Graphite price outlook, page-15

I can't agree that the claim that the market agrees that a contrary view is unwarranted negativity. Since 9th Sept the share price has slumped from 84.5c to 65c, a fall of 24% and the recent uptick has been on very low volume. The company has a SHORT recommendation on it with bears in full control. I agree that the JORC is unlikely to shrink but that's not the problem. Graphite prices and Chinese production are the concerns. At the bottom of this post is an FS from Focus Graphite which saw its share price dive as soon as this report was released. Similarly, for all the hype about Flinders Resources and its stellar share price as soon as it actually went into production it fell off the cliff. The problem is outlined in the following excerpt from the Focus FS:

"The main findings of Industrial Minerals Data Report indicate that first quarter 2014 Flake graphite concentrate prices are considered at a four-year low. It is felt that these prices represent the bottom of the market. Demand is expected to return to the market in the second and third quarters of 2014 as consumers are expected to start replenishing their inventories."

Lately, reports have been casting doubt on China's assumed lower production of graphite. Despite the environmental concerns the Chinese dominate many markets and do not allow competitors to muscle in. As with rare earths they drive prices down to eliminate competitors and they may do exactly that with graphite. As state sponsored companies they can sustain low profits and even losses whereas small juniors like VXL simply can't. The rare earth example of this is Lynas Corp, driven to the verge of bankruptcy with its shares almost worthless because China keeps undermining its prices.
So there are genuine, rational concerns made worse by the delay in the BFS. The market sentiment is now negative, as it is with similar companies internationally. What surprises me is that even though the share price has embarrassingly broken below the share issue price the company has not released full details of its sales agreements. We can estimate COP with reasonable accuracy but we need to know the sales details to estimate profitability. That's the only data that will placate the market and it's a worry that we don't have it.

http://www.focusgraphite.com/wp-con...bility-Study-Technical-Report-August-2014.pdf