This Battery Summit was a lead-in session for the annual Mines & Money Conference in London. The organisers invited me to give a high-level overview of the graphite market and provide tips on how investors (and companies) can best profit from this sector.
Key observations were:
- Due to the rapid growth in lithium batteries (for electronic goods and increasingly for cars) World demand for natural graphite is set to double over the next decade to 2.0 Mt pa by 2025.
- Currently, 80% of all graphite supplies come from China. However, due to high costs, environmental issues and mine depletion, Chinese output is projects to fall from ~0.8 Mt pa at present to 0.3 Mt pa by 2025.
- The resulting supply gap of ~1.5 Mt pa suggests a great opportunity for new entrants. However one needs to recognise that this gap will be easily filled with the current pool of undeveloped projects
- Over the last decade giant discoveries in Africa have led to a 6-fold increase in available resources (up from 86 Mt in 2005 to ~622 Mt in 2016). Even with the rapid increase in demand, the World has sufficient Resources in-place to meed several Centuries of further demand.
- At present, not counting China, there are 3 new graphite mines under development in the world (with a combined capacity of 0.60 Mt pa) , plus a further 27 projects (with combined capacity of 1.34 Mt pa) at the Feasibility, Pre-Feasibility and Scoping Study Stages. In addition there are over 220 projects at the exploration stage. Clearly, not, all of these will be developed as mines.
- The Key Success Factors for a good project are:
- High quality / high purity
- Consistent product
- Low costs – both capex and opex
- Close relationship with the customer / tester
- Value-add by producing spherical graphite
- Location – close to customer. Customers are also keen to avoid putting "all of their eggs in one basket"
- Patience – it will take several years to get your product accepted
- "Green" credentials – the project shouldn't generate undue pollution
- Ideally it should have a unique product – such as expandable graphite, coarse flake etc
Having a large high grade resource will help with costs, product consistency and developing relationships over the long term.
As rule of thumb, to survive the inevitable price wars (brought on by some of the bigger newer players) a project needs to have an operating cost of <US$500/t FOB and a unit capex cost of <$1500/annual tonne. Companies should also aim for >100 kt pa open pit operation with good infrastructure and low strip ratio and >20 years reserve life and >10% TCG and >40% recovery on spheroidisation