acquisition of Mexico-focused
Big North Graphite Corp. by fellow Canadian competitor
Flinders Resources Ltd surprised many industry observers
|Flinders' Woxna mine in Sweden is due to officially
later this month (source: Flinders
If youre like me, you may be tempted to ask
why?. Why would Flinders take out a competitor,
having just entered into commercial production at its Woxna
mine in Sweden?, wrote Chris Berry, founder of the
research firm House Mountain Partners LLLC in his dissection of
There are several likely
answers, but acquiring a past-producing asset in North America
(in Mexico) is chief among them, he added.
The asset in question is Big
Norths El Tejon flake graphite mine and mill, a 500 ha
(5km2) concession comprising three deposits of flake
graphite, located 38km northwest of Oaxaca in Mexico.
The mine and mill are both in need
of refurbishment and will require permitting before they can be
reactivated. Having brought the Woxna graphite mine in Sweden
back into production in July this year, Flinders believes it
has the experience to help Big North return El Tejon to an
Finding a former producer
and bringing it on is what we have done with Woxna. We can get
Big North into production for a low capital cost,
Flinders CEO, Blair Way, told
Under the binding agreement to buy
Big North, Flinders will pay each Big North shareholder one
share for nine of theirs, resulting in the issuance of 9m
Flinders shares for 81m Big North shares.
Big North has promised not to
invite any other offers and pay a breakup fee of Canadian
dollar (C) $500,000 ($461,400*) if the deal falls through.
Further consolidation not
on the cards
While the tie-up of two early
production stage companies is a rare deal in a sector where
M&A activity has lagged that in other industries by a
considerable margin, commentators do not think that the
acquisition signals an imminent wave of consolidation in the
I'm not convinced that this
takeover is the start of a wave of broad consolidation,
Berry told IM.
I suppose you could see similar deals like the
Flinders-Big North one, but there were a number of obvious
synergies, in hindsight, that will allow both companies to
benefit. I'm not sure I see something similar in the remaining
pool of graphite juniors, he added.
Berry also ruled out the prospect of any near term
consolidation by means of vertical integration. With
graphite prices flat but high on a historic basis
the majors don't appear to be in any hurry to tie up long term
supply, he said.
Another industry analyst, who
preferred not to be named, said that the inducements behind the
Flinders-Big North deal justified the arrangement, but added
that similar deals between other graphite juniors or buyouts by
larger companies were unlikely.
I see this [Flinders-Big
North deal] as two producers, albeit small ones, combining.
They could have some real synergies on the distribution side.
As for junior companies, what is the synergy? Cost savings? If
you look at small graphite companies with no revenue, exchange
listing and maintenance fees could be onerous, the
I don't think there will be
a buyout from Imerys or AMG. I haven't seen it in the past and
[it looks] unlikely, given the valuation of some of these
junior mining companies, they added.
Flinders and Big North have hailed the deal as one that
brings reciprocal benefits for the two companies in different
As Berry points out, Vancouver-headquartered Flinders will
now have access to a property with medium-term potential to
supply the US graphite market, while Big North can reassure its
shareholders it has the backing of a company boasting a proven
Built in 1980 by the Mexican government, the El Tejon mine
was operational until 2002, finishing up in the private
ownership of Grafito de Mexico SA. At the time of closing,
Grafito was estimated to be selling 80% of its production to
All of the resource estimates for the Mexican property
predate NI 43-101, but historic surveys indicate a proven
tonnage of over 3m tonnes graphite grading over 3.5% C across
two of the sites three deposits.
A probable tonnage of more than 6m tonnes has been estimated
for the entire project.
Big North, which is also based in Vancouver and owns two
graphite properties in Canada, is already producing and selling
modest quantities of amorphous graphite from the 11.1 ha
(0.1km2) past-producing Nuevo San Pedro mine in
Sonora, Mexico, providing it with a small amount of cash
The company managed to get Nuevo San Pedro into production
in the middle of what it described as a punishing
year for junior graphite companies on the stock markets.
2013 was a rough year for small mining
companies, Big Norths CEO, Spiro Kletas, told
IM earlier this year.
He explained that the company had prioritised getting Nuevo
San Pedro amorphous graphite mine into production before
turning its attention to the El Tejon asset because it believes
that taking one thing at a time is the best
strategy for a small firm.
If you spread yourself too thin, it looks bad,
he said. It was a full time job to get into amorphous
production, but were looking for a grand slam when it
comes to graphite with flake and amorphous.
Like Flinders, Big North plugged for a past-producing
project because it would cost us less to get going than a
Flinders Kringel deposit at Woxna has an NI 43-101
resource of 2.6m tonnes graphite at an average grade of 10.5% C
and the mine, which
commenced production in July, is due to be officially
opened later this month.
With easy access to the European graphite market, Flinders
has said that its approach will be to sell small amounts of
graphite initially in an effort to build up market share and
position itself as a credible alternative to Chinese
As the first new graphite supplier in Europe, Flinders can
afford to take its time for now.
Even if the Flinders-Big North
deal is not the tip of an imminent consolidation iceberg, it
could provide a model for other companies to emulate in the
more distant future.
Flinders had been considering a
potential merger with rare earths
junior Tasman Metals Ltd, which is also exploring in Sweden,
cancelled negotiations in May after the parties failed to
agree on a valuation for the new joint company.
Berry said that while it is
probable that further graphite industry consolidation will take
place at some stage, macroeconomic factors will act as a drag
on M&A in the near term.
The consolidation will continue, but it will be more
sporadic and slower than many in the sector hope due to a
challenging global growth picture, he said.
Others hinted that the fact two apparent companies had
considered it strategically prudent to join forces demonstrates
the challenge of penetrating markets that new would-be graphite
This goes to show you how hard it is to place the
material and actually generate sales, one commentator
It also serves to highlight how the hype is better
than reality [when it comes to the prospects for graphite
juniors], they added.
*Conversion made September 2014
later this month for exclusive news and interviews from
Flinders opening ceremony at Woxna. This and other
developments in the graphite industry during 2014 will be
discussed at the
4th Industrial Minerals Graphite and Graphene
Conference in Berlin, Germany, 9-10 December.