PDAC 2016: Juniors trial alternative business models to tempt investors

By Paul Rackstraw
Published: Friday, 18 March 2016

Rare earths and graphene are still a sore spots for finance. Batteries remains the buzzword for graphite while lithium demand growth could leave market tight.

This year’s Prospectors and Developers Association of Canada (PDAC) Convention in Toronto, Canada, was better attended than in 2015 and the general mood was more optimistic, despite the lack of investor confidence in higher risk mining ventures.

Simply ticking off the necessary components of an early stage mining business – acquiring valuable assets, using funds to advance exploration and delivering positive feasibility studies, have left many companies strapped for cash and unable to proceed further.

"Today the market doesn’t want to see a preliminary economic assessment (PEA), that’s not what’s important now," Kiril Mugerman, CEO of TSX-V-listed rare earths developer, GeoMega Resources Inc., told IM.

The company has opted to develop its separation technology, before building its own rare earths mine. 

Proof of concept is reassuring for mining investors, but arguably the most compelling way of getting financiers to put their hands in their pockets is evidence of downstream demand growth. Applications for minerals that failed to deliver on promises of being the next big thing have spooked many potential backers of new projects.

Graphene, the two dimensional carbon layer that can be derived from natural graphite, has been a rather painful example of this. The palpable excitement surrounding the material four years ago has since died down, as developers have so far failed to make the anticipated commercial breakthrough.

Many companies however insist that graphene is a good iron to have in the fire of a graphite project, as long as there are other business propositions to run alongside it. 

Although the chances of turning it into a significant revenue spinner may be slim, most with the capacity to produce graphene from natural graphite do not want to be left behind, if and when the material does take off commercially.

But for most in the junior graphite sector, the buzzword continues to be batteries and millions of precious dollars are being ploughed into demonstrating that ore from projects all over the world can be processed into battery grade material at costs competitive with the dominant producers in China and Japan.

Kevin Watson, of processing company, KPM, which has developed a way of producing the battery material, spherical graphite, told IM that many juniors underestimate the complexity of upgrading graphite for the battery market.

The company works with juniors and existing producers to streamline production, improving production processes and cutting costs and is now looking to provide a package technology to the mining industry, focusing on graphite.

"A lot of juniors have a long hard process to carry out requiring them to develop large production capacity and projects and they need a lot of funding," he said.

A higher turnout at this year’s PDAC in Toronto than in 2014 gave junior miners
some encouragement, although competition for funding is still fierce. (IM)

Alternative approach

DNI Metals Inc., another Canada-based exploration company, is tackling the graphite market in a different way. DNI is buying graphite from Brazil and processing it, before selling the resulting material to end users in small quantities to build up a customer base for its own graphite project in Madagascar.

Importing graphite from Brazil allows DNI to build relationships with customers and other market heavyweights, which according to its CEO, Dan Weir, is an important part of making it in the business.

"It’s not about producing large quantities, it’s the sales and it’s the marketing that counts. Also being able to supply a lot of different specs and products to a lot of different people," he told IM.

DNI plans to start output at 12,000 tpa, which Weir says will enable the company to be extremely competitive in the current graphite market owing to its lower capex and opex costs as the ore can go straight into the flotation process following excavation.

With only part of the graphite needed to be upgraded to battery grade, DNI decided it was more economical to build a facility in North America for processing to higher grade graphite. The facility will also enable DNI to conduct all of its own testing.

Batteries still driving demand

As demand for batteries continues to grow around the world, so will demand for lithium, but according to Stormcrow Capital Ltd president Jon Hykawy other applications will also drive consumption.

He outlined that rechargeable battery demand is pegged at 29% but other markets also remain important, such as ceramics, fritz, glazes, greases, thermal glass and metallurgical powders.

"All of these markets are growing – or shrinking in the case of aluminium – at various rates. But the battery side of this equation is growing at the largest rate," he said.

Hykawy estimated that total battery demand increased 11% between 2014 and 2015, with a dramatic rise in consumption expected for battery materials such as graphite, lithium and cobalt out to 2025. 

Current demand for lithium remains in the region of 200,000 tpa with global nameplate capacity calculated at around 231,000 tonnes. By 2025, Hykawy expects lithium demand to be in excess of 400,000 tpa and supply to reach around 425,000 tpa, with new projects coming online.

Hykawy cautioned that the 25,000 tonne overlap is not a large margin of error, however. "Some of these [new lithium] projects aren’t completely financed and there should be some concern about supply, but not all lithium goes into batteries. Some of it is lower value and used for things like greases and there is some elasticity in market segments," he said.