The Unique Story no one gets

Comparing the market caps of the various graphite plays, it would seem to me that no one gets the unique GPX story.

I’m not surprised. I don’t think the company has done a very good job telling it. All the data below is scattered through their various announcements, PFS and company updates, it just takes a bit of work to piece it together.

There’s some 35 listed graphite plays, most if not all of whom - except one - are chasing the battery market. The one not chasing batteries* is GPX who is the only one focusing on another market that is here, now and multiple times larger than the entire battery market ie the Chinese building materials market, who urgently need expandable graphite for flame retardant building materials, as the Chinese government changed the building code to require fire proofing as a result of tragic fires in residential and industrial buildings over the past few years that you may have seen on the news. (*GPX graphite is also great for batteries, but the basket price for expandable graphite for building materials is much greater than battery graphite.)

This explains why GPX is in exclusive, well-advanced discussions with China National Building Materials Corporation (CNBM), a State-Owned Enterprise.

CNBM have estimate they need 5 million tonnes pa of flame retardant building materials, impregnated with between 5%-50% of expandable graphite (% varies with height & use of building) . Using just 10% equates to a market of 500ktpa of expandable graphite which is more than the global battery market.

Why is CNBM talking to GPX? Because GPX graphite expands by 1,500 times (see graph below) which is the most expandable on the market by a factor of almost 3 (Blackrock have just published 580x).

CNBM is also talking to GPX because they have lots of the expandable stuff. While the GPX pre-feasibility study (PFS) only allowed for 69,123 tonnes pa (ie a go-small-go-fast-strategy), the PFS emphasised that they had only drilled less than 1km of the 54km long deposit. GPX recently announced a further, small (<$200k) drilling program which is expected to expand the resource by 2x-3x times.

The PFS determined a project NPV of US$200m for the small kick-off 69ktpa operation. 2x-3x this takes NPV to US$400m-US$600m. Assuming the Chinese get a 50% equity in the project for putting up the US$75m construction funding, we’re still looking at a value to GPX shareholders of US$200m-US$300m. If the Chinese get GPX to ramp up to supply their full requirement of 500ktpa (and why wouldn’t they, having paid for the processing plant?), at 50% carry this equates to NPV to GPX shareholders of over US$700m.

Makes it look cheap when it’s sitting around US$15m at this advanced stage.