With the graphite market forecast to ramp up significantly in the near future, Energizer Resources (TSE:EGZ) (OTCBB:ENZR) says it will be ready to meet the demand.
The company not only has a giant resource in its Molo graphite deposit in Madagascar, but it is moving toward a full-feasibility study at a rapid pace, having recently released “a very conservative” yet strong preliminary economic assessment (PEA) - one of only three junior graphite companies to have done so.
Energizer late last year unveiled an NI 43-101 resource estimate for Molo, which ranks the deposit as one of the largest in the world.
Indicated resources at the Molo deposit total 83.99 million tonnes, grading 6.36 per cent carbon (C), above a 2 per cent C cut-off grade, with inferred resources totalling 40.32 million tonnes grading 6.3 per cent C.
Based on drill and trench data received to date, as well as mapping, prospecting, and geophysical surveying, graphite mineralization is confirmed at surface and over an area of at least 250,000 square metres. Drilling has also confirmed that the mineralization is exposed at surface and open at depth in excess of 300 metres.
The conventional open pit project is expected to mine 1.17 million tonnes per year of ore, at an average head grade of 8.5 per cent with a stripping ratio of 1.65.
Brent Nykoliation, Energizer’s senior VP of corporate development, tells Proactiveinvestors that the company is targeting the completion of a bankable feasibility study and emphasizes that the Molo project can meet the current demand for graphite from the traditional steel markets and easily scale up when new demand for graphite in the energy markets heats up – as he believes it will be in the near future.
“In just 15 months from initial discovery, the team at Energizer in conjunction with its EPCM partner, DRA Mineral Projects of South Africa, has released a robust PEA study,” he says.
“Unlike other graphite companies who have released either a PEA Study or full feasibility study, Energizer’s PEA results included transportation costs FOB port as opposed to just ex-mine.”
The economics of the report, done by DRA Mineral Projects showed a post-tax net present value of $341.8 million on a 10 per cent discounted basis, with a 41 per cent IRR and a payback period of three years. Pre tax, the net present value was calculated at $421.5 million, with an IRR of 48 per cent.
According to the preliminary report, the average specification of the graphite to be produced is 92 per cent carbon (C), with average mill recovery estimated at 89 per cent. Nykoliation says that the PEA uses a conservative, average price of $1,564 per tonne of graphite, and did not include pricing for any large and jumbo flake.
Pricing for the full distribution suite of flaked graphite will be incorporated into the full feasibility study, slated to be initiated next quarter. Work on the full feasibility study will include construction of two pilot plants, each at a different accredited lab, to produce the necessary quantity of samples for presentation to potential off-take partners.
The work will also look to optimize flake size distribution and further upgrade its concentrates from purities between 98 and 98.6 per cent graphitic carbon to battery-grade target purity levels of greater than 99 per cent.
With completion of the full feasibility study targeted for the fourth quarter of this year, the start of mine construction is expected in the third quarter of 2014, and production is anticipated in the fourth quarter of 2015 at an output capacity of 84,000 tonnes per annum (tpa).
Along with its large, expandable NI 43-101 compliant resource that is able to meet market demand as required with a “full suite” of flake sizes, the company says it will be able to supply products to all market segments.
Energizer says it is also currently in off-take discussions with key graphite producers and manufacturers as well as with "leading financial institutions" for moving the project through to construction and production.
“The graphite market is very complicated, so we have spoken with many groups internationally on how to go forward in a partnership basis to place the graphite in customer’s hands,” says president, director and COO Craig Scherba.
Also key to the company’s future success is the unique location of its Molo deposit, which is in a sparsely populated, dry savannah grassland area. The environmental impact is therefore low, with the property having easy access through a network of secondary roads that lead to both the regional capital and port city of Toliara, and to the port of Soalara.
Scherba says other projects in Madagascar have paved the way in terms of mining laws, making it easier for companies like Energizer to move forward with their projects.
The company is also confident that operating costs will decline in the future as many other projects – particularly coal – are starting up in the region.
The nearby Sakoa Coal Field, just 30 kilometres away, will upgrade the now serviceable infrastructure, and with targeted production of 5 million tonnes of coal on an annualized basis, Energizer says the coal project will require significant upgrades to road infrastructure, port infrastructure, and on-site power plants – into which Energizer can no doubt tap. The Sakoa Coal Field is targeting operation between 2015 and 2016.
“We have diesel power generation in our OPEX costs right now, but should be able purchase ‘over-the-fence’ power once the Sakoa plant is built,” says Scherba.
“That means our operating costs will become even more favourable going into the future.”
The location of the company’s asset in Madagascar is also at the centre of the key graphite demand markets of China, India, South Korea and Japan – an important advantage for the Project
“Molo is located at the hub of high-volume world graphite markets and it is an easy process to ship from where we are located,” Scherba says.
The company also boasts favourable partnerships, with DRA Mineral Projects on board to help it construct its mine.
"DRA and its wholly owned division, Minopex, is one of the largest and most African-centric companies specializing in mine engineering, construction, and mine operation,” says Nykoliation.
Energizer has also enlisted the help of Panalpina, an intercontinental air and ocean freight supply chain and logistics companies, which has “hands-on experience” in Madagascar.
“They, in fact, handled all the logistics for the recently completed $6.5-billion Sherritt Ambatovy nickel mine, and they have confirmed that the current infrastructure in place is suitable today to support our graphite mine,” he adds.
Importantly, Scherba says the company also plans to apply for Madagascar’s Large Mining Investment Act (LGIM) permit, which defines the framework for developing and operating large-scale mining projects in the country, and provides for legal stability and financial incentives – including a tax exemption.
“The benefits of the LGIM permit are very positive for the company as it provides exemption for tax collection for first five years of a project (within guidelines), or until the mine turns a profit.” he notes.
“Based on a three year payback, that means we wouldn’t have to pay taxes in the first three years of operations.”
Graphite has achieved critical mineral status, with over 180 applications today that are dependent on the material.
China is currently the world’s largest producer of graphite, at about 80 per cent, but Energizer points out that the product is mostly lower grade.
“China, is realizing increased costs and reduced capacity due to older and deeper mines, and recent environmental and safety mandates will see significant mine rationalization – about 210 mines into just 20 super mines planned for this decade,” says Nykoliation.
“Just in the province of Hunan, they will be shutting 20 mines in the next three to four years due to environmental concerns.”
As the demand for graphite grows, the steel industry is still expected to be the number one consumer of the product, with automotive being the next highest consumer as advancements in the electric engine continue to improve.
Nykoliation explains that the estimated demand within the auto industry of one million electric vehicles would require the equivalent of at least five Molo deposits.
Even if electric vehicles are slow to take off, he notes that graphite has multiple layers of demand. There are many other new demand channels which will require graphite in the future, including large-scale lithium ion and vanadium redox batteries for grid storage, pebble bed nuclear reactors, consumer electronics, and fuel cells.
Meanwhile, the graphene market is expected to skyrocket through 2020.
Graphene, hailed as “the wonder product of graphite” is a two-dimensional crystal of pure carbon, is the thinnest and strongest substance known to science – about 300 times stronger than steel by weight.
It is a much better conductor of electricity than copper, is stretchable, almost transparent and also conducts heat better than any other known substance. Graphene-based applications with the greatest anticipated demand include consumer electronics, communications, computing devices, industrial materials, military/security and biotech.
According to a report recently released by BCC Research, new figures from global technology strategy and consultancy company CambridgeIP indicate there is a global graphene patent race underway to exploit graphene-based applications.
A global survey shows there are currently a total of 7,351 patents filed for applications of graphene, with just 3 countries holding 68% of them. China leads the world with 2,204, followed closely by the U.S. with 1,704 and South Korea with 1,160. Samsung leads all companies with patents, followed by Xerox.
As well, the level of investment going toward moving graphene from the laboratory to the marketplace is unprecedented. Europe has pledged €1 billion towards graphene research, while University of Cambridge and Manchester have both committed to building graphene research facilitates totalling over €85 million.
“We have the ability at Molo to meet traditional current as well as burgeoning markets coming on board,” Nykoliation says. “Even if one or two take off, there will be a need for a lot of graphite.”
With all that in mind, Nykoliation says the company remains focused on moving the development of the Molo forward.
According to US-based research firm House Mountain Partners, in January 2012 there were nine junior exploration companies involved in graphite exploration on the TSX, TSX-Venture, ASX and the AIM Exchanges. Today, there are over 82 companies managing 150 graphite projects in 13 countries. Of those 82 companies, only 12 have delineated a NI-43101 or JORC compliant resource, only three have completed a preliminary economic assessment study (Energizer is one of them) and only one has a final feasibility study.
As a result, several industry analysts, notably Chris Berry and Mickey Fulp, share the view that within the graphite space, there are “many pretenders and very few contenders” - only a select few will realize production.
Given the quality of the Molo project and the speed in which it has advanced, it appears that Energizer Resources is well positioned to be one of these companies.
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