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QUANTUM GRAPHITE LIMITED Interim / Quarterly Report 2015
65646_rns_2015-02-01_94fa1924-b876-4c3e-8cee-47b76a8b182e.pdf
Interim / Quarterly Report
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ASIA PACIFIC I EUROPE I NORTH AMERICA
ASX: VXL & VXLO 30 January 2015
Valence Industries Quarterly Activity Report
For the Quarter Ending 31 December 2014
Graphite producer, Valence Industries Limited (ASX: VXL) ("Valence Industries", "the Company") is Australia's only graphite production company. The Company is bringing the Uley GraphiteTM mine back into production.
The strategy is to maximise production and sales from the Phase I plant, build and deliver increased production from Phase II and develop Phase III advanced manufacturing capacity for specialist, high purity and micronised graphite products.
Valence Industries' goal is to become a leading global graphite production company and manufacturer of advanced, high-margin graphite related products.
Quarter Highlights
- South Australian Government approval granted to commence production at Uley GraphiteTM mine.
- Commencement of commissioning at the 14,000tpa Phase I plant on 25 December 2014.
- Completion of economic Feasibility Study for expansion of Uley GraphiteTM site for;
- o Phase II expanded production; and
- o Phase III advanced product handling and manufacturing including high purity production and micronisation.
- Maiden high grade Ore Reserve of; 261,000t @ 12.9% graphitic Carbon (gC) confirmed at Uley Pit 2
- o Reserve to support an initial 5+ year mine life
- o Uley Pit 2 Extension drilling currently underway and is expected to extend mine life
- Recruitment of operational personnel for 24/7 shift operations
- Appointment of Ian Pattison as a Non-Executive Director
- Cash of $8.32m at 31 December 2014.
The Phase I plant is currently reprocessing raw material from existing fines stockpiles, with 10 tonnes produced since mid-January. The production rate will continue to be ramped up progressively, and the Company is pleased with the initial performance of the plant.
Uley Operations
Feasibility Study for expanded operations delivered
On 31 December 2014 Valence Industries delivered its Feasibility Study for expansion of its existing operations and for further advanced product handling and manufacturing treatment of its flake graphite products.
The Feasibility Study defined an advanced manufacturing program with two key aspects: the expansion of base flake graphite concentrate production at the Uley GraphiteTM site, and a combined advanced product manufacturing and handling and high purity and micronisation facility to be established at the port of Adelaide.
The Feasibility Study reflects Valence Industries' continued focus on a program of advanced manufacturing, which shifts the emphasis from bulk tonnages to higher value added product lines and increased margins.
Expansion of facilities at the Uley GraphiteTM site is expected to provide additional processing capacity in 25,000 tpa increments of graphite output to reach 64,000 tpa. The Phase II plant is also designed to deliver significant advances in quality and output reliability with reduced processing costs compared to the existing Phase I plant. The combined Capex for the Phase II plant expansion and to establish Uley Pit 2 open pit mine will be $37 million.
The need to deliver efficient supply of multiple flake graphite products (with certainty of cost and reliable, timely delivery) has determined that an Advanced Product Handling facility be established near the company's export port at Adelaide. In addition Valence Industries will establish a high purity and micronisation plant at the Advanced Product Handling Facility to provide further refinement and post-processing for further value-added product lines. The Capex for the Phase III program is $13M.
Direct operating costs identified in the Feasibility Study are significantly lower than current Phase I operations, and are expected to average in the range of A$400/t to A$500/t at mine gate and in the range of A$750/t to A$950/t FOB in Port Adelaide.
The Feasibility Study also included an analysis of the global graphite market. It confirmed that the graphite market is facing a shortfall in supply over the next few years, and that Valence Industries is well placed relative to other emergent graphite producers, as it has the ability to provide material to customers now from existing production facilities.
Full details on the Feasibility Study are available in the Company's ASX announcement of 2 January, 2015.
Opening of Uley GraphiteTM Mine and Commissioning of Phase I Plant
The Uley GraphiteTM mine was formally opened on 25 November and has received strong community and government support. The mine is Australia's only graphite mine and the opening marked a significant point in the Company's development timeline.
Commissioning and initial production commenced on 25 December 2014 after the Company received regulatory approvals from the South Australian government (ASX announcement, 24 December, 2014).
Using the pre-processed fines stockpiles at site the Flotation Circuit, Product Thickening, Drying, Screening and Bagging are now operational. The flake graphite output grades of
reprocessed fines are consistent with targeted purity rates with significant proportions currently reporting in large flake sizes, including +35 Mesh, +50 Mesh and +80 Mesh. The reprocessing of the fines stockpiles is the first step in the production program and due to the already high purity levels, is producing at a rate less than the output capacity of the plant.
Fines Reprocessing in Flotation Circuit Reprocessed Fines in Thickener
Over coming weeks, commissioning is expected to shift to incorporate the unprocessed run-of-mine stockpiles and the full primary processing circuit. The ball mill has been charged and the feed stock from run-of-mine stockpiles is being screened, resized and assayed in preparation for the production program. Currently 12,500 tonnes from run-ofmine stockpiles have been prepared as feed stock.
Plant commissioning has been combined with the commissioning of new laboratory facilities at Uley. The new laboratory facilities will allow the Company to meet operational and customer requirements for QA/QC certification.
Screening & Resizing of ROM Stockpiles Assayed Feed Stock ROM
The full commissioning of the Uley Phase I plant will be completed in Q1, 2015 with first export shipments scheduled for Q1 2015. Currently 90 tonnes from the fines stockpiles has been reprocessed in the commissioning program ahead of dispatch to customers.
Bagging of Production – 1 tonne Bulka bags
Maiden high grade Ore Reserve delivered
During the December quarter the Company delivered its maiden graphite Ore Reserve at the Uley GraphiteTM site of 2.035Mt at an average grade of 12.9% gC (graphitic Carbon), for 261,000 contained tonnes of graphite. It is notable that this Ore Reserve is the only graphite Ore Reserve issued under JORC 2012 by any ASX listed company or by any TSX or TSXV company (under the equivalent NI 43-101 program).
Also, during the quarter, a further drilling program drilling was commenced at the Uley Pit 2 Extension. Results from this program are expected to be available by late March for the zone at the north on Uley Pit 2, and by June for the larger Uley Pit 2 Extension to the south. It is the Company's aim to upgrade the Uley Resource and Reserve statements based on the results of the drill program.
Safety & Environment
In the quarter Valence Industries obtained regulatory approval for its environmental protection and rehabilitation programs and is in the process of implementation the approved programs.
The Company achieved an excellent safety record in the quarter with no lost time injury at its Uley GraphiteTM operations.
The Program for Environment Protection and Rehabilitation (PEPR) approval received on 23 December 2014 allowed commissioning to commence. Concerns about intersection of the ground water meant that an initial 16 metre depth limit was placed on the mine plan pending the results of hydrological studies at the Uley Pit 2 mine area. The full depth of the mine plan is up to 60 metres. A series of bores to monitor ground water depth and impact will be commenced this quarter. Currently, basement ground water is being encountered only at a depth of 150 metres.
The limitation on mine depth will be reviewed this year with the regulators and relevant approvals will be sought to continue mining below 16 metres. In the interim there is sufficient ore in the existing run-of-mine stockpiles and from mining to a depth of 16 metres to feed processing for more than 24 months.
In addition, monitoring stations will be put in place to allow environmental studies to confirm no contamination by hydrocarbons.
Environmental performance is an increasingly important facet of Valence Industries' marketing success with global customers. There is a growing demand for manufacturers to provide assurance of the provenance and environmental practices of their industrial inputs in environmentally significant applications and in consumer products. Therefore the careful stewardship of environmental standards is an important aspect of all the Company's operations.
Our People
In the quarter Valence Industries ramped-up its recruitment of personnel required for our operations. This incurred significant cost ahead of grant of approvals for production.
The Company now has a qualified team of site operations personnel who live on the Eyre Peninsula within commuting distance from the Uley plant.
Valence Industries' commitment to Port Lincoln and the Eyre Peninsula has also extended to engagement with a significant number of local and regional contractors.
Our Customers
In the quarter, Valence Industries increased customer commitments across a range of industries and regions.
Product qualification in the graphite market is an essential precursor to the confirmation of larger scale product supply contracts. The length of the qualification process differs between industries depending on the complexity of the manufacturing process. This means our qualifications are being staggered to recognise differing approval periods and to meet our increasing capacity to produce.
The process of qualification has involved shipment of samples to 15 new customers engaged in a range of industries from refractories to advanced engineering. Currently Valence Industries has achieved qualification with 9 global customers across 4 key industry segments in 8 product categories. More qualifications are expected in the next quarter. As production rates are progressively increased the qualification program is structured to lead to new sales contracts in addition to conversion of the current MOUs that already contemplate more than 80,000 tonnes of graphite sales over 3 years.
Valence Industries has a market development strategy involving active engagement with European, Asia Pacific and North American customers and multiple industries. This global reach and industry diversity is designed to achieve optimum prices for the high quality flake graphite produced by Valence Industries and to manage the Company's exposure to any particular market segment or region.
Finance and Corporate
CASH STATEMENT
Valence Industries had $8.32 million cash on hand as at 31 December 2014.
As part of the Company's obligations under the Uley GraphiteTM Program for Environment Protection and Rehabilitation (PEPR) approved on 23 December 2014 a rehabilitation bond of $1.709M was lodged.
A term deposit held as security against that bond has been classified as restricted cash in the Company's balance sheet and therefore as a cash outflow in the attached Appendix 5B.
Recruitment and pre-commissioning ahead of permitting incurred expenses of over $0.9M
Expenditure on exploration activities during the quarter amounted to $158,000.
Payment for plant and laboratory programs as part of the pre-commissioning, construction testing and installation of equipment, particularly in conjunction with the primary processing circuit, amounted to $3.5 million.
COMPLETION OF SPP
In Q3 2014 Valence Industries issued 17,142,844 shares to Institutional and sophisticated investors for a placement to raise $12.0 million (before costs) at an issue price of $0.70 per share (Placement).
A Share Purchase Plan was also offered to all eligible shareholders in Australia and New Zealand at a price of $0.70 per share (SPP). That SPP was designed to allow all shareholders to participate in new securities in Valence Industries on the same terms as the offer to applicants under the placement. The SPP closed on 31 October 2014 raising a further $687,500.
APPOINTMENT OF DIRECTOR
The Company appointed Ian Pattison as a Director on 10 December 2014. Mr Pattison is a solicitor and chartered accountant and has deep experience in capital markets having worked with Donaldson Lufkin Jenrette Inc and Greenwich based Paloma Partners LLC.
| TENEMENT NUMBER | TENEMENT NAME | BENEFICIAL INTEREST1 | CHANGES DURING Q42014 |
|---|---|---|---|
| ML 5561 | Uley GraphiteMining Licence 1 | 100% | No change |
| ML 5562 | Uley GraphiteMining Licence 2 | 100% | No change |
| RL 66 | Uley GraphiteRetention Licence 1 | 100% | No change |
| RL 67 | Uley GraphiteRetention Licence 2 | 100% | No change |
| EL 4778 | Uley SouthExploration Licence | 100% | No change |
TENEMENT LISTING
1 Interests held as at the end of the quarter
Capital Structure
Shares: 186,681,979 Listed options: 52,199,188 Unlisted options: 19,750,000
Board of Directors & Officers
Graham Spurling, AM Non-executive Chairman
Christopher S. Darby Chief Executive Officer & MD
Glenister Lamont Non-executive Director
Ian Pattison Non-executive Director
Ian Schache Non-executive Director
Jarek Kopias Company Secretary & CFO
For further information, please contact:
Christopher S. Darby Chief Executive Officer & MD Valence Industries
Jarek Kopias CFO & Company Secretary Valence Industries
[email protected] +61 8 8418 8564
Media and Investor Relations James Moses, Mandate Corporate p: +61 420 991 574 e: [email protected]
Competent Persons Statement
Valence Industries confirms that it is not aware of any new information or data that materially affects the information included in this announcement and that all material assumptions and technical parameters underpinning the estimates in this announcement continue to apply and have not materially changed since the announcements previously released as "Valence Doubles Existing ROM Stockpiles" (6/8/14), "Uley Graphite Grade Increases to 11.7%" (17/11/14), "Maiden High Grade Graphite Ore Reserve" (17/12/2014) and "VXL Feasibility Study Expansion and Adv Manufacturing" (2/1/15).
Forward Looking Statements
All statements other than statements of historical fact included in this announcement including, without limitation, statements regarding future plans and objectives of Valence Industries Limited (Valence Industries) are forward-looking statements. When used in this announcement, forward-looking statements can be identified by words such as 'may', 'could', 'believes', 'estimates', 'targets', 'expects' or 'intends' and other similar words that involve risks and uncertainties. These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, as at the date of this announcement, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the control of the company, its directors and management of Valence Industries, that could cause Valence Industries' actual results to differ materially from the results expressed or anticipated in these statements.
Valence Industries cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this announcement will actually occur and investors are cautioned not to place undue reliance on these forward-looking statements. Valence Industries does not undertake to update or revise forward-looking statements, or to publish prospective financial information in the future, regardless of whether new information, future events or any other factors affect the information contained in this announcement, except where required by applicable law.
Current quarter
Appendix 5B
Mining exploration entity and oil and gas exploration entity quarterly report
Introduced 01/07/96 Origin Appendix 8 Amended 01/07/97, 01/07/98, 30/09/01, 01/06/10, 17/12/10, 01/05/2013 Name of entity
Valence Industries Limited
ABN Quarter ended ("current quarter") 41 008 101 979 31 December 2014
Year to date
Consolidated statement of cash flows
| Cash flows related to operating activities | (6.months) | ||
|---|---|---|---|
| $A'000 | $A'000 | ||
| 1.1 | Receipts from product sales and related debtors | - | - |
| 1.2 | Payments for(a) exploration & evaluation | (158) | (873) |
| (b) development | (183) | (292) | |
| (c) production | (925) | (1,173) | |
| (d) administration | (788) | (1,586) | |
| 1.3 | Dividends received | - | - |
| 1.4 | Interest and other items of a similar naturereceived | - | - |
| 1.5 | Interest and other costs of finance paid | 110 | 193 |
| 1.6 | Income taxes paid | - | - |
| 1.7 | Other (provide details if material) | - | - |
| (1,944) | (3,731) | ||
| Net Operating Cash Flows | |||
| 1.8 | Cash flows related to investing activitiesPayment for purchases of: | ||
| (a) prospects(b) equity investments(c) other fixed assets | --(2,538) | --(4,935) | |
| 1.9 | Proceeds from sale of: | ||
| (a) prospects | - | - | |
| (b) equity investments | - | - | |
| (c) other fixed assets | - | - | |
| 1.10 | Loans to other entities | - | - |
| 1.11 | Loans repaid by other entities | - | - |
| 1.12 | Other (provide details if material) | - | - |
| (2,538) | (4,935) | ||
| Net investing cash flows | |||
| 1.13 | Total operating and investing cash flows (carriedforward) | (4,482) | (8,666) |
| 1.13 | Total operating and investing cash flows (broughtforward) | (4,482) | (8,666) | ||
|---|---|---|---|---|---|
| Cash flows related to financing activities | |||||
| 1.14 | Proceeds from issues of shares, options, etc. | 696 | 12,785 | ||
| 1.15 | Proceeds from sale of forfeited shares | - | - | ||
| 1.16 | Proceeds from borrowings | - | - | ||
| 1.17 | Repayment of borrowings | (5) | (10) | ||
| 1.18 | Dividends paid | - | - | ||
| 1.19 | Other (share issue expenses) | (631) | (930) | ||
| Other (movement in restricted cash – bond) | (1,709) | (1,709) | |||
| Net financing cash flows | (1,649) | 10,136 | |||
| Net increase (decrease) in cash held | (6,131) | 1,470 | |||
| 1.20 | Cash at beginning of quarter/year to date | 14,454 | 6,853 | ||
| 1.21 | Exchange rate adjustments to item 1.20 | - | - | ||
| 1.22 | Cash at end of quarter | 8,323 | 8,323 |
Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report
Note: Cash balance excludes $1.709 million held against a bank guarantee for obligations under the approved PEPR for Uley GraphiteTM operations which is treated as Restricted Cash in the Company's financial statements.
Payments to directors of the entity, associates of the directors, related entities of the entity and associates of the related entities
| Current quarter | ||
|---|---|---|
| $A'000 | ||
| 1.23 | Aggregate amount of payments to the parties included in item 1.2 | 134 |
| 1.24 | Aggregate amount of loans to the parties included in item 1.10 | - |
1.25 Explanation necessary for an understanding of the transactions Directors' fees, superannuation and consulting fees paid to entities associated with Directors.
Non-cash financing and investing activities
2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows
Nil
2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest
Nil
Appendix 5B Mining exploration entity and oil and gas exploration entity quarterly report
Financing facilities available
Add notes as necessary for an understanding of the position.
| Amount available | Amount used | |||
|---|---|---|---|---|
| $A'000 | $A'000 | |||
| 3.1 | Loan facilities | - | - | |
| 3.2 | Credit standby arrangements | - | - |
Estimated cash outflows for next quarter
| $A'000 | ||
|---|---|---|
| 4.1 | Exploration and evaluation | 1,000 |
| 4.2 | Development | 1,500 |
| 4.3 | Production | 1,800 |
| 4.4 | Administration | 700 |
| Total | 5,000 |
Reconciliation of cash
| Reconciliation of cash at the end of the quarter (as shown inthe consolidated statement of cash flows) to the related | Current quarter$A'000 | Previous quarter$A'000 | ||
|---|---|---|---|---|
| items in the accounts is as follows. | ||||
| 5.1 | Cash on hand and at bank | 1,147 | 1,654 | |
| 5.2 | Deposits at call | - | - | |
| 5.3 | Bank overdraft | - | - | |
| 5.4Other 30 to 90 day term deposits | 7,176 | 12,800 | ||
| Total: cash at end of quarter (item 1.22) | 8,323 | 14,454 |
Changes in interests in mining tenements and petroleum tenements
| Tenementreferenceandlocation | Nature of interest(note (2)) | Interest atbeginningof quarter | Interest atend ofquarter | ||
|---|---|---|---|---|---|
| 6.1 | Interests in miningtenements andpetroleum tenementsrelinquished, reduced orlapsed | Not applicable | |||
| 6.2 | Interests in miningtenements andpetroleum tenementsacquired or increased | Not applicable |
Issued and quoted securities at end of current quarter
Description includes rate of interest and any redemption or conversion rights together with prices and dates.
| Total number | Number quoted | Issue price persecurity(see note 3)(cents) | Amount paid upper security(see note 3)(cents) | ||
|---|---|---|---|---|---|
| 7.1 | Preference+securities(description) | ||||
| 7.2 | Changes duringquarter(a) Increasesthrough issues(b) Decreasesthrough returnsof capital, buybacks,redemptions | ||||
| 7.3 | +Ordinarysecurities | 186,681,979 | 153,865,337 | ||
| 7.4 | Changes duringquarter(a) Increasesthrough issues- SPP- Optionsexercised(b) Decreasesthrough returnsof capital, buybacks | 982,18736,598 | 982,18736,598 | 70.00 cents25.00 cents | 70.00 cents25.00 cents |
| 7.5 | +Convertibledebt securities(description) | ||||
| 7.6 | Changes duringquarter(a) Increasesthrough issues(b) Decreasesthroughsecuritiesmatured,converted | ||||
| 7.7 | Options(description and | 68,449,188 | 52,199,188 | Exercise price25.00 cents | Expiry date31 July 16 |
|---|---|---|---|---|---|
| conversion | |||||
| factor) | 3,500,000 | - | 25.00 cents | 31 July 16 | |
| (vested) | |||||
| 7.8 | Issued during | - | - | - | - |
| quarter | |||||
| 7.9 | Exercised duringquarter | 36,598 | 36,598 | 25.00 cents | 31 July 16 |
| 7.10 | Expired during | 1,550,000 | - | 25.00 cents | 31 July 16 |
| quarter | (31 Oct 14 KPI)500,000 | - | 25.00 cents | 31 July 16 | |
| (30 Jun 15 KPI) | |||||
| 7.7 | Performance | Exercise price | Expiry date (KPI | ||
| Rights | based) | ||||
| (description and | - | - | - | - | |
| conversion | |||||
| factor) | |||||
| 7.8 | Issued during | - | - | - | - |
| quarter | |||||
| 7.9 | Exercised during | - | - | - | - |
| quarter | |||||
| 7.10 | Expired during | 687,500 | - | Nil | 31 October 14 |
| quarter | 687,500 | Nil | 30 June 2015 | ||
| 7.11 | Debentures | - | - | ||
| (totals only) | |||||
| 7.12 | Unsecured | - | - | ||
| notes (totals | |||||
| only) |
Compliance statement
- 1 This statement has been prepared under accounting policies, which comply with accounting standards as defined in the Corporations Act or other standards acceptable to ASX (see note 5).
- 2 This statement does give a true and fair view of the matters disclosed.
Sign here: Date: 30 January 2015
Company secretary Print name: Jaroslaw (Jarek) Kopias
Notes
- 1 The quarterly report provides a basis for informing the market how the entity's activities have been financed for the past quarter and the effect on its cash position. An entity wanting to disclose additional information is encouraged to do so, in a note or notes attached to this report.
- 2 The "Nature of interest" (items 6.1 and 6.2) includes options in respect of interests in mining tenements and petroleum tenements acquired, exercised or lapsed during the reporting period. If the entity is involved in a joint venture agreement and there are conditions precedent which will change its percentage interest in a mining tenement or petroleum tenement, it should disclose the change of percentage interest and conditions precedent in the list required for items 6.1 and 6.2.
- 3 Issued and quoted securities: The issue price and amount paid up is not required in items 7.1 and 7.3 for fully paid securities.
- 4 The definitions in, and provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and AASB 107: Statement of Cash Flows apply to this report.
- 5 Accounting Standards: ASX will accept, for example, the use of International Financial Reporting Standards for foreign entities. If the standards used do not address a topic, the Australian standard on that topic (if any) must be complied with.
