Graphite projects and reserves - are we facing an oversupply situation?

By Siobhan Lismore-Scott
Published: Thursday, 27 November 2014

This year has seen two graphite mines —Woxna and Loharano — come into production and a lot of excitement as Tesla’s Gigafactory was announced. However, prices have remained muted and as time ticks on, a strategic partner is yet to be announced to supply the electric vehicle producer. IM Editor Siobhan Lismore-Scott asks the industry their opinions on the market and projects in the pipeline — both existing and, in the case of Vietnam and India, potential for growth.

It may seem like it has been an exciting year in the graphite industry to the average Joe on the street, but institutional investors will know differently. 

There has been some recovery in steel markets, and Tesla’s Gigafactory announcement has led to a spate of speculation within the junior industry that there will be a supply shortage by 2020, but the reality is that prices have trickled lower across the board and, these days, some developing projects are attracting more attention because of their by-products over their natural graphite.

What a project needs in order to stand out varies according to who you speak to. Some parameters have been set out (pp38-45) to compare a clutch of development-stage projects based on factors including flake size, carbon content and offtake agreements - all using information released by companies themselves.

According to Stephen Riddle, CEO, Asbury Graphite, a project needs "a realistic production cost, realistic selling price and a realistic output of between 15,000-20,000 tpa that you can sell into the worldwide market". 

"Look at Nacional de Grafite," he explained to IM. "Did they start with 90,000 tpa capacity? No, they started with 10,000 and it took them 40-50 years to get to that capacity (…) they are not selling their full capacity today but they are selling around 60,000 tpa."

"The biggest problem is the investment community," Riddle said.

"They don’t understand graphite, because if they did they would realise that most of them wouldn’t mess with it. This is because the market doesn’t need big graphite mines. Not today. Maybe in 5 or 10 years’ time if lithium batteries take off and we need huge mines. And their problem is they don’t want to look at the smaller graphite mines because they are too small; and they don’t want to waste their time on a company that will only have revenues of $10m. They shouldn’t even be messing in this market if they don’t want to think small," he added.

"These big mines? Not one of them is going to make it today," he said. 

Others believe that a good project has to have both high and consistent grades. This is key for those trying to interest end users looking for raw materials to be used in lithium-ion (Li-ion) batteries, argues Manoli Yannaghas, UK-based StratMin Global Resources’ managing director.

"People tell me they want reliability. They want something they can depend on," he told IM. "They definitely want consistency and form. They want quality," he added.

The battery question

After announcing in March this year that it planned to build its Li-ion Gigafactory in the US, Tesla faced questions over where it would source its raw materials from and whether its supply chain would match the 'green’ credentials it promises for its cars.

In August, the company confirmed to IM that it will not be exclusively looking to source raw materials for its Gigafactory from North America.

"As part of our plans for the Gigafactory, Tesla plans to transition our sourcing of cobalt, graphite and as many other materials as possible to North America," a company spokesperson told IM at the time.

"Our strategy is biased toward developing the closest supply chain possible. This is not specifically limited to North America if there are other suppliers nearby that can demonstrate a lower overall landed cost and comparable environmental impact," the spokesperson added.

Tesla stressed that while its key objective is to minimise the environmental impact of making its EVs, it also needs to balance this with efforts to bring down the price of its batteries and, therefore, its cars.

Since then, anyone with a newsfeed on graphite has been inundated with press releases explaining just how well positioned each project is to take on the responsibility of providing the graphite component of Tesla’s Li-ion battery.

"Everyone is speculating as to who Tesla is going to take on. I think they are talking to everyone to see what they can do but no one can really show what they can do," Don Baxter, president of Canadian junior Focus Graphite, told IM.

Focus Graphite has the benefit of green credentials, he reminded IM, as its Quebecois Lac Knife (see Table 1) project is run using hydroelectricity. This also brings the project’s operating cost down.

"There are three points that make us attractive to Tesla. We have our feasibility study, we are environmentally sounder than competitors and are battery ready," he said.

"The unique thing about Lac Knife is that everything above 200+ is 98%C. We can covert a low value cell product and transfer it to a high value product. We’ve debunked the myth that this cannot be done," he added.

Greg Bowes, CEO of fellow Canadian Northern Graphite, made the point that at this stage "no one knows what agreement they are going to get".

"Tesla is looking at doing something and they need to know where the graphite is coming from," he told IM.

"We have the best location of anybody in North America and are the closest to civilisation, we are the most advanced," Bowes said of his Ontario-based Bisset Creek deposit.

"We have a bankable feasibility study and a major environmental permit so we can be in production within their timeline. We have the highest percent of battery grade production — 90% of our production could be turned into anode material for Li-ion batteries and for other companies that number is between 40-60%," he added.

As well as this, Northern holds a tested, proprietary technology to increase the purity of Bisset Creek (see Table 1) concentrate to 99.99%, commonly accepted as 'battery grade’.

"Right now that process is being done in China under very unsavoury conditions - you don’t want a green car with a dirty battery," he added.

"I think that whether it is Tesla or somebody else, the potential for a strategic partnership in the li-ion battery space is pretty good," Bowes told IM.

Table 1: Selected development-stage graphite projects

Company

Deposit name

Location

Notes

Big North Graphite

El Tejon

Mexico

Brownfield. NI 43-101 compliant technical report. There are three flake graphite deposits on the El Tejon property: Cerro Centro de la Cucharita, Temascal Tejon and Curva del 25.

El Tejon is the only mine to have produced flake graphite in Mexico, with a peak capacity of around 4,400 tpa graphite. The mine was operated by the government between 1980 and 1988, and was then run privately until 2002 when it closed due to low graphite prices.

Archer Exploration

Wilco South

Australia

Processing of graphite ore produced extra-large, large, medium and fine flake graphite grades of 91-93% C.

Boss Resources

Skogtrask

Sweden

Assay results confirm an average grade of mineralisation of 6.85% C with mineralisation up to 11.7% C.

Valence Industries Ltd

Uley

Australia

Four MoU for flake graphite sales "in excess of 80,000 tonnes for two or more years" signed.

Bora Bora Resources

Kingfisher

Sri Lanka

Has renewed its exploration licence. Land clearing has been completed so that the company can begin drilling and ground geophysics.

MRL Corp.

Aluketiya

Sri Lanka

Produced high-grade graphite for several decades until the operation was stopped in the 1960s.

Extensive veins of high-grade graphite are visible from surface but the area has not been subjected to any modern exploration techniques.

Energizer Resources Inc.

Molo

Madagascar

Second largest confirmed flake graphite resource in the world and the biggest under Canadian NI 43-101 regulations, hosting an indicated mineral resource of 84.04m tonnes grading 6.36% C and an inferred resource grading 6.29% C of crystalline flake graphite.

Sits as part of the company’s Green Giant project, which also includes a sizable vanadium deposit.

Pilot plant results show an average grade of the extra-large flake (+48 mesh) was 97.7% C, while the large flake samples (+80 mesh) graded 97.4% C. Medium flake graphite samples, greater than 200 mesh, were 96.7% C. The average total carbon content of 12 pilot plant surveys was 93.7% C at an average carbon recovery of 90.3%.

Kibaran Resources

Epanko

Tanzania

Sits within Mahenge graphite project

JORC upgraded resource estimate: indicated 12.8m tonnes at 10%C, for 1.28m tonnes of contained graphite.

Recent testwork showed that its graphite has a melting point of 1,305°C.

Recently signed a letter of intent with German  integrated materials and technology company ThyssenKrupp Metallurgical Products GmbH, a subsidiary of ThyssenKrupp AG.

Triton Minerals

Nicanda Hill

Mozambique

Maiden JORC resource.

Drilling underway.

Significant graphite intersections with the weighted average graphite carbon, include: 50 metres at 12.2%C; 150 metres (from surface) at 10.3%C; 97 metres at 11.8%C; 152.5 metres at 10.3%C.

Syrah Resources

Balama

Mozambique

200,000 tpa mine is unprecedented in the flake graphite industry in terms of size, with the closest suitable producer outside of China being Nacional de Grafite in Brazil.

Successfully produced uncoated battery grade spherical graphite.

Offtake agreement with China Aluminum International Engineering Corp. (Chalieco), part of the Chinalco Group, for 80,000-100,000 tonnes flake graphite.

Canada Carbon

Miller

Canada

Brownfield (mica and graphite). Has undergone multiple diamond drill surveys, airborne survey and obtained a bulk sampling permit for 480 tonnes graphite.

Test carried out:

Milling & Flotation (+48 mesh flotation concentrate assayed 99.1% Cg (100% C);

Alkaline Roast (Increased purity from: 93.5% Cg (94.4% C) to 99.1% Cg (100% C);

Acid Leach (Increased purity from: 99.1% Cg (100% C) to 100% Cg (100%C);

Loss on Ignition (LOI tests resulted in 100% loss - zero ash residue);

Glow Discharge Mass Spectrometer (GDMS) (Evans Analytical Group, NY - Nuclear Purity, by EBC);

Rapid Thermal Treatment in an inert atmosphere (resulted in a 99.9978% purity)

Mason Graphite Inc.

Lac Gueret

Canada

Pilot plant testing underway.

PEA released April 2013 places concentrate production at 50,000 tpa, at a production cost of $390/tonne.

Great Lakes Graphite

Lochaber

Canada

Brownfield development. Flotation concentration tests confirm that a high purity concentrate can be easily produced from its graphite.

NI 43-101-compliant resource estimate is in the advanced stages.

Focus Graphite

Lac Knife

Canada

NI 43-101 feasibility study technical report filed.

Measured and Indicated resources totalling 9.5m tonnes grading 14.77% C, with inferred resources* of 3.1m tonnes grading 13.25%C.

Holds a strategic 40,000 tpa offtake agreement for future production.

Northern Graphite

Bisset Creek

Canada

Holds a bankable feasibility study and a major environmental permit.

90% of production could be turned into anode material for Li-ion batteries.

Holds a proprietary, tested, technology to increase the purity of concentrate to 99.99% - which is necessary for it to be used in batteries.


Soft market

Despite these assurances, it is plain that graphite prices (see p59) have not fared well in the last year. 

Flake graphite prices have been relatively stagnant, after experiencing some sharp falls in 2013. However, most expect the market to see some recovery in 2015.

"Everyone I speak to says demand is going to go up. The question is around supply. In the short term, prices will rise or strengthen; if other projects come online then they won’t," Yannaghas told IM.

"There are going to be two catalysts for the industry. One is an economic recovery. So, if we get an economic recovery and traditional steel demand comes back, prices will respond and that will hopefully create the conditions that enable us to get financing to build a mine," Bowes said.

"The second catalyst is that, despite the fact that economies are weak, Li-ion batteries are still growing at over 20% a year and that’s even with very slow adoption of electric vehicles. We are going to reach a tipping point where Li-ion batteries start to drive the graphite price and I think they are getting closer and closer to that. When that happens we will get a recovery in price," he said.

"These two things will drive the industry and enable projects to get built because we can all talk about there being 60 graphite companies out there and all come from different projects, but not one new project has been built," he finished.

Brownfields

This year, two mines have come online and both have been from past-producing deposits (StratMin’s Loharano mine in Madagascar and Flinders Resources, Woxna mine in Sweden).

"The big advantages [of bringing a past producing mine online] is time," Flinders CEO, Blair Way, told IM during its opening ceremony in September.

"We had all this infrastructure in place. We had our roads, we had our power lines, we had all the civil work (…) we were quite literally refurbishing and replacing. Some significant parts of the plant, but that - what took us six months - would have taken us 18 months if we were building from new, probably closer to 24 months from start to finish."

See Blair Way’s interview on bringing Woxna online at www.indmin.com/video

Table 2: Vietnam graphite production and forecast to 2025 (tonnes)

Years

2010

2015

2020

2025

Graphite production

20,000

25,000

30,000

35,000


Source: Dao Dac Tao, vice chairman and general secretary, Vietnam Mining Science and Technology Association

Table 3: Vietnam graphite ore reserves

Name of the mines and ore points

Reserves (10, 000 tonnes)

The Northwest Region:

26,169

Nam Thi (Lao Cai)

9,760

Bao Ha (Yen Bai)

14,949

Mau A (Yen Bai)

136

Yen Thai (Yen Bai)

1,324

Central Region:

3,330

Hung Nhuong (Quang Ngai)

2,212

Tien An

918

Total:

29,299

Total Reliable reserves

14.169


Source: Dao Dac Tao, vice chairman and general secretary, Vietnam Mining Science and Technology Association

Offtake 

Many companies this year have made much of agreements signed with strategic partners - although the majority of these have been memorandum of understandings (MoUs), rather than firm agreements.

 "I don’t think that offtake agreements are worth anything unless you can prove yourself first," Yannaghas told IM. "An MoU is a very different thing. I don’t think they will get it unless they get into production," he added.

StratMin’s  shares skyrocketed by more than 80% on London’s AIM after it announced that it had signed a five-year offtake agreement for "all the material it can produce within a predetermined product specification" from Loharano.

The name of the buyer was not revealed, but was described by StratMin today as "one of the world’s largest independent processors and merchants of graphite".

While this was not the company’s first sale, Yannaghas said it was the first meaningful commercial agreement for StratMin’s Loharano graphite. In September 2013, StratMin agreed to sell an initial 200 tonnes graphite to Austria’s Grafitbergbau Kaiserberg, but said at the time 

that it was keeping its options open regarding future opportunities.

"A real offtake agreement is take or pay. You have a price and it is good for ten years. Nobody has that yet," Bowes said.

"You can have all the MoUs you want. I want to see a sales agreement. Selling graphite is extremely difficult. You’re not selling a commodity like nickel where you’re basically saying [if there is] 80% here I get this [much money], you have got to go to each individual end user and find out exactly what they want and get your material proved and that can take years sometimes," Riddle explained. 

Vietnam — exploitation expected from 2015

One country which has invested in its graphite production is Vietnam, which is looking to boost its output in the near term.

Graphite mining was implemented in Vietnam in 1915 from the Hung Nhuong deposit, Quang  Ngai province (South Central Vietnam), closely followed by Lao Cai in 1927.  

The Mau A deposit, in Yen Bai province, was the next deposit to be exploited in the1970s. 

However, despite a history of graphite production and plentiful resources, US Geological Survey (USGS) figures suggest total output from the country has never exceeded 100,000 tonnes; in fact,  current annual output ran from 5,000-15,000 tonnes, only enough to supply to domestic market.

From 2015, Vietnam’s graphite production will increase considerably however, as new investment has been earmarked specifically for the exploitation of Yen Thai graphite deposit in Yen Bai province (Northwest Bac Bo). 

This is an open pit mine, with a design capacity of 250,000 tpa of crude ores.  

After processing it is estimated that about 40,000 tonnes of concentrate can be generated, with content between 85-97% C and grain size from 200-60 mesh or 75-250 micron. The majority of this product will be exported.  

By 2020, Vietnam’s graphite output is expected to reach 50,000 tpa, but this could even be higher as several foreign investors have received a permission to exploit graphite in Quang Ngai province. 

Graphite reserves 

Vietnam is a rich graphite resource, with distribution in Lao Cai and Yen Bai provinces in Northwest Bac Bo and Quang Ngai province in South Central Vietnam.

The total resource of graphite ore is  estimated at 32.36m tonnes, in which 4.6m tonnes is proven (10-15% C) and 23.2m tonnes is probable and possible (4-10% C) categories. 

The Nam Thi deposit in Lao Cai deposit, which is the largest in Vietnam, holds 15.9m tonnes of ore alone, in which the industrial ore is 9.8m tonnes, with an average content of 12.5% C.

Graphite production 

Graphite production in Vietnam chiefly has been dogged, however, by being fragmented in terms of the companies exploiting the resources and, consequently, by backward technology, low productivity, inconsistent quality mix and a dependence on a small domestic market.  

These factors mean that it is still not possible to define who Vietnam’s largest graphite producer is. 

However, Ngoc Vien Dong Commercial Ltd Co., a company which is developing the Yen Thai graphite deposit in Yen Bai province, has been slowly investing in technology and equipment in the resource, with a view to becoming the largest producer in Vietnam. 

End markets 

The graphite being developed is mainly expected to fulfil demand in castings and refractory markets, as well as for lubricants. 

Countries such the US, Australia, Germany and France are seen as potential end users for the graphite used in lubricants.

Lubricants make up to 9% of total demand for graphite, although it is an industry which is not often discussed. It is a between 37-39m tpa market. Graphite is used in dry or solid lubricants. Graphite content of some lubricants can be up to 10% of oil-based products, but usually varies between 3-5% of content.