Graphex Mining Ltd (ASX:GPX) is developing the Chilalo graphite project in Tanzania. Unlike the majority of other graphite developers that have targeted the spherical graphite sector, Graphex plans to sell concentrate from Chilalo into the expandable graphite market.
Expandable graphite is used predominately in flame retardant building materials. Recent changes in Chinese building regulations have mandated the use of flame retardant building materials in all future constructions, meaning the demand for expandable graphite looks set for significant growth.
The Chilalo project is one of the world's premier expandable graphite projects, with an expansion ratio six times the rate of Chinese projects and around three times the rate of other African development projects.
Analyst Comment: Offtake in our opinion is the most critical aspect prior to the development of any commodity that is not traded on a designated metal exchange (such as graphite). Without offtake there is no guarantee of a buyer for the product, which in turn makes project financing difficult.
Graphex is on the verge of securing offtake with two highly reputable Chinese State owned enterprises (CNBM & China Gold) which would eliminates this risk. Attracting partners of this size and calibre also highlights the quality and significance's of the Chilalo Project.
With the offtake partner also likely to become a Joint Venture partner in the project (anticipated 50% acquisition at the project level), Graphex will essentially be fully funded once offtake is finalised. Given this we expect a significant re-rating in Graphex's share price once the binding offtake terms are finalised in early 2017.
