Tanzanian graphite project developer Black Rock Mining has executed a non-binding co-operation framework agreement with major Chinese infrastructure contractor, China Railway Seventh Group for its Mahenge graphite project in Tanzania.
Tanzania – China Railway Seventh Group (CRSG) is part of a large contractor group with significant operations and experience in Africa. CRSG’s parent company (China Railway Group) is a State-owned enterprise and amongst the largest construction businesses globally.
The co-operation framework agreement outlines the key terms under which Black Rock and CSRG plan to progress to execution of a binding engineering, procurement and construction (EPC) contract for Module One process plant and non-process infrastructure of the Mahenge project.
The co-operation framework agreement provides for a coordinated EPC approach between CRSG and Yantai, Black Rock’s existing strategic build partner. It also provides for the development of a conventional EPC arrangement containing customary performance warranties and typical risk allocation structures (guarantees, bonding) required by project financiers.
Key agreed terms include a staged approach to the development of a final EPC contact price and a deferred, performance-based payment structure. This deferred payment structure results in over 30% of the total EPC contract value being payable only after completion of final plant performance tests to requisite levels.
On an indicative basis, these deferred payment terms would result in approximately US$24 million of the US$116 million Module One development capital estimate in the Mahenge Enhanced DFS (July 2019) being deferred and payable only after effective plant completion (and over a trailing 12-month period from that point).
“To have Black Rock aligned with a project execution partner as large, established, Africa-proven and financially robust as China Railway Seventh Group is materially significant. Our discussions have been highly collaborative to this point, as reflected directly in the specific framework agreement terms,” says Black Rock MD and CEO John de Vries.
“In short, the agreement delivers us greater certainty on our project execution. It has been deliberately structured to deliver a final EPC contract that maximises both partner alignment and appeal to potential project financiers. This includes with respect to the deferred, performance-based payment terms that would significantly reduce our upfront capital requirement and overall build execution risk.
“CRSG and Yantai have also agreed to provide assistance in relation to Mahenge project financing, including any related financing based on Chinese content.
“We now look forward to advancing rapidly with CRSG and Yantai towards a final EPC contract for development,” says De Vries.