Edison Investment Research Limited: Edison Issues Initiation on Triton Minerals (TON)

LONDON--()--Triton Minerals plans to develop its Ancuabe graphite project in Mozambique to feed the established and high-growth expandable graphite market. In our view, this is a prudent way forward in a sector dominated by graphite companies tussling with the vagaries of battery-ready graphite production and an end-market yet to mature. With East African graphite deposits already advancing in many cases (AMG's Ancuabe mine is now commissioned, Syrah's Balama is under construction, Volt Resources is securing off-takes), it is clear the region's graphite is suitable for industrial uses. An important constituent is China, where some producers are aiming to outsource raw graphite in order to clean up old, inefficient graphite mines as well as secure expandable graphite for the recently revised (2015) fire-retardant cladding regulations.

Our SOTP base case valuation is 22c per share, based on the Ancuabe scoping study (60% of our SOTP value or 13c) with a further 9c (the remaining 40% of our SOTP valuation) added based on a discounted valuation of the company's very large additional resources at Balama and Nicanda Hill/West. Our base case valuation uses a notional 75/25 debt/equity structure to fund Ancuabe's development, assuming equity at the current share price (5c). However, our valuation is sensitive to the share price assumption of the equity component: at a 10.0c share price, our base case valuation becomes 26c; at 15c it becomes 28c. Our Ancuabe valuation uses a weighted graphite concentrate basket price of US$1,369/t and a 10% discount rate to reflect general equity risk.

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