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15 November 2016
Industrial Metals
Ryan Walker, MSc | 416.479.8997 | [email protected]
Gabriel Gonzalez, CFA | 647.484.7285 | [email protected]
Energizer Resources Inc.
A Phased Approach to Quicker Graphite Production at Molo
Source: Capital IQ
Market DataMarket Capitalization ($M) 27.7
Cash & Equivalents ($M) 4.5
Debt ($M) 0.0
Enterprise Value ($M) 23.2
Basic Shares O/S (M) 461.0
Fully Diluted Shares O/S (M) 560.3
Avg. Daily Volume (k) 280.6
52-Week Range $0.05 - $0.13
Key AssetMolo Graphite Project (100%), Madagascar
Category Tonnes (M) % C
Proven 14.17 7.00%
Probable 8.37 6.25%
Measured 23.62 6.32%
Indicated 76.75 6.25%
Inferred 40.91 5.78%
ManagementChairman: John P. Sanderson
President & CEO: Craig Scherba
CFO: Marc Johnson
Sr VP, Corp. Dev. Brent Nykoliation
Sr VP, Exploration Quentin Yarie
Top ShareholdersHolder Shares Held, %
Goodman & Company, Investment Counsel Inc. 19.4
J.P. Morgan Asset Management, Inc. 5.5
VR Global Partners, L.P. 4.9
IG Investment Management, Ltd. 4.5
U.S. Global Investors, Inc. 2.6
Vr Advisory Services Ltd. 1.4
Management 7.0
Events/CatalystsStrategic off-take partner — H216-
Modular Plan Financing — Q117
Enviro & Social Impact Assessment & Permitting — Q117
Initiate construction — Q317
First Production — Q418
Company Description
Energizer Resources Inc. is a mineral exploration and
development company focused advancing the 100%-
owned permitting-stage Molo graphite project in
Madagascar. Molo contains a Proven & Probable
Reserve of 1.6M tonnes of predominantly large-flake
graphite grading 7.0%, and an additional 7.1M tonnes
grading 6.0% across all Resource (M&I+I) categories.
The February 2015 Molo Feasibility Study outlined a 26-
year mine-life producing 53,000 tonnes/year and
generating 31.2% post-tax IRR and 4.8 year payback.
Cutoff (%C)
4.50%
4.50%
2.00%
2.00%
2.00%
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
0.0
2.0
4.0
6.0
8.0
Nov-15 Feb-16 May-16 Aug-16
Volume Price
Event: We are adding Energizer Resources Inc. to our formal Watch List after recently meeting with management to discuss the Company’s 100%-owned Molo all-flake graphite project in southern Madagascar (Exhibit 1). EGZ currently trades at an EV/tonne graphite-equivalent-lb (P&P Reserves) of US$9.98/tonne, compared with select peers averaging US$37.26/tonne. Based on total resources (M,I&I) EGZ trades at US$1.82/tonne, compared with the US$8.28/tonne average (Exhibit 2). The Company recently tabled plans for a lower-risk, lower-capex phased-development approach at Molo.
Molo Details: The Molo deposit is situated 160km southeast of the city of Toliara, in the Tulear region of southwestern Madagascar, and 220km northwest of the port of Fort Dauphin. Proven and Probable Reserves total 22.44M tonnes at 7.02% carbon (C), based on a 4.5% C cutoff grade. Measured Resources total 23.62M tonnes grading 6.32% carbon (C), with Indicated Resources amounting to 76.75M tonnes at 6.25% C. Another 40.91M tonnes grading 5.78% C are classified as Inferred. The resources employ a 2% C cutoff. The deposit is exposed at surface with no pre-stripping requirement. Importantly, the deposit’s flake distribution is 46.4% large-jumbo, 78.9% medium-large-jumbo, and 21.1% small-fine, with carbon purity of 96-98% (Exhibit 2 – lower right).
New Phased Approach: EGZ recently announced the results of a Front-End Engineering and Design study of a modular demonstration plant at Molo. The plant is designed to confirm the proposed process flow sheet, and supply run-of-mine flake concentrate for final validation by potential customers. EGZ notes that several such customers have inquired about multi-tonne samples for full-scale end production runs in anticipation of signing definitive off-take deals. EGZ’s graphite concentrates have already been verified by end-users to be suitable for refractories, lithium-ion batteries, and specialty graphite foils.
Phase 1: Construction of a 240,000tpa demonstration plant to initially produce flake graphite concentrate on such a test basis, and up to 14,750tpa at full capacity. The plant would employ dry-stack tailings to avoid large upfront capex associated with a tailings dam, and would include only essential related infrastructure, using EGZ’s existing camp for accommodation and offices. EGZ has already initiated permitting application for the mining of ~50,000 tonnes of ore to feed the Phase 1 plant. The Company expects engineering, procurement, off-site fabrication and assembly, testing, shipping, onsite infrastructure construction, and plant re-assembly to take nine months. Capex is forecast at US$8.5M, (US$7M for the plant and US$1.5M for related infrastructure). EGZ estimates operating costs at full-scale production of 14,750tpa graphite at US$663.51/tonne of concentrate, including shipping and G&A (Exhibit 5). We provide a recent summary of average graphite concentrate pricing in Exhibit 4.
Phase 2: Develop sustaining infrastructure — additional on-site accommodation and offices, upgrade mine roads, acquire additional redundant processing equipment, for long-term processing, and ramp up production to 240,000tpa of ore. EGZ plans to develop a Phase 2 budget during Phase 1 development.
Phase 3: Thereafter, plans call for the development of a large-scale mine, including a tailings dam facility and the upgrade of regional roads for transporting graphite
EGZ-TSX: $0.06
Watch List
Not Rated
Energizer Resources Inc. (EGZ-TSX) | 15 November 2016
Page 2 of 7
Ryan Walker, MSc | 416.479.8997 | [email protected]
concentrate to the port. Importantly, EGZ notes that it plans to examine the possibility of utilizing modular construction (like that in Phase 1) to build the full-scale operation at Molo, and expects such an approach to yield both capital and operating costs saving compared with those outline in a February 2015 Feasibility Study (Exhibit 5). The Company also plans to consider including value-added processing (spheronization) for lithium-ion battery and graphite foil applications at the classification portion of the plant. At modular scale, such an addition is envisaged at ~US$150,000.
Exhibit 1 – The Molo Graphite Deposit – Exposed at Surface, Low Strip (0.81:1.0), Well Situated for Shipping
Source: Energizer Resources Inc.
Exhibit 2 – Graphite Exploration/Development Company Peer Comparison
Source: Capital IQ, Company Reports
Price MCap EV Project Graphite Graphite EV/t Implied +/- Total GrEq Graphite EV/t Implied +/-
Company Ticker (C$) (US$M) (US$M) Location (000t) Grade (%) US$ Valued (%) (000t) Grade (%) US$ Valued (%)
Energizer Resources EGZ:TSX $0.06 $20.4 $15.7 Madagascar 1,575 7.0% $9.98 -73% 8,654 6.1% $1.82 -78%
Focus Graphite FMS:TSXV $0.07 $8.9 $8.2 Quebec 1,189 15.1% $6.86 -82% 1,825 14.4% $4.47 -46%
Graphite One GPH:TSXV $0.08 $12.7 $12.4 Alaska 0 NA NA NA 9,929 5.8% $1.25 -85%
Lomiko Metals LMR:TSXV $0.03 $4.1 $4.0 Quebec 0 NA NA NA 1,213 3.5% $3.29 -60%
Mason Graphite LLG:TSXV $1.32 $127.6 $119.2 Quebec 1,317 27.8% $90.52 143% 11,300 17.2% $10.55 27%
Northern Graphite NGC:TSXV $0.25 $9.3 $8.7 Ontario 583 2.1% $14.84 -60% 1,215 1.7% $7.12 -14%
Syrah Resources SYR:ASX $3.17 $629.9 $485.5 Mozambique 13,187 16.2% $36.82 -1% 128,500 10.8% $3.78 -54%
Zenyatta Ventures ZEN:TSXV $0.89 $41.2 $39.1 Ontario 0 NA NA NA 1,419 3.1% $27.54 232%
Average (excluding EGZ) $37.26 $8.28
____ Proven & Probable ____ ____ Total (M&I+I) ____
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
Gra
de
C(%
)
EV/C
to
nn
e (
US$
)
EV/C tonne (US$) Av. EV/C tonne (US$) Grade C(%) M&I+I
(M,I&I)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0G
rap
hit
e F
lake
Siz
e P
rop
ort
ion
EV/C
to
nn
e (
US$
)
Large +80 Medium -80 +150 Small/Fines -150 EV/t (US$)
Energizer Resources Inc. (EGZ-TSX) | 15 November 2016
Page 3 of 7
Ryan Walker, MSc | 416.479.8997 | [email protected]
Potential Share Price Catalysts:
Strategic off take partner announcement — H216; Secure modular plant capex financing — Q117; Environmental and social impact assessment and permitting — Q117; Initiate Construction — Q317; and First production — Q418.
Graphite Industry Primer: Graphite’s unique physical properties include the highest strength and stiffness of any natural material, excellent electrical and thermal conductivity, high melting point, corrosion resistance, lightweight, malleability, chemically inert, and corrosion resistance. Graphite flake size and purity dictate its industrial end uses and pricing, with large-flake graphite prices typically ~20% higher than medium-flake prices. We present a summary of 60-month (June 2011 to May 2016) average graphite concentrate sales price calculated from the Benchmark Mineral Intelligence Flake Graphite Price Index in Exhibit 4. Meanwhile, negotiations between suppliers and consumers to set new contract prices in 2017 are ongoing, with contracts yet to be formalized.
Exhibit 3 – Natural Graphite Production & Use (top), and End Use Evolution (bottom)
Source: Benchmark Mineral Intelligence - Preliminary Economic Assessment Report for the Matawinie Graphite Project
Energizer Resources Inc. (EGZ-TSX) | 15 November 2016
Page 4 of 7
Ryan Walker, MSc | 416.479.8997 | [email protected]
Exhibit 4 – 60-Month Average Graphite Concentrate Sales Prices
Source: Benchmark Mineral Intelligence (Benchmark) Flake Graphite Price Index -Preliminary Economic Assessment Report for the Matawinie Graphite Project
2015 Feasibility Study Summary
In February 2015, EGZ filed a FS, which focused on Proven and Probable Reserves of 22.4M tonnes grading 7.01% C. Running at 856,701tpa and a life-of-mine (LOM) strip ratio of 0.81:1, the proposed open-pit mine is envisaged producing an average of 53,017 tonnes of graphite concentrate annually for 26 years. All-in costs (including concentrate transport) are forecast at US$690/tonne. Initial capital expenditures are forecast at US$188.2M (including a US$24.6M contingency). Employing a base-case graphite concentrate sale price of US$1,689 per tonne, the study generated an after-tax NPV10% of US$389.8M and IRR of 31.2%, with payback in 4.84 years.
Exhibit 5 – Modular Plan (left) versus Molo February 2015 FS Summary Results (right)
Source: Company Reports
Size Fraction Purity (Cg) 60-mo. Avg. Price ($USD/t) Weight
+50 mesh 96-97% $2,308 16.10%
+80 mesh 96-97% $1,526 29.80%
+100 mesh 96-97% $1,358 11.10%
-100 mesh 96-97% $1,198 43.00%
Development & Operating Costs US$M
Development CAPEX - Process Plant 7.00
Related Infrastructure 1.50
Total 8.50
Operating Costs US$/t ore US$/t con
Mining 5.29 86.07
Processing 18.47 300.46
Trucking 68.6
Shipping (CIF Rotterdam Port) 140.53
G&A 67.85
Total 663.51
Development & Operating Costs US$
Development CAPEX All-in* (US$M) 188
Av. Graphite Sale Price (US$/tonne con.) 1,689
Operating Cost (US$/tonne con.) (Year 3+) 353
Transport Cost (US$/tonne con.) (Year 3+) 337
Pre-tax Cash Margin, % 59%
Production Statistics
Av. Ore Mined per Year (tonnes) 856,701
Av. Strip Ratio 0.81:1
Av. Plant Recovery (%) 87.8
Av. Annual Con. Production (tonnes) 53,017
Life of Mine (years) 26
Av. Head Grade (% C) 7.04
Cash Flow Results
NPV(10%) After-tax, US$,M 389.8
IRR After Tax 31.2%
Payback (Years) 4.84
*Includes Development Allowance, Contingency
Energizer Resources Inc. (EGZ-TSX) | 15 November 2016
Page 5 of 7
Ryan Walker, MSc | 416.479.8997 | [email protected]
Important Information and Legal Disclaimers
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U.K. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. ECHELON WEALTH PARTNERS INC. IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS. The contents hereof are intended solely for the use of, and may only be issued or passed onto persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.
U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States. The firm that prepared this report may not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts.
ANALYST CERTIFICATION
Company: Energizer Resources Inc. | EGZ:TSX I, Ryan Walker, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report. IMPORTANT DISCLOSURES
Is this an issuer related or industry related publication? Issuer
Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? If Yes: 1) Is it a long or short position? Yes; and, 2) What type of security is it? Common shares
No
Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of the issuer? No
Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No
Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer?
No
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer?
No
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No
Has the Analyst had an onsite visit with the Issuer within the last 12 months? No
Has the Analyst been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No
Has the Analyst received any compensation from the subject company in the past 12 months? No
Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No
Energizer Resources Inc. (EGZ-TSX) | 15 November 2016
Page 6 of 7
Ryan Walker, MSc | 416.479.8997 | [email protected]
RATING DEFINITIONS
Buy The security represents attractive relative value and is expected to appreciate significantly from the current price over the next 12 month time horizon.
Speculative Buy The security is considered a BUY but in the analyst’s opinion possesses certain operational and/or financial risks that are higher than average.
Hold The security represents fair value and no material appreciation is expected over the next 12-18 month time horizon.
Sell The security represents poor value and is expected to depreciate over the next 12 month time horizon.
Under Review While not a rating, this designates the existing rating and/or forecasts are subject to specific review usually due to a material event or share price move.
Tender Echelon Wealth Partners recommends that investors tender to an existing public offer for the securities in the absence of a superior competing offer.
Dropped Coverage
Applies to former coverage names where a current analyst has dropped coverage. Echelon Wealth Partners will provide notice to investors whenever coverage of an issuer is dropped.
RATINGS DISTRIBUTION
Recommendation Hierarchy Buy Speculative Buy Hold Sell Under Review Restricted Tender
Number of recommendations 29 24 7 0 3 1 2
% of Total (excluding Restricted) 45% 37% 11% 0% 5%
Number of investment banking relationships 8 8 8 7 2 0 3
% of Total (excluding Restricted) 38% 33% 10% 0% 14%
PRICE CHART, RATING & PRICE TARGET HISTORY
Date Target (C$) Rating
15 Nov 2016 N/A N/A
Data sourced from: Capital IQ
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16
Energizer Resources Inc. (TSX:EGZ)
Price PT revision
Energizer Resources Inc. (EGZ-TSX) | 15 November 2016
Page 7 of 7
Ryan Walker, MSc | 416.479.8997 | [email protected]
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