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Graphite - 10 Baggers or Flakey Prospects ?

Graphite has taken a back seat to lithium in publicity over the last few years, is now the time graphite developers take centre stage and bring windfalls to investors?


The expected surge in Electric Vehicle (EV) sales seems to be arriving with ever encouraging sales figures out of Europe and especially China. This has seen a boom in lithium developers on the ASX as demand for lithium has taken off against already tight supply for existing uses.

While the EV battery of choice is called a lithium ion battery the actual use of lithium in the battery is only approximately 2% of its make-up. Graphite may constitute between 10 and 20 times as much, 30 to 40 KGs in a purely electric vehicle. So is it a matter of picking any of the graphite developers and waiting for the boom?

The graphite market is complex and not for the research shy.  Battery makers are using a combination of natural and artificial sources. The standard for battery grade graphite is very high purity, which may come at a substantial cost in operational expenses depending on the particular deposit characteristics. Flake size distribution differs widely in deposits - and with that variation comes a wide variation in potential uses and prices. The complexity of graphite as a product may explain some reluctance from retail investors.


Despite the complexity the ASX has seen some real success stories from the point of view of early investors. Syrah Resource (ASX: SYR ) have been developing the massive Balama, Mozambique project (930 MT @ 11% TGC)  which saw strong share price growth in 2016. Shareholders have since been in a holding pattern as the mundane details such as selling product and building a mine/plant have progressed - and they have. With the mine near ready for first production the share price could again see significant gains as the company is further de-risked.


Talga Resource ( ASX: TLG) have been progressing their multiple European deposits (12.3 MT @ 25% TGC, 31.5 MT @ 14.9% TGC,  and 4.3 @ 7.1% TGC) alongside industry cooperation in technology in the hopes of providing shareholders with a multitude of markets to sell into, including the high value graphene market. Retail shareholders are naturally impatient to see revenue, but this company could be in the box seat for high value added product - all going to plan.


Battery Minerals Ltd (ASX: BAT ) recently completed a $30 million debt and equity deal to progress its Montepuez, Mozambique graphite project (Indicated & Inferred Resource: 105.9Mt @ 7.74% TGC) with a significantly larger exploration target. While the deal attracted some retail disquiet due to the dilution involved, it does provide a pathway toward its goal of production, and that could provide shareholders with significant gains. The nearby Balama project (Indicated Mineral Resources 26.6Mt at 10.3% TGC) would be icing on the cake.


Triton Minerals Ltd (ASX: TRI ) announced a second binding offtake agreement for their Ancuabe, Mozambique project (46.1 MT @ 6.6 % TGC) taking pre sales up to 50% of planned production. The market is yet to be impressed however, possibly due to the conditions involved and with finance to the project is yet to be sorted.


Walkabout Resources (ASX: WKT ) completed a DFS on their Lindi, Mozambique project ( 29.8 MT @ 10.9 % TGC) which produced compelling numbers including a 2 year pay back and a post tax IRR of 87.7% ! A mining licence is expected by shareholders in the near future after some delays due to Government re-regulation. 


Magnis Resources Ltd (ASX: MNS ) is developing their Tanzanian Nachu graphite project (174 MT @ 5.4% TGC).  The company continues to navigate recent legislative changes alongside other Tanzanian based resource companies and hopes to emerge relatively unscathed from the changes, which may have been aimed at existing mineral producers in-country engaged in tax minimisation. The company has grand plans for vertical integration in the battery market which if achieved will see battery production facilities being built in the US and Australia.


Volt Resources (ASX: VRC ) are progressing environmental approvals, mining licence and feasibility studies for their large Bunyu, Tanzania project  (461Mt @ 4.9% TGC). The company hopes to begin construction of a stage one in the first half of 2018. The company also reports advanced off-take discussions in China.   


Also operating in Tanzania are Kibaran Resources (ASX KNL) with multiple resources in play including estimates for Epanko (30.7Mt at 9.9% TGC) and  Merelani-Arusha (17.5Mt at 6.5% TGC). Importantly the company have BOAs for 100% of it’s anticipated Epanko production and is in discussions with German banks and African development banks for project finance which sounds a lot like debt not equity (dilution) and could leave shareholders very pleased.




Australia


Renascor Ltd (ASX: RNU ) have been developing their shallow, flat laying deposit in South Australia for the past few years. The company are naturally keen to promote the Siviour deposit (80.6 MT @ 7.9 % TGC - the largest in Australia ) as being in a safe, mining friendly jurisdiction. RNU recently settled the issue of ownership of the deposit and raised finance to progress to feasibility studies. RNU appears undervalued to peers but this may change once the studies confirm viability of the project, and especially if binding offtake deals can be made.



The above chart shows the size and TGC of Australian projects (in orange)  compared to worldwide projects. Source: RNU


There are a number of other Australian projects in development including Hexagon Resources (ASX: HXG ) who reached agreement with Mineral Resources (ASX: MIN ) to fully fund and take 30% of product from their McIntosh Flake Graphite Project in the East Kimberley (21.3 Mt @ 4.5% TGC).   


Novonix Ltd ( ASX: NVX ) have evolved into a wider battery company via acquisitions of battery testing and anode material companies. The future of the company will largely depend on the development of these businesses. The company does have an Australian deposit to develop (14.3 MT @ 13.3% TGC ) if it wishes to progress it.  


The potential fox in the henhouse of the natural graphite industry is Hazer Industries (ASX: HZR ) , Hazer are developing a production process they hope will be able to supply battery grade graphite via plants being developed in cooperation with Mineral Resources. The process is also potentially a source of cheap industrial hydrogen. With a pilot plant being built and yet to achieve patent protection, the uncertainty is probably reflected in the share price. A game changer to the industry if the company succeeds in their plans over the next year however.


The above ASX listed projects constitute just a sample of worldwide developments. The uncertainty remains Chinese production levels, artificial production, and as with all resource developments - finance, and the ability to attract BOAs for 100% of product.

While some in the twittersphere are calling a few of the above stocks 10 and 20 baggers in the making, others are far more circumspect and call almost the opposite. Choosing the right investment vehicle in graphite now might see lithium like windfalls ahead. The difficulty is all in the choosing...


What are your thoughts? Comments welcome below.   


Disclosure: The author holds RNU and HZR at the time of writing. No financial advice intended or given. 
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