5% TGC. The Ore Reserves support a mine life of up to 340 thousand tonnes of Graphite per annum for a reserve life of 16 years.

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Source: Tradingview

Since the Mineral Resource Estimate release, the Company confirms that it is not aware of any new information or data that materially affects the mineral resources estimate. On the 25th of July 2019, the Company released an enhanced Definitive Feasibility Study or eDFS for the Project. The eDFS for the Mahenge Graphite Mine envisages a four-phase operation. The Company expect to ultimately produce 340 thousand tonnes per annum of high-grade Graphite, with exceptional financial metrics including:

  • Low CAPEX: Lowest peak capital expenditure of US$116 million for phase one
  • High Margin: AISC margin of 63.1%
  • Low Technical Risk: Substantial pilot plant operations run of 110 tonnes
  • Superior Economics: Internal rate of return (IRR) of 44.8% with NPV10 of $1.65 billion

BKT has obtained Environmental approvals, Mining Licenses and secured a Strategic Alliance with POSCO

Black Rock has obtained all Environmental approvals, Mining Licences and its Resettlement Action Plan with clear title to the eDFS project area. An FCI Agreement was signed with the Government of Tanzania in December 2021.

Furthermore, In June 2020, the Company announced a Strategic Alliance with POSCO Group to develop the Mahenge Graphite Mine. This included an equity investment of US$7.5 million, signed in February 2021. In December 2021, a Term Sheet was agreed with POSCO for a US$10 million prepay and life of mine fines off-take for Module 1. Black Rock has also allocated planned production through Pricing Framework Agreements with five other off-take customers.

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Source: BKT

BKT confirms a 25% increase in measured mineral resource: the largest in class globally

In a nutshell, BKT has reported a substantial increase at its flagship Mahenge Graphite Project. The Company has completed its infill drill program and bulk metallurgical sampling, which has resulted in a 25% increase in measured mineral resources. The Mahenge Project has now the largest Measured graphite mineral resource globally. Furthermore, Black Rock also has confirmed the first 10 years of the Ulanzi mine plan, including all of Module 1 and 2, is now underpinned by the highest confidence mineral resource category. This is great news as the Company’s Mineral resource upgrade provides additional confidence for lenders and off-take partners in the context of the debt financing process currently underway.

As part of the Company’s ramp up on Project execution activities, we are pleased to see that Black Rock has completed an update of its Mahenge Mineral Resource. This gives BKT’s customers and financiers tremendous confidence in the planned production output over the first ten years of operation from the Ulanzi open pit. The 25% increase in Measured Mineral Resource effectively confirms that 100% of the likely loan life is now underpinned by Measured Resource. Drilling and bulk sampling was completed on the Ulanzi orebody in 2019 but held in storage for final customer qualification. This material was only recently assayed and used as an ore feed and processed in China and Canada as part of Black Rock’s 500-tonne qualification processing plant campaign. This campaign has been successfully completed to produce concentrate samples to complete customer qualification works at specification with POSCO and potential large flake customers in North America, Asia and Europe. In Shandong province, China, the plant commenced operations in August 2021 with ore parcel samples processed composited from eighteen locations across the entire strike length of the Ulanzi orebody at Mahenge. This sampling strategy was designed to represent the first ten years of the Mahenge Ulanzi pit and is representative of the expected feed profile for Modules One and Two from the four planned Modules and potential mine life of 26 years.

We believe that Black Rock has undertaken the largest graphite ore processing globally relative to its peers. The Company extracted over 600 tonnes through three pilot plant campaigns and extensive customer qualification works.

We see this campaign as a massive achievement for Black Rock. BKT has clearly shown that it has a high-quality commercial-grade product. The Company has demonstrated its capability in delivering the largest customer qualification program in the graphite sector worldwide. These positive outcomes from this large-scale qualification plant campaign effectively provide a solid platform for Black Rock’s strong client base. We are confident that it would lead to long-term partnerships. Moreover, this will also provide trust to financiers as the Company exhibits robust Project economics supported through a clear path to market.

The global Mineral Resource Estimate for the Mahenge Graphite Project is 213.1 million tonnes at 7.8% TGC. Previously, the Project resource estimate was 211.9 million tonnes at 7.8% TGC. This makes the Mahenge Graphite Project the fourth largest JORC Mineral Resource globally, and it is still open along the strike. The Mineral Resource in the Measured category is now 31.8 million tonnes and indicated at 84.6 million tonnes. These categories combined represent 55% of the total Mineral Resource. With this 25% increase in the Measured Mineral Resource, the Mahenge Project is now the largest Measured Mineral Resource of any graphite developer worldwide.

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Source: BKT

We think that Black Rock is well positioned with a planned Production Portfolio consisting of several existing off-take agreements that are in place for Mahenge’s planned Module One production, as shown in the chart below:

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Source: BKT

Company Updates

FY22 onward outlook: BKT to become a key participant in the global graphite supply chain

Black Rock’s strategy has been clear from its inception regarding how and where the Company intends to participate in the global Graphite supply chain. We have seen a clear ambition from the Company to position itself on the upstream market, which means that it is aimed to mine and deliver the raw material necessary to develop products derived from Graphite. Once mined, Graphite is processed over several steps before it makes its way into the hands of manufacturers who can take the processed material and conceive products. These products will have a significant contribution to a cleaner future. Hence, Graphite is used in many applications, from electric vehicles to fire-proof building cladding. It is important to note that the well established downstream infrastructure and supply chains that make these products are highly capital intensive and bespoke. Black Rock’s decision to play in the upstream space is underpinned by the geological and geographical advantages of its Mahenge Project site. Thus, the Mahenge Graphite Mine stands up on its own as a low cost, high margin operation. Moreover, Black Rock Mining does not need a downstream operation to work. The Company focuses on mining; hence, the quality of its downstream partners and customers is therefore critical to its business model. Throughout FY21, we have seen Black Rock develop its strategic alliance with Korea’s POSCO Group, one of the world’s largest producers of battery anode material. POSCO is also a major participant in the global Lithium-ion Battery industry. Black Rock completed detailed due diligence work, regulatory approvals, supply chain testing, and extensive qualification activities, including commercial-scale pilot plant sampling and product quality assurance. This culminated in POSCO completing the US$7.5 million, 15% equity investment in Black Rock Mining, with POSCO now being both a cornerstone commercial customer and shareholder.

More importantly, commercial and technical qualification with POSCO represents an absolute validation that Black Rock has a demanded product to sell into a real customer market. This is also supported by a price deck reconciling BKT’s project economics. Recently, positive discussions have continued concerning POSCO providing a prepayment financing facility of up to US$20 million.

Not so long ago, Black Rock began migrating existing customer off-take commitments to a binding status with its market validated product. The Company confirmed two of its existing five off-take commitments with:

  1. Taihe Soar (Dalian) Supply Chain Management
  2. Qingdao Yujinxi New Material Co Ltd

These two off-take were successfully converted to binding term sheets to supply a large flake concentrate of more than 100 mesh. Critically, the new off-take agreements include a prepayment component and are price indexed to visibly published indices, RefWin and ICCSino.

Mahenge: an efficient, sustainable and responsible Graphite Mining Project

Mahenge’s green footprint has been well documented, and with that, Black Rock extended its sustainability responsibility to include the whole supply chain with its downstream partners. The Company entered into a Memorandum of Understanding with Urbix, Inc, a US-based Clean Tech and Advanced Materials Company specialising in the innovative and sustainable processing technologies for Graphite. Currently, all of the world’s Graphite processing into battery anode material occurs in China using traditional Hydrofluoric Acid methods with high power consumption. On the other hand, Urbix methods use a patented technique to process Graphite into battery anode material without using Hydrofluoric Acid. Ultimately, the output delivers a much better product yield ranging from 70% to 80%, compared to the current industry standard of 35%. This represents a significant advantage to Black Rock and its downstream customers.

Black Rock awards Detailed Engineering Design contract to CPC Engineering, design construction to begin soon

Black Rock made a significant announcement today, March 16. The Company has awarded its Engineering Design contract to a highly experienced engineering design, construction and maintenance firm, CPC Engineering (CPC). CPC has detailed knowledge of the Mahenge Graphite Mine, completing Black Rock’s Enhanced Definitive Feasibility Study in July 2019. Since then, CPC has provided ongoing technical support to Black Rock, leveraging their extensive knowledge in the sector, having designed Syrah Resources’ (ASX: SYR) Balama graphite project, the largest producing graphite mine in East Africa.

An Integrated Project Management Team has been established. The team will be responsible for the Front End Engineering Design or FEED.

FEED is the Basic Engineering conducted after completing the Conceptual Design or Feasibility Study. At this stage, before the start of Engineering, Procurement and Construction, various studies take place to figure out technical issues and estimate rough investment costs.

In parallel with the FEED process, detailed engineering with a particular focus on earthworks will be the initial priority to ensure the Company can be construction ready in the coming months.

Industry Analysis

One of the key growth markets for Graphite is anodes for Lithium-Ion Batteries in Electric Vehicles (EVs). Around 90% of the EVs today use Graphite in the anode, and many experts agree that Graphite is likely to remain a preferred anode material for at least the next eight to ten years. Whilst EVs represent a relatively small chunk of 11% of graphite demand, Graphite is one of the largest volume active materials in Lithium-Ion batteries. Demand is expected to increase substantially over the next few years as EVs move towards mainstream adoption. Several analysts predict the graphite demand growth to potential attains at least 600 kilotonnes today to 3.2 million tonnes by 2029. Two years ago, there have been a few announcements from governments worldwide pushing to secure critical minerals to support the electrification of vehicles in the US, Europe, and China. Europe announced the largest green stimulus plan in history, totalling US$572 billion.

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Source: BKT

While Graphite is a key input in lithium-ion batteries, it has not received the same attention as lithium, cobalt, nickel, and rare earth, largely because the Graphite market is unclear and more complex. The Graphite market includes both natural Graphite and Synthetic Graphite. China dominates the Graphite market producing about 65% of the supply; however, as lithium-ion supply chains develop and several countries look to compete with China to ensure the security of supply, we believe there exists a significant potential opportunity for Graphite mining companies outside of China. Graphite is used in many applications, not just for lithium-ion batteries; Graphite has several useful qualities. This material is an allotrope of carbon that possesses a low density. It is an excellent conductor of heat and electricity and is chemically inert and acid-resistant. Also, Graphite is an opaque, grey and black substance with an oily feel, thus useful for lubricant.

Graphite occurs in three forms: Flake, lump/vein and amorphous.

Graphite end uses: Graphite has a wide range of end uses in steel markets, refractories, lithium-ion battery anodes, expandable graphite markets, fire retardants, lubricants, composites, and pencils, to name a few. At present, the dominant end-use for Graphite is in the steel market, which comprises approximately 60% of the current demand. Both natural and synthetic Graphite is used in producing steel as UHF electrodes in electric arc furnaces. While graphite demand for use in anodes for lithium-ion batteries is still a relatively modest percentage of the total demand, the accelerating mainstream adoption of electric vehicles is expected to be a key growth market that is expected to materially increase over the next few years.

Graphite used in anodes for lithium-ion batteries: Graphite is used in around 90% of today’s lithium-ion batteries. Whilst technology is constantly evolving; most research suggests that Graphite is likely to remain the dominant choice for lithium-ion batteries at least for the next ten years. One of the key potential new anode technologies is graphite-silicon composites. Although, to date, the severe swelling of silicon during charge and discharge remains a key obstacle to its mainstream adoption.

Strong demand for Graphite is expected fuelled by a potential 700% EV sales growth by 2030

In our view, Graphite demand is expected to accelerate materially over the next decade, largely driven by the growing demand for anodes in lithium-ion batteries necessary for the development of electric vehicles. EV sales are set to grow by 700% by 2030.

Investment Thesis

Why do we like Black Rock Mining?

There are many Graphite deposits globally, and relatively few of them successfully transition into production, particularly outside of China. We have been following a few ASX-listed graphite players, and many of them have simply given up and, in many cases, turned to gold projects.

Graphite is an opaque and complex market. However, we believe the following criteria could define what a good Graphite Project should have:

  1. Strong margins through the cycle: The Project should still make money when most competing mines are break-even or loss-making. This requires the Project to be low costs relative to its peers. Furthermore, the Project should also have low strip and large scale characteristics, affordable power, and cheap logistics.
  2. Solid average sale price: It is also critical for a graphite miner to have a high average sale price and product quality to have a chance to compete in this industry.

Assuming that Black Rock can finalise its off-take agreement with POSCO, not only will the Company have 47% of its product for Module One under binding off-take with a credible ex-China blue-chip player, BKT will have also placed the most challenging of its graphite products. While Black Rock’s larger flake products could potentially attract much higher pricing, these larger flake markets are even more opaque than the fines markets, particularly due to the volumes of product in each market that changes hands.

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Black Rock could have the attribute of a solid Graphite Mining Project. The Company has managed to have a solid balance sheet with a low-debt capital structure that allows it to flexibly finance its development. We are pleased to see that Black Rock is well-funded. Hence, the Company has recently raised $3.65 million via a placement and entitlement offer, along with the ongoing equity investment by POSCO. Following the funding by POSCO, the austerity measures were tapered off. The Company is well-positioned, heading into the second half of the year, with approximately $11.3 million in cash at the bank. Black Rock also maintained its conservative view on operating expenditure during the year, with the continued deferral of remuneration for all Directors, staff and Full-Time Equivalent contractors by 75%, following a progressive adoption of 50% in November 2019 and a further 25% in April 2020. The Company has shown exemplary discipline in managing its cash-burn rate, and we expect BKT’s Expense/Cash ratio to remain below 55% in the next three-year period. In line with this, we forecast the working capital to remain steady above $3.96 million and reach $5.5 million annually by FY24.

Black Rock is forming a highly experienced team

More recently, the Company started to transition its focus towards constructing the Mahenge Graphite Mine. In doing so, BKT has appointed a highly experienced project manager, Mr Daniel Pantany, as General Manager, Engineering and Technical. This is important as Black Rock is preparing to make a final investment decision and, consequently, scale up its project development execution and plan for commissioning and ramp-up. Along with Mr Pantany, Mr Paul Sims has recently joined Black Rock. He is a highly credentialled finance resources executive with over twenty-five years of executive experience in the resources industry. He has previous exposure to zinc, iron ore, cobalt, nickel, and uranium commodities spanning from finance to commercial roles at BHP, WMC Resources, Minara Resources, and Karara Mining. Mr Sims’ initial focus will be on activities supporting the engagement and structure of project development financing.

The Company is currently engaged in discussions with many parties to secure project financing for the Mahenge Graphite Mine. Mr Sims will commence his role with Black Rock on the 26th of April 2022.

We believe that Black Rock is on the verge of success and will play a substantial role in the global transition to a low carbon future.

Technical Analysis

The Black Rock share price had been pushing higher since December last year. This came after BKT provided investors with an update regarding its Mahenge Graphite Project in Tanzania. BKT shares did pretty well for the last twelve months, appreciating almost 80%. It appears that the market accepts that Black Rock Mining is the fourth largest graphite resource globally, indicating huge potential for the future. Furthermore, BKT’s price action has been correlated to the price of Graphite. The demand for this material has grown considerably and is expected to double in the next decade.

Furthermore, supporting BKT’s upside is the strategic alliance with POSCO.

Black Rock Graphite Mine is now construction ready. Hence, the Company’s shares have gradually increased throughout the period on the back of investor hype.

BKT is trading at 22.5 cents per share, closing the day at the key support level. This key support level is also the 50% retracement level from its all-time high at 28.5 cents. We have witnessed tremendous volume on the 17th of February, which propelled BKT to its record high. This is a particularly good sign, as several indicators confirm further upside potentials, such as the Relative Strength Index pointing above its 50-level and the substantial amount of support underneath at the 61.8% Fibonacci level. These levels of support could offer interesting entries level for a “buy” opportunity.

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Black Rock is a graphite developer focused on its 100%-owned Mahenge Graphite Project in Tanzania. Graphite has emerged as a critical material that is required in the production of batteries. However, developing graphite mines remains challenging. Thus, there are several barriers to entry. BKT is setting itself apart from its peers after achieving one of the industry’s largest pilot plant programs. Black Rock has also signed a Strategic Alliance with the US$20 billion-plus POSCO Group. This strategic alliance is a strong industry validation and BKT is course to exhibit tremendous upside potential. We recommend a “Buy”.

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