Wednesday 28th September 2016

Resource Clips


Tesla talk electrifies stocks

Huge plans for EV expansion would require several new graphite mines

by Greg Klein

Giga what?

It’s a “Gigafactory” and its dramatic announcement has frontrunners to graphite production basking in the news—a potential 37% increase in natural graphite demand by 2020, requiring six to nine new graphite mines. Those estimates come from the authoritative journal Industrial Minerals in the wake of Tesla Motors’ plans for a $5-billion plant to manufacture lithium-ion batteries for electric vehicles. While several caveats have to be considered, graphite companies have once again come to market prominence.

The Gigafactory’s not yet a fact. Start-up is slated for 2017 but Tesla needs a location, not to mention partners. Tesla’s putting up only two-fifths of the $5-billion price tag. Writing in Morning Notes, Chris Berry states that Panasonic and Sanyo are “rumoured to be contributing as well.” IM writers Simon Moores and Andy Miller caution that “the plant is in the planning stage and capacities depend strongly on market demand.”

Huge plans for EV expansion would require several new graphite mines

Even without growth elsewhere, Tesla Motors
would dramatically increase demand for energy minerals.

Berry, who has previously called Tesla a “bellwether or benchmark for green technology and by extension energy metals,” emphasizes that the Gigafactory’s success depends “less on a secure supply of raw materials and more on the long-term price of a gallon of gas.” He also says EVs face competition from other technologies. And, although “a long shot,” current battery technology could become obsolete.

Nor has Tesla specified that its batteries will use natural graphite. Synthetic graphite might be an option but, as Berry points out, the natural stuff would help the company meet its goal of cutting manufacturing costs by half.

Moores and Miller note alternatives to graphite, such as the non-graphitic carbon anodes now in the R&D stage. But, the writers state, graphite anodes remain “the current material of choice for Li-ion battery producers.”

Should all go according to plan and assumptions, IM Data offers some intriguing estimates. Capacity operation at the Gigafactory would call for 93,000 tonnes of large flake graphite. Those grades, +80 mesh and larger, “made up just over 20% of total flake graphite output of 375,000 tonnes in 2013,” IM stated. By 2020, even with no growth in other areas, the Gigafactory could require six new mines.

That’s just the conservative estimate. “In a bullish case this could rise as high as 140,000 tonnes,” IM states, calling for nine new mines. A number of projects rank among the contenders.

Canada’s next new graphite operation would likely be Ontario Graphite’s Kearney mine, 250 kilometres north of Toronto. Having missed its 2013 target date, the privately owned company now says Kearney will re-open early this year. The large, low-grade resource would produce an annual “20,000 tonnes of natural, large flake, high carbon graphite concentrate,” the company states.

Next in line might be Flinders Resources TSXV:FDR, which plans to skip feasibility and even pre-feas to begin commercial production at Sweden’s Woxna mine by July. The company calls itself the only publicly traded company that’s completely funded for production. Its primary market would be European refractories and crucible manufacturers.

The only graphite company with full feasibility complete, not to mention an expansion case PEA and major permitting, Northern Graphite TSXV:NGC hopes to begin construction on the Bissett Creek mine in southeastern Ontario by Q4 this year, with commercial production following in Q4 2015. Negotiations are underway with potential strategic partners to take up part of the $101.6-million initial capex. One of the company’s claims to fame has even greater significance following the Tesla news. Northern is “the only junior that has successfully produced and tested spherical graphite for Li-ion batteries,” the company says.

This year has Focus Graphite TSXV:FMS focusing on feasibility and financing. In December the company signed what it terms the graphite industry’s first offtake deal, a 10-year contract with a Chinese conglomerate that will buy 20,000 to 40,000 tonnes a year. The 2013 preliminary economic assessment for the Lac Knife project in northeastern Quebec forecast total annual production at 44,000 tonnes. The PEA projected an initial capex of $126 million, which Focus hopes to raise through a combination of debt and equity.

Mason Graphite’s (TSXV:LLG) timeline has feasibility scheduled for completion in Q3 and construction beginning in Q1 2015. Last April’s PEA gave the company’s Lac Gueret project in northeastern Quebec direct costs, including contingency, totalling $107.92 million.

A company hoping to begin production in 2015, Energizer Resources TSX:EGZ has a February 2013 PEA projecting a $162.04-million capex for its Molo deposit in Madagascar. The current plan is to start small with 50,000 tonnes per year but build to a 150,000-tpa capacity as the market requires.

Not as advanced, but a prominent company nonetheless, Zenyatta Ventures TSXV:ZEN plans to finish a PEA in Q2 following last December’s maiden resource for its Albany project. The “very rare hydrothermal deposit” rejuvenated early-stage graphite activity by sparking an area play around the north-central Ontario property.

One junior that’s already selling product is Big North Graphite TSXV:NRT. The company has so far sold 760 tons produced by test-mining its 11-hectare, 50/50 Nuevo San Pedro joint venture in Mexico and by purchasing output from other small, nearby operations. The less-expensive amorphous product doesn’t serve the battery market but the company’s also pursuing flake graphite at its other properties in Mexico and Canada.

IM writers Moores and Miller compare Tesla’s plans to Henry Ford’s introduction of the assembly line to car manufacture, saying the Gigafactory “could prove just as pivotal in the emergence of the EV market, unlocking a lucrative new layer of demand for natural graphite producers.”

In his Morning Notes article, Berry points out that graphite is the largest component of the numerous materials used to make Li-ion batteries, but not the most expensive. Though Tesla’s announcement boosted graphite and lithium companies, he observes, cobalt and nickel stocks somehow missed out.

“There are a multitude of factors which will ultimately determine the success or failure of the Gigafactory,” Berry concludes. “But it is clear that reliable supply of various energy metals remains at the heart of this strategy.”


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