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I am a 65 year old retired engineer and company manager. I have been investing in the stock market for twenty years. I was involved in engineering for the mining industry, so I like to write about mining companies. However, I will write about whatever catches my interest. I believe in value... More
  • Graphite: A Way To Profit From The Move To Electric Vehicles 10 comments
    Sep 2, 2013 2:18 PM | about stocks: ENZR, FCSMF, NGPHF

    I took a look at a friend's Tesla last week. I was very impressed, not only by the car, but also by the owner who was bubbling over with enthusiasm about his new toy. I think it is only a matter of time before electric cars begin to take a significant share of the world market for vehicles. That will mean huge changes for those who provide raw materials, fuel, supplies and services to the motor vehicle industry.

    This will open up opportunities for many of the companies that supply raw materials and components for the electric vehicle. The preferred technology for energy storage for vehicles has now become the lithium ion battery, and the major materials in the battery are lithium compound which are used for the anodes and electrolyte, copper and graphite which is the material of choice for the battery cathode. In fact, there is 10 to 20 times more graphite than lithium in the Li-ion battery.

    In 2010 there were two mining companies with graphite as their primary focus listed on world stock exchanges. Now there are over 80, with more than 150 properties in some stage of exploration or development.

    Graphite Market

    Chinese mines produce about 70% of the world's graphite. Cutbacks in production and the introduction of a 20% export tax at the Chinese mines sparked new interest in graphite exploration and mining and a rise in graphite prices in 2011. Although prices have recently fallen back to more normal levels, new demand for Li-ion battery application should ensure a healthy market in the future.

    The existing world market for natural graphite is about 1.1 million tonnes per year, of which just over half is low value amorphous graphite (selling for less than $700/tonne) and the rest is mostly flake graphite which sells for $1,100 to $1,800/tonne depending on the flake size and purity. There is also a small niche market for lump and chip graphite which is mined only in Sri Lanka, and which sells for about $2,000/tonne.

    Graphite is also manufactured synthetically from petroleum coke and coal tar pitch. The market for synthetic graphite is about 1.5 million tonnes per year, the major component of which is electrodes for arc furnaces and other electric furnaces. Graphite electrodes sell for about $4,000/tonne. Electrodes are finished products, molded and machined to specific sizes, so the price is not directly comparable to natural graphite. The waste product from machining sells for about $700/tonne.

    The only major application in which the synthetic and natural graphite compete is the anode of the Li-ion battery and this is the fastest growing sector, with forecast growth rates of about 20% versus 3% for the remainder of the market.

    Very pure graphite (natural or synthetic), can sell for much higher prices. However, as most prices are set by negotiated contracts between buyer and seller, the terms and quantities involved are not readily available. These very high value products are sold in relatively small niche market quantities, and are usually customized products with properties designed for specific applications.

    The graph below is a forecast for natural graphite demand, showing the effect that growth in Li-ion battery use will have on the demand for graphite by year 2020.

    (click to enlarge)

    The estimated world market in 2012 was 40,000 tonnes per year. I have seen one projection from Roskill (one of the market research companies covering this market) that the market for battery grade graphite will reach 114,000 tonnes per year by 2016. Forecasts from Industrial Minerals have the battery grade graphite market growing to 800,000 tonnes per year by 2020, with a 5% penetration rate for electric vehicles, and 1,600,000 tonnes per year with a 10% market penetration for electric vehicles. If this happens, the battery industry will displace the refractories industry as the world's biggest consumer of natural graphite.

    Graphite mining and processing

    Natural flake graphite is mined, on a small scale relative to the mining of metals such as copper, and almost exclusively in open pit mines with deposits close to the surface. After extraction, the ore is processed by crushing, grinding and flotation to separate the graphite from the gangue materials. After flotation it is dried and screened to separate the very fine amorphous graphite from the more valuable flake graphite

    Larger flake sizes usually have higher purity, and sell for higher prices than the small flake sizes. Typically, purity is 94 to 97% graphite for the +80 mesh sized product, sold into the refractory industry. Graphite for the Li-ion battery requires further processing after the flotation and screening stage.

    The specifications for Li-ion battery graphite usually require 99.5+% purity, and the particles should be spheroidal (potato shaped) whereas natural graphite particles are flat or needle shaped. Changing the shape of the particle is done by milling, which can waste between 30 and 70% of the material, depending on the initial particle size. The higher particle sizes have lower losses, so flake graphite with medium to high particle sizes (+100 mesh) is the preferred material for manufacturing of graphite for Li-ion battery use. The current largest user (the refractory industry) and the potential future largest user (the Li-ion battery industry) are therefore competing for the medium to large flake material.

    Purification to 99.5+% is usually done after milling, and involves chemical leaching or thermal purification at high temperatures, or both.

    Almost all of the battery grade graphite is produced in China and exported after purification, to Japan or Korea where it is coated with carbon and bonded to copper sheets for use as the anode of the Li-ion battery. The Chinese industry has gone through a period of consolidation and mine closures. There has been some speculation that Chinese mines are running out of ore and that the export tax introduced in 2010 was an attempt to conserve resources. However, this is hard to verify, and it is equally likely that the export tax is an attempt to attract more value added processing to China, and eventually develop a Li-ion battery industry in China.

    Graphite Mining Companies

    The only company mining graphite in North America is Timcal, a private company with a mine and processing facility in Quebac.

    All of the companies trying to move into the graphite space are junior mining companies, with no producing mines and no significant source of revenue. These are investments which can provide high returns but which carry a high risk. Out of the 80 or so junior mining companies chasing graphite projects, many will fail. It is unlikely that more than a dozen or so will ever get their projects into production - there is simply not enough demand to support all of them. The ones who are furthest ahead with development of their projects will have an advantage in being first to market. I have therefore chosen to evaluate four companies who are sufficiently far advanced to have produced an NI43-101 compliant resource estimate and a Preliminary Economic Analysis (PEA) demonstrating that they have a viable project.

    The companies I have chosen to evaluate are:

    Northern Graphite - has reached the feasibility study phase for a mine and flotation plant in Northern Ontario producing 16,000 tonnes per year of flake graphite. Northern's deposit is unusual in that it contains a high proportion of large flake sizes and almost no amorphous graphite. The mine is has recently received a permit from the Ontario Government and can start procurement and construction as soon as financing is in place. Northern will probably be the first of the junior miners to go into production.

    Focus Graphite - owns the Lac Knife deposit in Northern Quebec, close to the Labrador border. It has plans for a processing plant for 49,000 tonnes per year of graphite, in the medium, fine and amorphous size ranges. Focus is conducting pilot tests to provide data for process flow sheet optimization and to provide samples for discussions with potential end users.

    Mason Graphite is proposing to develop a deposit at Lac Gueret about 200 miles north of Baie-Comeau, Quebec. It will produce 50,000 tonnes per year of graphite with a full range of products from minus 150 mesh to +50 mesh flake.

    Energizer Resources has a 75% interest in the Molo Graphite deposit in the south of Madagascar and is planning a mine and processing plant to produce 84,000 tonnes per year, mostly medium and fine flake and amorphous graphite. The PEA study was completed earlier this year, pilot plant testing is in progress and they are targeting production in 2015.

    Projects

    The table below is a summary of each of the proposed graphite mining projects:

    Note: The average selling prices are after my adjustments and reflect the prices I have used in my adjusted NPV analyses.

    Northern's capital and operating costs per tonne of production are significantly higher than the others because of the small tonnage and the very low grade ore. This extra cost is offset by the larger flake sizes in the Northern ore which will provide a higher income per tonne.

    Mason has the lowest estimated operating cost because of the high ore grades. It also has a full range of flake sizes, including some of the +50 mesh Jumbo flake which attracts the highest price.

    Energizer's capital cost per tonne of product is low because of the larger scale of the project, even though their CAPEX includes significant infrastructure spending. They are also proposing to use contract mining, so their mining equipment cost is buried in the operating costs. Power costs for Energizer are very high because they will have to use diesel generators at the site. However, there is a plan to mine coal and construct a power station in the region, which will benefit the project if it goes forward.

    All four companies have sufficient resources for at least twenty years, and all have inferred resources and unexplored deposits with potential to increase mine life well beyond 20 years.

    Evaluations

    The NI43-101 compliant PEAs for each of these projects can be found on the SEDAR website. Because the PEAs are not all done on an equal basis, for example some of them have used different pricing, some are pre-tax, some give both pre and post-tax NPVs etc. I have therefore adjusted the calculations to present my best efforts at an "apples to apples" comparison.

    The adjustments I made were:

    Northern Graphite used an 8% discount rate and a twenty five year mine life for their NPV calculations. I adjusted that to 10% and twenty years to match the others.

    In their PEA, Focus graphite included a plan to purify their large flake product to battery grade using an expensive thermal process which was to be contracted to a third party. They also included a very high selling price for the upgraded product. I have taken out the cost of the thermal processing and moved their selling price down to match the others. I have also adjusted Focus Graphite's NPV calculation to allow for taxes because they provided only a pre-tax calculation in the PEA.

    Mason used a lower product pricing structure than the others than the others, so I have increased their NPV to provide an equal comparison.

    In all cases, I have normalized the assumed graphite prices based on the percentage of amorphous and flake graphite and the percentage of each flake size produced at each of the proposed mines.

    The adjusted project Net Present Values (NPVs) and evaluation of the company values are in the table below:

    In the above table, to arrive at a company net asset value, I have added the balance sheet value (current tangible assets minus liabilities) and I have assumed that all outstanding warrants and options are exercised along with the appropriate dilution of shares. The final row in the table is the ratio between the Net Asset Value, and the share price as of August 3rd, 2013.

    In all cases, I have ignored the value of any other mining licenses or projects which are owned by the company, but which have not reached the stage of being proven to be of commercial value.

    Based on my analysis of the graphite projects, Energizer is the most undervalued of the four companies. A fact which likely reflects the location of the proposed project and the infrastructure challenges of the site as well as the somewhat undercapitalised nature of the company. The proposed size of Energizer's project at 84,000 tonnes per year is also large compared with the others. This could be an advantage once the market is established, but it may be too much for the market to absorb in its early years. I don't expect the Chinese suppliers to give up a major portion of their market share without a fight.

    I also like Mason because of their low operating costs and high grade deposit, and the fact that their ore contains the full range of flake sizes. Their ore grade for the early years of the mine life is over 27%.

    Although Northern is further along with their project than any of the others and will likely be first to market, the shares appear to be fully valued. Northern would gain, however, if the price gap between the larger and smaller flake sizes were to increase as a result of disproportionately higher demand for the large flake. That widening of the price gap may well happen because both the refractory and battery markets place a premium value on the high flake sizes.

    Focus is in the best financial position, with about $15 million in cash on their latest published balance sheet. There is also a component of value in Focus which is not reflected in a simple analysis of their proposed mining project. Focus owns 40% of Grafoid, a technology company which is developing new products and processes using graphene, a two dimensional crystalline form of graphite. It is Focus' intent to split this off into a separate listed company, which may give the share price a boost in the future.

    Options to upgrade to battery purity

    The above analysis is based on producing and selling flake graphite at the sizes and purities normally sold into the refractory industry which today is the largest market for natural graphite. However, there is potential to add value by making a higher grade product which can be sold to battery manufacturers at a higher price. Energizer recently announced that they have tested a relatively low cost process which can purify their graphite to the required 99.9%. That announcement more than doubled their share price in one day, which is a reflection of the interest in this sector and the importance of being able to produce a product for the growing battery industry. Northern has also announced that they can reach battery grade with a relatively low cost process. Focus has made a deal with Hydro-Quebec to use a patented low temperature leaching process which can purify their graphite to battery grade, and are planning to make battery anodes. So far, Mason is the only one of the four companies which has not announced a purification option which can make battery grade graphite.

    However, none of the four companies has provided estimates of the costs associated with the purification processes, or how it affects the project economics. Energizer have stated that they will shortly be updating their PEA to reflect the value added option. We can expect an uptick in the Energizer share price if the updated PEA shows significant gains, and there is potential for Mason's price to jump if they also come forward with a purification option.

    Other opportunities

    There are a couple of other companies that are worth considering, though neither has published a PEA document, and therefore do not provide sufficient information for a detailed analysis:

    Flinders Resources is reopening a past producing mine in Sweden. They are currently producing graphite from an old stockpile, and are redesigning the former mill and flotation circuit to improve recovery and graphite purity. A preliminary economic assesment was due to be issued at the end of August.

    Canada Carbons is at a very early stage in development of their Miller Graphite property. It seems that they have a very high grade deposit close to the surface, and they are currently implementing an exploration program to define the extent of the deposit. They have also achieved battery grade purity on test samples using a relatively low cost flotation and leach circuit. The Miller mine is located very close to the Timcal property, so there is potential to sell the ore directly to Timcal, without the need to build a processing plant, in which case they could be generating positive cash flow very quickly, with a very limited initial investment.

    Conclusion

    I am not picking winners and losers here. I think all of these companies have great potential if the electric car market develops as forecast, and graphite remains the material of choice for battery anodes. I am simply looking for the best value based on the information at my disposal. For that reason I have made small investments in Energizer, Mason and Canada Carbons.

    Focus, Northern and Flinders are on my watch list for future developments.

    All of these stocks trade on the OTC market in the USA, but volumes and liquidity can be low, it is better to use the Toronto market to trade these stocks.

    Note of caution

    It is a big step to go from a PEA or feasibility study to a profitable mine. Project capital and operating costs almost always come in higher than the forecasts made during early studies, and many projects never even get to the construction phase. Financing for these kinds of projects is difficult to get, and usually requires heavy dilution of the shares before the project reaches production, so asset values per share are eroded at every step of the financing process. No matter how good the project looks at the PEA phase, don't bet the house on it - in the worst case scenario, someone could develop a new battery technology that doesn't use graphite at all.

    Themes: Long Ideas Stocks: ENZR, FCSMF, NGPHF
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Comments (10)
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  • TradingChief
    , contributor
    Comments (33) | Send Message
     
    Funny how that works? All your "flake stocks" have a market but the purest graphite on the planet in bulk (ZEN) you don;t see any market ..... too funny.
    5 Sep 2013, 12:28 AM Reply Like
  • TaKeNoTeS
    , contributor
    Comments (5) | Send Message
     
    No wonder why you were so negative on Zenyatta. How much money have you lost on the dead industry that is flake graphite? You realize that if any of these companies reach market, prices will continue to fall as there will simply be not enough demand to match the supply. There is no shortage of flake graphite in this world. Hydrothermal graphite is the only play which leaves you with two options. Zenyatta and Canada Carbon. Unless you like to lose money of course.
    5 Sep 2013, 01:16 AM Reply Like
  • jaberwock
    , contributor
    Comments (242) | Send Message
     
    Author’s reply » Hydrothermal graphite is flake graphite. Whether it was formed by volcanic or by metamorphic means, it is still flake.

     

    The term "flake" is used in the graphite industry to delineate the particle size.

     

    "Lump (or chip)" graphite is graphite sold directly from the mine in lumps, after hand sorting (no crushing or grinding)

     

    Flake is sold after separation from the host rock by milling and flotation.

     

    The term amorphous is used in the industry to delineate flake which is below 150 mesh.

     

    Li-ion batteries use flake graphite for the anodes.

     

    ZEN's graphite has a market - it is the same market as all the others. Depending on the particle size, it should sell for an average of somewhere between $1,000 and $2,000/tonne.

     

    Once we know how much there is and how much it will cost to extract and process, it should be possible to figure out the value of ZEN. Meanwhile, I will pass
    6 Sep 2013, 01:01 PM Reply Like
  • donnyparks
    , contributor
    Comments (13) | Send Message
     
    So now all you need to do to reach what you call "battery grade" is to reach a purity of "The specifications for Li-ion battery graphite usually require 99.5+% purity"

     

    Here are some comments in your last article slamming ZEN
    "I don't see anywhere in the published information where it states that Zenyatta graphite, purified to 99.97%, has the particle size and shape suitable for use in a Li-ion battery, or has been accepted for use by a battery manufacturer, or has even been tested for use in a battery.
    As I stated in the article - "to believe the Zenyatta story, you have to believe that electric vehicles with lithium ion batteries will capture a significant portion of the automobile market, and that Zenyatta can process their graphite to battery grade specifications at costs which are significantly lower than the processing costs of rival suppliers"
    At this time, both of those assumptions are speculative "

     

    In this article you talk about how all of the above companies need to use acid leach to reach above 99.5% for some of their product. With this you say they can move into the market.

     

    So if they can, why do you say you need to "believe the ZEN story" for them to be able too?

     

    ZEN has already proven they can get
    "In all trials the final purity values were >99.97% C and up to 99.99% C in many cases, regardless of initial carbon grades."

     

    This is from
    "The entire 170 metre graphite zone from drill hole 5 was used for this testing."

     

    Their process is
    "All trials using a simple caustic baking leach process conclusively demonstrated that an ultra-high purity graphite product with >99.97% Carbon (“C”) can be produced from the Albany graphite deposit. The process was successfully applied to a variety of graphite concentrate samples that had initial carbon grades in the range of 46 – 90% using conventional flotation techniques"

     

    ZEN's particle size
    "Flake sizes of coarse, medium and fine ranging from 50 to greater than 300 microns (-270 to +40 mesh size)"

     

    So from all of this it is clear to me that ZEN's process to get to 99.99% Cg will be much cheaper and much more environmentally safer than all of the above mentioned companies.
    With this and the tonnage they have already proven up, even if they sold at same prices as these above companies, ZEN would be the most profitable company.

     

    Thank you for showing that these flake companies, whom you think are worth investing in, are far behind ZEN.

     

    Makes my investment decision to be in ZEN even more derisked

     

    Take Care
    Don
    5 Sep 2013, 07:14 AM Reply Like
  • myfreedom58
    , contributor
    Comments (2) | Send Message
     
    This is stock promotion pure and simple. How can any respectable and unbiased analysis focus on the over supplied, low prices flake graphite marker and juniors and fail to even mention the best performing stock with the best graphite product?

     

    At least this writer appears to have the honesty not to bash Zenyatta - presumably he knows what the company has - but not to even mention the fact that a stock other exists that could make most of the others redundant is shameful.

     

    As always, any potential investors should do their own due diligence and take into account the writer of this fluff piece's own interests in flake stocks.

     

    Be careful folks. At least take a close and careful look at the Zenyatta story before throwing you money into any graphite stock
    6 Sep 2013, 03:36 AM Reply Like
  • jaberwock
    , contributor
    Comments (242) | Send Message
     
    Author’s reply » It has not taken very long for the Zenyatta pumpers to dump on this article.
    I did not include Zenyatta in my evaluation because they have not completed either an NI43-101 compliant resource evaluation or a Preliminary Economic Assessment, so there is very little reliable information on which to base an evaluation.
    Also, my own due diligence did not support some of the statements which are being made by Zenyatta, and its supporters.
    The implication that the Zenyatta deposit is similar to the Sri Lankan deposits is not supported by the drill core samples, or the micrograph images shown on the Zenyatta site. The Zenyatta ore is highly disseminated, relatively low head grade and bears no resemblance whatsoever to Sri Lankan lump graphite.
    The claims that Zenyattas graphite will replace synthetic graphite are not substantiated by any evidence. Most of the synthetic market is molded products, including graphite electrodes for arc furnaces. Selling prices for electrodes are about $4,000/tonne for the finished product after machining. Even if they could be made from natural graphite, it is highly unlikely that the process would be economical when starting with a raw material costing more than $2,000/tonne
    The only significant market where natural and synthetic graphite compete is in the anodes for Li-ion batteries. I checked the price with a supplier, and I got a quote of $2,650/tonne for Li-ion grade spheroidal graphite. Given the fact that losses in the spheroidization process will be at least 30%, it is unlikely that the non-spheroidal graphite for the Li-ion battery market could command a price exceeding $2,000/tonne, whatever the purity.
    Although Zenyatta has stated that their ore contains a “full range of particle sizes”, they have not provided a detailed analysis. It is quite possible that a significant portion is “amorphous” graphite, which sells for about $800/tonne.
    The graphite pricing assumptions made by Trading Chief have no basis in reality.
    6 Sep 2013, 12:50 PM Reply Like
  • donnyparks
    , contributor
    Comments (13) | Send Message
     
    Calling people pumpers because they do not agree with you and find holes in your stories. I guess I am a pumper to you then. I refer to myself as a person who likes to go by the facts, but that is my own opinion.

     

    During my DD I have seen prices all over the map for different graphite's. I defer to what the companies are saying as they have done the research and are taking the liability by posting it in their presentations and NR's.

     

    From Zenyatta Presentation

     

    -Synthetic (>99%): $7,000 - $20,000/tonne

     

    http://bit.ly/1aeXvye

     

    From Northern Graphite Presentation

     

    -Spherical graphite sells for $6-8,000 per tonne if coated, average
    Chinese export price for uncoated, $4,000 per tonne

     

    http://bit.ly/1aeXwCq

     

    “The implication that the Zenyatta deposit is similar to the Sri Lankan deposits is not supported by the drill core samples, or the micrograph images shown on the Zenyatta site”

     

    We have already gone over this with your last article but we shall again go over this.

     

    I guess a world renowned Lab and Dr. Conly do not know what they are talking about?

     

    They have seen, touched, examined, studied the ZEN graphite and have come to some of the following conclusions.

     

    “(TSXV : ZEN) is pleased to provide results from an independent mineralogical study of drill core samples from the newly discovered Albany Graphite Deposit located near Hearst in north-eastern Ontario. The following significant observations were made:
    • Flake sizes of coarse, medium and fine ranging from 50 to greater than 300 microns (-270 to +40 mesh size)
    • Characterized as a magmatic hydrothermal style of graphite mineralization (similar to the high value Sri Lankan type deposits)
    • Graphite represents essentially all of the total reported Carbon assay values (i.e. Carbon related to carbonate is less than 1%)
    Aubrey Eveleigh, President and CEO stated “Zenyatta management considers these latest results to be very important, especially the range in flake size, which includes the high value coarse flake. Coarse flake graphite is greater than 175 microns (or +80 mesh) in size. Flake size and purity are key parameters in establishing the potential value and marketability of any graphite product derived from the Albany Graphite Deposit. The Company is planning to conduct metallurgical testing of the graphite zones and carry out a more aggressive drilling campaign to determine the full extent of the deposit”.
    The mineralogical report was prepared by Dr. Andrew Conly, Ph.D. of Lakehead University Mineralogy and Experimental Laboratory (“LUMINX”) in Thunder Bay, Ontario. The petrographic observations were from four samples of the graphite-rich breccia in zone #2 of drill hole Z11-4F1.”

     

    Please do tell what you see on the photos of the SEM’s on ZEN website.
    We know what Dr. Conly has seen by examining them.

     

    “It is quite possible that a significant portion is “amorphous” graphite, which sells for about $800/tonne”

     

    Again with the unsubstantiated comments. You must know Mickey Fulp AKA Kingsbay.

     

    Here is interview with Aubrey refuting what Mickey Fulp stated and setting some facts straight.

     

    In the interview below, INN Senior Editor Andrew Topf asks Aubrey Eveleigh, Zenyatta’s CEO, to clarify the geology of the Albany discovery and how the company plans to process the graphite to nearly 100-percent purity.

     

    GIN: On your website you describe the Albany deposit as a “vein-type graphite breccia.” How is this deposit different from other graphite deposits that have been found in the world?

     

    Aubrey Eveleigh: What we’ve discovered is a hydrothermal, or a vein style. We prefer to use hydrothermal because vein suggests a smaller body when in fact what we have is a large breccia pipe with intersections of 200 to 300 meters. We’ve been referring to it as hydrothermal. That’s volcanic in origin, derived from the upper mantle of the earth, whereas flake or amorphous is sedimentary in origin. It’s derived from organic material. It’s a totally different style, formed differently, a totally different geological deposit.

     

    GIN: Can you also distinguish between this deposit and Sri Lankan8 vein graphite, which your deposit has often been compared to?

     

    AE: The Sri Lankan is formed in the same manner, it is hydrothermal, but they refer to it as “vein style.” It is volcanic in nature, except the Sri Lankan vein is very narrow; they’re mining a vein that is 5 to 10 centimeters wide, whereas what we’ve intersected is 200 to 300 meters wide.

     

    GIN: It’s a different thickness.

     

    AE: It’s a different size. We have a breccia, they have strictly a vein. Now we do have some veins in the system, but for the most part it’s a breccia pipe. So think of it like a kimberlite pipe where you find diamonds9. They come from the upper mantle. It’s much like that.

     

    GIN: You say that the vein is ultra-high purity at 99.96-percent carbon, but the drill results only show 5 to 7 percent carbon; how do you account for that discrepancy?

     

    AE: It’s not a discrepancy. When you drill and you test for the grade, it comes out at 5 percent because what you’re testing is all the material in here. You cut it, you sample it, you send it in for analysis and you’re also diluting it with the granitic clasts that are in the breccia pipe. The key is not the grade on the front end, it’s the purity on the back end. When we put that through a metallurgical test, and we’ve done this on several occasions at SGS Lakefield, we put in the 5-percent grade, we grind and we do a flotation and a caustic bake. A caustic bake is sodium hydroxide. It’s not an acid as some people are suggesting; it’s sodium hydroxide, 25 percent by weight, and we can recycle that material. After you go through that process it comes out at 99.99 percent. What I’ve been told is that we’re the only company globally that can use caustic bake to get to 99.99 percent. I’m getting it third hand from a good source and we haven’t confirmed that, but I’ve been told that.

     

    GIN: I’ve been told by geologists that graphite can be easily purified using acid leaching. Is that not true?

     

    AE: Yes. You can upgrade flake thermally and with acid. It’s a little more expensive. When somebody says that they can do that I would simply ask, “what is the cost?” We know from our processing that we can do it with a caustic bake fairly cheaply.

     

    GIN: You released some beneficiation test results in April that show that high-purity graphite can be produced using the caustic baking leach process. Can you describe that process in a little more detail? Secondly, do you have any estimates as to the cost? You mentioned that acid leaching is expensive; so do you have any cost numbers you can share with us?

     

    AE: When a flake graphite deposit talks about leaching, they’re usually using hydrofluoric acid. Now, we don’t use that — hydrofluoric acid is a pretty dangerous material and it’s very expensive. That’s related to the infrastructure that you have to set up because you have to set up an entire safety infrastructure. In our case, we’re using sodium hydroxide. It’s safer. It’s a base, not an acid. We use 25 percent by weight, and we can recycle the material. It’s much cheaper and obviously we’ve got extremely high grades from it, and with good recoveries.

     

    GIN: Are you able to compare it? Like you say, it’s cheaper, but how much cheaper? Can you give us an indication?

     

    AE: I can’t throw numbers because we haven’t done a prefeasibility or an economic assessment yet. As you know, the Ontario Securities Commission does not allow us to talk about economics and numbers without going through that process.

     

    GIN: Fair enough. Your critics have said that the graphite at Albany can’t compete with synthetic graphite which, as you know, commands the highest price per tonne. How do you respond to that criticism?

     

    AE: I don’t know what they’re talking about exactly, which application?

     

    GIN: On your website you say you can compete with synthetic graphite, but that has been questioned, so I just wondered what your response to that criticism is.

     

    AE: The first thing you’ve got to do when you have a graphite deposit is determine the purity. That’s the first step. We’ve determined the purity and it’s extremely high grade, high purity; we can get to 99.99. The next step is to determine the properties of the graphite, which we’re doing right now. We’re actually doing it in a couple of universities in Canada, and we should have that information in the following weeks. Depending on the specs of your graphite, it will go into various applications, and that’s yet to be determined. But for someone to say now, without knowing what the specs of our graphite is, that it couldn’t be applied to high-purity synthetic applications is wrong. How do they know that? On what basis are they saying that?

     

    GIN: I think the criticism has been over this percentage issue, of whether you’re able to actually bring it up to the purity that you’re suggesting.

     

    AE: We’ve proven that. I mean that was already proven by SGS Lakefield. Why would somebody question that? We’ve already released that information.

     

    GIN: If you listen to the interview with Mickey Fulp, that was questioned.

     

    AE: Yes, but I don’t think you should take that as gospel. There were so many wrongs in that interview — I’m here to correct that. For one, he referred to our deposit as amorphous, which is totally wrong. It’s a sedimentary process; we’re volcanic and hydrothermal. The other thing that was said in that interview is that we use acid. That’s totally wrong. We don’t use acid. It’s a base, sodium hydroxide. The other thing I think he said was it’s “infrastructurally challenged.” Anybody that goes around the world to look at mining projects would find that the infrastructure that’s around us is probably some of the best you can find. You can see that on our website and in our presentation.

     

    Amazing how we have all these “experts” out there that can do write ups but twist everything for their own benefit. Lye or distort the facts.

     

    Take Care
    Don
    7 Sep 2013, 09:08 AM Reply Like
  • ausheds
    , contributor
    Comments (438) | Send Message
     
    Informative & balanced piece Jaberwock.
    Like RE there seems to be so much attention to in ground potential rather than market realities, and the ability to deliver.
    Will certainly be interesting to watch this unfold over the next year or too.
    11 Sep 2013, 07:59 AM Reply Like
  • Serend
    , contributor
    Comment (1) | Send Message
     
    Thanks, Jaberwock, for your intelligent analysis of the graphite scene and market.

     

    However, there seems to be one factor which has not been considered. There is an elephant in the room, casting a huge shadow over all the companies mentioned, but which appears to have been ignored in these comparisons.

     

    The Balama deposit, in Mozambique, (owned by Syrah Resources; SYR on the Australian Exchange) has a resource currently estimated at 1.15 BILLION tonnes, at 10.2% graphite. That means about 115 million tonnes of contained graphite. Last year, the US Geological Survey estimated the total of all known reserves in the world at 77 million tonnes. So Balama contains substantially more than the total of ALL the other graphite orebodies known in the world. As you would probably expect, there are large zones much richer than the overall average grade

     

    And this comes with good infrastructure (main road access, water, cheap power, and port facilities). The deposit outcrops at the surface, so strip ratios are negligible.Their published plan is to start production late 2014 - at an initial rate of 220K tonnes per year, which is about one-fifth of current world consumption.

     

    Capex has not yet been formally announced, but has been unofficially estimated at levels closely comparable with Northern, Focus and Mason. Unit operating costs, however, will be much lower.

     

    But that's not all. The orebody contains substantial amounts of vanadium, which metallurgical work has shown to be easily removed from the graphite, and processed intowhat the company has described as "possibly the highest grade vanadium concentrate in the world". The volume of vanadium produced is likely to be significant in terms of world demand, and this will obviously further strengthen the project economics.

     

    It puzzles me that the almost-certain impact on the world graphite market has been largely ignored in North America. This will clearly be, by far, the largest graphite mine in the world, one of the richest, and certainly one of the lowest cost operations. It seems fairly clear that most of the smaller prospective miners will find it difficult to compete in any remotely price-sensitive market.

     

    I appreciate Jaberwock's considered approach, and therefore ask whether Balama, and its likely consequences for the graphite industry, was included in his assessments.
    15 Sep 2013, 11:37 PM Reply Like
  • jaberwock
    , contributor
    Comments (242) | Send Message
     
    Author’s reply » I am aware of the Syrah resources project in Mozambique, and I agree with you that it is indeed an "elephant in the room".

     

    Syrah trades on the Australian exchange and over the counter in the USA. The US trading volume is very low, some days nothing is traded at all.

     

    Like most people here, I would normally buy the graphite juniors on the TSX. I would certainly buy Syrah if I were able to make trades on the ASX, but my broker doesn't trade ASX shares.

     

    The potential impact on the market of a major new entrant with low operating costs and vast resources is a risk factor which I should have mentioned. Thank-you for pointing this out.
    16 Sep 2013, 08:04 PM Reply Like
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