On February 5, 2020, South Star Mining Corp. (“company”, “STS”) announced results of a Preliminary Feasibility Study (“PFS”) on its 100% owned Santa Cruz graphite project located in Southern Bahia, Brazil.
The PFS showed a base-case After-Tax Net Present Value (“AT-NPV) at 5% of US$81 million, with a high After-Tax Internal Rate of Return (“AT-IRR”) of 35%, and a payback period of 4 years.
Unlike a Preliminary Economic Assessment (“PEA”) completed in 2017, the PFS was based on a two-phase open pit operation, allowing the company to advance to production sooner and with a significantly low CAPEX of US$7.3 million.
The first phase of operation (Phase 1) is contemplated to produce 5,000 tonne per year (“tpy”) of 95% Cg concentrate in years 1 and 2.
A larger phase 2 operation was based on production ramping up to 13,500 tpy of 95% Cg concentrate in year 3, and to 25,000 tpy in years 4 to 11.
In January 2020, the company submitted trial mining licensing documents. On March 3, 2020, an environmental license was issued for Phase 1.
The company’s immediate focus is to arrange financing to fund the US$7.3 million CAPEX of Phase 1.
As the graphite market is not expected to be in a deficit until 2025, most graphite juniors are trading at significant discounts to their AT-NPV. On an Enterprise Value to Resource basis, we estimate that the company’s shares are trading at $4.4/t versus the comparables’ average of $7.5/t.