Marvel Gold spin out of Chilalo should deliver "significant value" to shareholders: Bridge Street Capital Partners

Marvel Gold Ltd’s (ASX:MVL) (FRA:GR2) spin out of its Chilalo graphite project is set to deliver significant value to its shareholders, according to Bridge Street Capital Partner’s Dr Chris Baker. In an updated research report Dr Baker discussed the company’s 100% ownership of the high-quality Chilalo coarse flake graphite project in Tanzania which it is now proposing to separate into a separately listed company, Evolution Energy Minerals. In addition, Evolution proposes to undertake an IPO to facilitate listing on the ASX and intends to raise a minimum of $13 million via the IPO. Under a priority offer, Marvel shareholders will be collectively entitled to subscribe for up to $2 million of Evolution shares. “Market valuation in line with peers” Following the expenditure of over $20 million on Chilalo’s exploration and feasibility studies, the project is shovel-ready and is awaiting finance and holds a high-grade resource of 20.1 million tonnes at 9.9% total graphitic carbon (TGC). Dr Baker said: “[The] move makes sense now that Marvel has successfully morphed into a West African gold explorer and now has the best part of a million ounces under the belt at its Tabakorole project in Mali. “The value to Marvel could be in the range of 1.5 to 2.3 cents/share at the listing of Evolution. “Should the new graphite company achieve a market valuation in line with its peer group (eg Triton Minerals Ltd (ASX:TON), Volt Resources Ltd (ASX:VRC), Black Rock Mining Ltd (ASX:BKT), Walkabout Resources Ltd (ASX:WKT) (FRA:N6D)) this could conservatively increase to 3.2 to 6.3 cents per MVL share. “So effectively MVL shareholders will be getting the gold assets in the company for free.” A prospectus is likely to be complete in June, with an ASX listing in July. Evolution Energy Minerals The company has presented an indicative capital structure for Evolution in its recent release based on three scenarios, raising $13 million, $16 million and $20 million. Dr Baker said: “Should $13 million be raised, only part of the debt to lenders Castlelake would be extinguished by cash. “The balance would see Castlelake become 13% shareholders in Evolution. “Should the larger amounts be raised (and in the current market this seems likely), the Castlelake debt would be fully extinguished with cash. “At a $16 million raise, cash remaining after debt repayment and costs would be around $5 million, sufficient to refresh Chilalo’s DFS and seek financing for the project. “At a $20 million raise the cash balance (after debt repayment and costs) would be around $10 million. “Under the current proposal, Marvel will wind up as a 28 to 43% shareholder in Evolution. “There are no plans to distribute the shares to MVL holders, but this is a likely outcome, in our view.” Market cap comparatives of Marvel against its graphite peers Comparable to peers The graphite sector has dramatically rerated over the course of 2021 with what seems to be a view the graphite supply chain – heavily dependent on Chinese supply – is at risk with a new generation of ESG requirements from end-users. Dr Baker pointed to the likes of Ecograf Ltd (ASX:EGR) (FRA:FMK) has moved from under 20 cents to over $1 earlier in the year, but has since pulled back to around 50 cents and its market capitalisation is still over $200 million. He said: “It’s far from clear what has driven this attention, other than the market’s view that EGR is proposing a mine (Epanko located in Tanzania) similar to Marvel at 60,000 tonnes per annum and a processing facility in WA to manufacture uncoated spherical graphite for the lithium battery industry employing proprietary technology.” Black Rock Mining is another strong performer, has recently attracted the market’s attention with Korean industrial giant Posco taking a $7.5 million equity investment in the company. Posco has also signed a strategic agreement to facilitate the development of the Mahenge graphite project, located in Tanzania. Dr Baker said: “No suggestion that BKT will move into downstream processing of its graphite; rather it’s targeting industrial uses of graphite (as Marvel’s Chilalo) and feedstock into the battery anode business. “Blackrock’s market capitalisation is around $100 million” “Both Epanko and Mahenge are similar to Marvel’s Chilalo project, and are at a similar stage of pre-development, with both awaiting financing subject to a final resolution of the renewed Tanzanian Mining Act.” Evolution valuation potential Dr Baker said the company in its current form has nothing in the price for the value of the graphite assets. He said: “We see no reason why the spin-out could not trade in line with the likes of Triton, Volt or Walkabout. “All are East African predevelopment graphite plays (although Volt has recently purchased Ukrainian graphite production). “Each are capitalised at around $50-70 million.” Dr Baker also conservatively assumed a raise of $16 million at an assumed minimum valuation for Chilalo in the hands of Marvel (a very modest $8 million project value plus the debt of $9.5 million, or a pre-money value of $17.5 million). He said: “Should Evolution rerate to a market cap of $50 million, this would be worth some 3.2 cents/share to MVL. “At a $100 million market cap, this would be worth 6.3 cents to MVL a 34% premium to the current share price, and excluding any value for the gold assets. “Taking a more bullish view for the future of Evolution, assuming a $20 million raise and incorporating a pre-money EV of $21.5 million, the impact could be in the range 3.6 to 7.1 cents per Marvel share.”