Hexagon Resources Ltd (ASX:HXG) (FRA:F93) is working towards positive cashflow in its balance sheet as it commercialises its graphite assets and a feasibility study is produced for its McIntosh joint venture with Mineral Resources Limited (ASX:MIN) in Western Australia.
The Western Australian company’s upstream efforts towards its goal have included encouraging early drilling outcomes from its flagship McIntosh Graphite Project in the East Kimberley subregion.
Hexagon has 49% of the formal McIntosh Joint Venture (MJV) while Chris Ellison's MinRes has 51%.
The company’s downstream efforts have netted 'five-nines' total graphitic carbon purification from a large pilot-scale 20-kilogram sample — a 99.999% graphite quality.
Hexagon has a clear business strategy to become a vertically-integrated advanced materials business that produces quality graphite products for premium end-use markets.
It has previously reported the high-purity five-nines grading is “easily achievable” with its graphite, making its output amenable to high-end uses such as in the expandable graphite sector, for battery chemistries and in a range of other applications.
Initial cell-cycling test work of purified, uncoated McIntosh spherical graphite reported on in July 2018 showed the project’s graphite could be used to produce the highest quality synthetic graphite utilised in battery applications.
Hexagon managing director Mike Rosenstreich spoke to Proactive Investors’ Stocktube video channel about the company’s achievements this week.
Focusing in on the December quarter of 2018, Rosenstreich highlighted a 10,683-metre diamond core (DD) and reverse circulation (RC) drilling campaign that was completed in the quarter.
Rosenstreich affirmed the company was expecting imminent results from its December quarter drilling campaign.
He said: “We all got an early start to the year.
“Having finished that big drill program, we’re now awaiting the last of the assay results that go into the drill summary, and also those drill results will then feed into an updated mineral resource estimate for the project.
“That should be being reported imminently, it’s being driven by Mineral Resources.”
Exciting finds from Hexagon’s fieldwork included an extensive, thick zone of shallow graphite mineralisation intersected at the new Mahi Mahi target.
A previous pre-feasibility study (PFS) had valued the project at $261 million using a pre-tax net present value (NPV) calculated at an 89% discount.
The corresponding internal rate of return (IRR) was 46% before tax.
Start-up capital needed was $148 million, with mine payback tipped at three years.
A technology the McIntosh JV sourced from the US allows the partners to target five-nines quality and achieve higher gradings than previously modelled by changing when key steps in the flow-sheeted process occur.
Hexagon CR2106 lithium-ion cells
Milestones and value-building efforts
Mineral Resources inked a JV agreement for McIntosh in the June half-year of 2018, agreeing to earn into its now formalised JV stake with a number of key commitments.
These include producing a definitive feasibility study (DFS) that was started about July.
MinRes is responsible for undertaking all feasibility studies up to October 14 this year, starting project development activities by April 14, 2020, and completing those activities so the commercial production of the project’s graphite concentrate can be produced by April 21, 2021.
Writing in its quarterly report last week, Hexagon noted a “feasibility study (was) in progress and updated mineral resource estimate to underpin mine development work (was) expected in February 2019.”
The McIntosh resource is 21.3 million tonnes grading 4.5% total graphitic content (TGC).
Hexagon’s leader noted it would produce a scoping study to draw together the technical reports that had been published over the past year and put them in a business context.
Rosenstreich told Stocktube: “To underpin (our) downstream business, we also announced the engagement of GR Engineering based here in Perth to run a scoping study for us on that downstream business.
“The objective of the scoping study, for the first time, is to present all of those technical reports in the context of the business case in terms of operating costs, revenues, and things like that.
“That’ll be a great outcome when we release that scoping study report.”
Hexagon chairman Charles Whitfield told shareholders at the company’s annual general meeting in November he was confident of the company’s position and path to “a profitable and valuable business”.
Whitfield also addressed the progress the company had made in the prior 12 months, attracting full financing for its world-class McIntosh project through its joint venture with MinRes ahead of a final investment decision.
MD Rosenstreich had outlined the company’s strategy, emphasising it planned to analyse the complex and fragmented graphite market to understand it better and position the company to maximise opportunities to extract value.
Speaking this week on upstream efforts to build value, the corporate leader said: “The other key thing for the upstream business is that the core objective of that drilling program was actually to secure drill core samples to undertake piloting for our flotation test work.
“That piloting gets us to finalise our process design criteria, and also generates concentrate sample for both marketing and further downstream test work.
“So, really looking forward to being able to share those results with our investors and interested parties.”
Drill core from the McIntosh project
As with any industrial minerals company hoping to put see its project turned into a productive mining operation, Hexagon is focused on offtake agreements.
Rosenstreich told Stocktube: “Offtake’s, the Holy Grail, that's what everyone asks me about all the time, (although) I don’t necessarily share that it is the Holy Grail for a company in our position.
“We take the approach of our marketing or our offtake as a steady, steady approach rather than just try and make a splashy headline.
“We’ve done a lot of these scientific studies … and before we go marketing something full scale, we really need to make sure that we understand what the technical attributes of what we’re selling are (so) we understand the full spectrum of value drivers for that material.”
Hexagon’s focus is on engaging with potential end users of its battery-grade flake graphite.
Rosenstreich said: “We are engaged with a whole range of end party users, whether or not that’s for battery materials, or the quite exciting electrode space that we’re looking to fill, or for large flake materials.
“We’re engaged across the spectrum, and I’m sure that we will have updates in terms of offtakes and collaborations coming out systematically through the course of this year.”
Hexagon and MinRes have set aside a plan to establish a company for the joint marketing of graphite concentrate.
The Applecross-based partners are instead planning to use a joint graphite-concentrate marketing framework agreement for their collaboration and adopt joint branding.
Hexagon used $529 on operating activities in the December quarter, ending the period with $5.8 million cash.
It has forecasted cash outflows of $1.3 million in March quarter 2019, including $337,000 on exploration and evaluation and $470,000 on development.
Hexagon’s top 20 shareholders have 50.64% of the company.
Among the major shareholders are HSBC Custody Nominees (Australia) Limited at number-one with a 8.21% stake while Citicorp Nominees Pty Limited is the second-largest holder with 7.66% and UBS Nominees Pty Ltd is third with 6.02%.
Ellison’s MinRes is number four at 3.61% while Investorlink Group Limited is fifth at 3.22%.
Also on the list are Forsyth Barr Custodians Ltd (3.13%) in sixth and JP Morgan Nominees Australia Limited (2.49%), the seventh-largest holder.
— with Danielle Doporto