Welcome to approximately 60 seconds of reading Mike
O’Driscoll’s take on this week’s news highlights
in the industrial minerals world.
UK fracking at last
This has been on the cards all year. The shale gale is set
to sweep the UK. A number of reports on
fracking for shale gas in the UK had been sanctioned by the
government as it ruminated over how to finalise the UK’s
future energy strategy. They pretty much OK’d the practice
within strictly enforced regulations, but the government had
the final say. Now we know.
The UK government’s Chancellor of the Exchequer, George
Osborne, in one fell swoop both dismayed environmentalists and
encouraged gas exploration drillers during his Autumn Statement
delivered on 5 December.
Osborne signalled the UK’s intent to ratchet up its
future reliance on natural gas, and in particular, shale gas, with a new
Gas Generation Strategy involving the setting up of an Office
for Unconventional Gas and Oil.
Also aired were potential tax breaks for those working in
shale gas exploration in order to incentivise development,
although little detail was revealed.
The news was welcomed by various parties, not least Cuadrilla Resources, the
only licensed UK fracking company, whose operations were
suspended last year pending the government’s decision on
shale gas development.
The Geological Society of London was hot off the mark with
its views within hours of Osborne’s statement and warned
that it was important to demonstrate carbon capture and
storage (CCS) on a commercial scale urgently and to ensure its
widespread and rapid implementation - a neat potential market
sideline for industrial minerals.
A formal go-ahead on UK gas development is expected next
week, but the move sees the UK follow Poland’s lead in
developing shale gas resources, expected to come to fruition in
2015, as the government there has also structured a favourable
tax regime for developers.
And guess who just recently won a contract to explore for
shale gas in east-central Poland? – step forward Cuadrilla
Resources, who — clearly irked by the halt in its UK
activity — simply went where its development impetus was
welcome. No doubt Osborne hopes all will be forgiven and others
will follow in Cuadrilla’s UK footsteps.
In North America, gas developers appear to take a more
combative approach. US natural gas producer Lone Pine Resources
is planning to sue the Canadian government over Quebec’s
fracking ban, claiming compensation for lost value of
reserves.
Elsewhere in Europe, France and Bulgaria may well have
banned fracking for now, but it won’t be surprising if
these decisions are revisited sooner than later and overturned.
Certainly, any country dependent on Russian gas supply will be
itching to evaluate potential alternatives on their own
territory. It all goes to show just how geopolitical the shale
gas phenomenon is becoming.
Mineralwise, the news will no doubt have UK silica sand
producers checking their material against API specifications.
Indeed, how timely for Lochaline Quartz Sand
Ltd to re-open its Lochaline silica sand mine on the west coast
of Scotland.
Graphite marathon
London this week was host to two important mineral events:
Mines & Money and IM’s 2nd
Graphite Conference. And
anyone striving to touch all the bases over a hectic four days
of meetings, presentations, and networking would have been
sagely nodding to Stephen Riddle, President of Asbury Graphite
Mills Inc., US, as he described the business as a
“marathon” during his keynote paper.
The
graphite space is overloaded with junior developers, many
of which were popping up at Mines & Money, along with
fluorspar and fertiliser mineral prospects – a timely
reminder to investors that world mineral demand is not all
about the shiny metallic stuff.
Chris Berry, Founder at House Mountain Partners LLC, US, in
his presentation “Investor focus: is graphite still the
one to watch?” hit the nail on the head regarding the
fundamental principle of industrial minerals’ market
demand – “demographics is our destiny”. Yes,
it’s all about populations and the development of their
world.
Sure, low production costs are key, but while the near term
outlook may look bleak, Berry is rightly convinced that the
future quality of life sought after in developing regions
should secure long term demand for industrial minerals such as
graphite in a range of end products, particularly those related
to domestic and industrial energy provision.
At the same time there were the usual warnings of having
seen it all before with lithium, rare earths, and uranium
– investor excitement, price rises, followed by price
crashes.
There was also a neat reality check from Dr Emma Kendrick,
Research Supervisor at Sharp Laboratories of Europe Ltd,
regarding the type of graphite most suitable for Li-ion
batteries in stationary energy storage applications.
Dr Kendrick’s observation that round or
“potato” shaped graphite grains are far more
preferable to flat and platelet grains, owing to better
penetration of the lithium electrolyte within the battery, was
met with not a few blinks among the audience. A salutary
reminder to all developers to check out just what type and
grade of graphite you have in your reserves, and crucially, how
to correctly process the material for market
specifications.
The overall consensus was that while more graphite supply is
required, only a very few new producers will come on stream
over the next few years, and that there are different types of
graphite deposits, which may or may not be suitable for the new
and emerging applications.
As with last year’s Graphite Conference, the clash was
evident between the established graphite players with their
more conservative market outlook and the new players heavily
focused on the emerging markets.
Clearly there has to be a balance. While everyone wants the
new markets to prosper, despite the gloom of 2012, the
“boring” markets of steel refractories and foundry
castings will continue to dominate graphite demand, and
even grow.
Heck, even the
fracking frenzy in the US has helped fill the coffers of
the likes of Superior Graphite and Asbury Graphite Mills, as
they develop graphite grades for lost circulation and
lubrication applications in oil and gas drilling – one of
the smaller volume but traditional markets for graphite.
In the refractories space, Russian magnesia and refractories
giant Magnezit Group confirmed
its commitment to developing its own 40,000 tpa graphite
source, located in Russia’s Far East just across the
border from the Chinese graphite-rich province of
Heilongjiang.
The move also continues the trend of the large refractory
groups becoming more vertically integrated; expect others to
follow the likes of Magnezit, RHI, and Magnesita
Refratários.
Mike O’Driscoll is Global
Head of Research and Consultant Editor at Industrial Minerals,
previously he was Editor of IM 1995-2012.
modriscoll@indmin.com; T: +44 (0) 20 7827
6441
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