A few years ago when BSM first came out with the purchase of the Graphmada mine, they embarked upon a refurbishment or partial rebuild of the mine. They did so with no resources, no metallurgy, no studies into the economics, and no mine plan in the public domain. At the time I said it was quite risky, and that the plan to ramp up production had no basis in fact. I pointed out that at the quarterly spend at the time the cost of production would be quite high (as all low-volume mines tend to be) requiring the premium price assumptions thrown around by the company as being 'possible'.
Dr Fouaud and others rubbished my opinion, and said that it was going to be cash flow positive really quickly, selling was easy, blah blah blah.
Several years later, sadly, after having given up monitoring the graphite space except cursorily, i am reading BSM's announcements thinking "I told you so". Or, well, if not you guys, those who came before, who are mostly long gone, having flogged their scrip to you.
The lack of clarity by BSM about production volumes and weights, and the specifications of products and tonnages within each quality band, is quite concerning.
Secondly, the lack of clarity around pricing is also very concerning.
For example, the announcement (1st April) of selling 362t for US$658/t is for a price that is half or less of the assumed basket price bandied around. No specification was given for this product in terms of flake size, but given it is not US$1700/t it isn't likely to be super jumbo or if it is, it is low-quality and has considerable gangue content such that it isn't 'premium' quality.
This sale comes after, for example, BSM only got paid AUD$127,000 in the december quarter. This, at A$1050/t on 119t of sales. So at least for the march quarter the company has notionally sold more, for less, effectively clearing the warehouse of unsold sub-standard material.
They state they have sold 734t, and that includes sales totalling $240,000 from the above 362t. This leaves 372t at an unknown price, and of an unknown flake size and specification. Some of this includes super jumbo flake at US$1700/t, but it is unclear if it was all of this specification. one presumes not given that A$2300/t super-jumbo flake x 372t is rather market sensitive (A$838k).
Their costs for the september quarter were $2.3M. If they spend the same amount in the March quarter, they will still be in the red quarter-to-quarter.
Now, assuming the best case scenario (which is extremely doubtful) of the 372t being premium super-jumbo flake, total sales would be $230k + $838k or $1M. So the cost per tonne of producing this product exceeds the revenue even under a best-case scenario and is in excess of $2,000/t. I say this because the company has apparently cleared the decks of all product in a month, and sold 730t. That would, under the absolute best case scenario, have cost $2M ( $2.3M costs minus $200k for capex = attritioning cells?) and produced $1M in cash flow or an average realised price of $1,300/t and a cost of $2,300/t (assuming half was in fact super jumbo).
Another way of looking at it is that at the current run rate, and taking the best month in the announcement (500t for October), the 6,000t per annum production rate at $1,300/t would nett $8M cash and cost $8M.
This is roughly what was on the table 2 years ago when the whole thing started; the only way Graphmada was going to be profitable was either producing exclusively super-jumbo flake with premium specification, and/or producing at higher rates than 6,000tpa. For example, if costs per annum are in the order of $8M @ 6Mtpa and $12M @ 12Mtpa (thumb suck) then cost per unit would be lower, profitability higher
Consider also that the -180 micron fraction at WKT's project has a basket price of US$890 pre-committed; BSM is achieving US$660 in the market right now. BSM isn't even achieving the lowest price of the smallest flake size achieved at Lindi by Walkabout. So clearly the 94% TGC is a problem and moving the quality up to 97% will doubtless have a very positive effect on the revenues at Graphmada. But even assuming 50% is sold at US$890 and 50% sold at US$1700, that's $11Mpa revenue versus $8M costs; the profitability is really quite low even under this scenario.
Utterly best-case scenario is that BSM sells everything for US$1700; this is $14M revenue on $8M costs. That's still a cost of US$1300 and revenue of $2300/t. Hardly world-beating, and it's still only 6,000t per annum.
So, Bass Metals is objectively a bad choice simply because of the small scale of the mine and mill. It simply cannot be profitable and competitive without either a substantial increase in throughput above and beyond 1,000t per month; a reduction in costs of at least 50% to US$600/t; and an increase in product quality to capture the premium prices, all limited by the flake size distribution.
Conclusions:
- I stand by the criticism of 2 years ago, except it has now been essentially proven to have been correct, at great cost to the investors in the company.
- The major failing was lack of a scoping or PFS level study by the company to firm up the operational parameters of a successful mine.
- Subsidiary to this was the idea of buying in to an operating mine, without a clear idea of whether it could ever be profitable, and then trying to fix an unfixable situation (being, insufficient throughput of the mill, full stop) versus starting from scratch and saying "What throughput do we need to have to get the volumes necessary to support profitability?" and then starting a scoping study on that, set an engineering flowsheet and design parameters, drill for the resources, do a PFS, and make a mine big enough to pay for the overheads of an ASX entity.
- Subsidiary to this is of course lack of clarity about capital costs and operating costs going in to the operation; without even a PFS to base an investment decision around, you're suddenly discovering $2600/t C3 OPEX @ 3,000tpa = $1300 OPEX @ 6,000tpa = a bad idea.
(20min delay)