Magnis Resources improves agreement terms for flagship Nachu project in Tanzania

Magnis Resources ASX MNS graphite Tanzania Nachu project
Magnis Resources representatives with the Director General and CEO of EPZA Col. (retired) Joseph Leon Simbakalia.

Graphite major Magnis Resources (ASX: MNS) has secured a series of operational improvements for its planned Nachu project in Tanzania. In a co-operative announcement, Magnis and Tanzanian government representatives announced a series of changes to the Special Economic Zone (SEZ) agreed last year.

Under the newly-agreed terms, Magnis subsidiary Uranex will now mine and sell graphite ore directly to Magnis Technologies Tanzania (MTT), rather than graphite concentrate.

More broadly, Magnis is rapidly moving into developing lithium-ion battery technology to try to become one of the world’s largest manufacturers of battery cells.

To do this, Magnis wants to acquire substantial mining, processing and manufacturing capability in parallel. Magnis expects to capture the entire supply chain in sourcing the raw materials and associated technologies for the cells.

Agreement details

At the project level, Uranex will control quarry operations, water supply system, tailings dam operation, and will deliver ore to the MTT processing plant. However, under the new terms, Magnis stands to gain significant operational improvements for its Nachu project.

More specifically, Magnis says that Uranex will operate in accordance with the legislative changes made in 2017, but its other subsidiary MTT will benefit from an exclusive Special Economic Zone (SEZ) status.

SEZ status allows Magnis to take 100% control of MTT in Tanzania, and “treats the SEZ area as an offshore entity” with a corporate tax-free status for 10 years.

Magnis says these conditions will ultimately “help to mitigate the concerns regarding investment following the aforementioned legislative changes.” Magnis will also benefit from rights to keep all revenue offshore and allow “international arbitration” in case of any future disputes.

The agreed SEZ changes are pointing to a fundamental shift in how foreign miners are reconciling the risk of working in politically sensitive areas that can often fall short of international mining standards.

As Small Caps reported last month, even large electronics companies have found difficulty in sourcing ample amounts of key battery-industry elements due to high demand schedules and oftentimes prohibitive domestic regulations.

“The Board and Management are delighted with the amendments to our SEZ licence and for the ongoing support provided to us by the Tanzanian Government. This agreement crystallises the value of our Nachu Graphite Project and establishes MTT as an approved graphite processor in Tanzania,” said Frank Poullas, Chairman of Magnis Resources.

By tweaking some of the previously agreed conditions, Magnis will potentially reduce its capital expenditure requirement as forecast by its completed BFS and could therefore stand to generate larger commercial returns than previously expected.

Based on the Bankable Feasibility Study (BFS) completed in 2016, the majority of the capital investment will now be made by MTT at approximately US$230 million with the remainder by Uranex at approximately US$40 million. The only capital expenditure associated with Uranex is expected from “tailings dam and site water supply system,” according to Magnis.

Market participants seemed to agree with the positive sentiment as Magnis shares opened around 20% higher this morning, driven by the company’s unexpected project-viability boost.

At the time of writing, Magnis shares were trading at A$0.485 per share, valuing the company at around A$235 million by market capitalisation.

Filip has written in both Australia and abroad during his career, covering everything from the global economy, politics and geopolitical issues to commodities and small cap stocks on the ASX.