Stratmin plots course for global graphite status

Stratmin plots course for global graphite status
Benchmark Minerals
2 July 2015

A new partnership with a leading Indian graphite producer is central to Stratmin Global Resources’ blueprint to put itself on the international flake graphite map. With the London-based company’s planned production increases, it would also
place Madagascar in world’s top three producers. Benchmark Mineral Intelligence met with new CEO Brett Boynton for an exclusive interview.

In the last two years, Stratmin Global Resources has risen from obscurity to becoming a fully operational, publicly-listed flake graphite producer in Madagascar.

While this may sound underwhelming to many in the resources space, Stratmin has so far achieved what the vast majority of exchange-listed graphite companies have not: to establish a mine, produce a consistent flake graphite product and sell to the international marketplace.

The industry has seen two booms for graphite exploration: firstly in 2011 driven by Canada and then in 2014 with the rise of Australia-based companies. Between the two countries over 150 projects entered the race to become the world’s newest mine outside of China in nearly 30 years.

New companies are vying for a position in the lithium-ion battery resurgence that is taking place in the wake of increased electric vehicle output and the rise in utility storage applications – batteries that can power your home and commercial facilities.

Graphite, the carbon anode, is central to all battery technologies. It is also a key raw material in many mature, existing industrial markets such as refractories, foundries and lubricants.

Supply developments have also hastened the need for new sources, particularly as consolidation activities in China have restricted the availability of flake graphite on the international markets. This in addition to the severe underinvestment in new resources over the past decade means the opportunity for new suppliers is increasing.

Despite this, only two mines have started operations:

Stratmin’s Loharano mine in eastern Madagascar and Flinders Resources Ltd’s restart of the Woxna operation in Sweden.

In May 2015, under the stewardship of former Managing Director Manoli Yannaghas, the company revealed it was consistently producing an average flake graphite concentrate grade of 94.3% C, the industry standard for selling into leading markets such as Europe and US.

It was a watershed moment for a company that has had its fair share of production problems to date, including the key processing steps of crushing, flotation and drying. It was also a moment that validated the mine as the world’s newest source of flake graphite.

“We now have a great platform for a step change in the way we produce and sell graphite,” explained new CEO, Brett Boynton in an exclusive interview with Benchmark Mineral Intelligence.

“At our present capacity of 500 tpm we are too small to be a meaningful player, we are only a by-line in analysts’ coverage. [Now it’s our chance] to produce more of the same with more money,” Boynton said.

With a 6,000 tpa capacity plant already established in Madagascar, Loharano is about half the average size of a flake graphite mine today.

But Boynton believes with its expansion plans and a new partner, leading Indian producer Tirupati Carbons & Chemicals Pvt Ltd, it can ramp up its output over the next two years and place both Stratmin and Madagascar among the leading producers outside of China.

“Stratmin now has the platform and the partnership in place to significantly increase capacity, but with all of the experience of our pilot project the risk is substantially mitigated...once we have built this out it will be a sustainable low cost source of graphite,” the CEO explained.

Boynton outlined to Benchmark the company’s blueprint for expansions in a country that is presently the world’s 6th largest producer of flake graphite.

Phase one will see an expansion of the Loharano operation to 18,000 tpa, in essence replicating the successful 6,000 tpa plant twice over to bring significant new capacity on-stream.

A concurrent project will see the company work with Tirupati on a new site closer to Madagascar’s Tamatave Port, which is aiming for a 12,000 tpa flake graphite capacity.

Should Boynton successfully implement the plan, Madagascar would increase its graphite output four-fold to 30,000 tpa and leapfrog Norway, Russia and India to become the world’s third largest graphite producer.

“The rationale is simple from our side; it gives us a risk mitigated exposure to significant expansion of our resource and volume,” said Boynton.

“Tirupati will gain access to capital markets and project finance through Stratmin’s London listing and our ability to attract and negotiate funding. We will be actively seeking funding from sources such as the African Development Bank,” he added.

Tirupati is one of the leading graphite producers and is involved in the mining and processing of flake graphite for a wide variety of domestic markets. In recent years more graphite has been imported and reprocessed for the domestic markets contributing to the country’s total output of 25,000 tpa, making it the world’s third largest producer.

Developing new sources in Madagascar could see India evolve into a value- added processor of flake graphite rather than a miner. This is much the path

China is attempting to go down with its consolidation activities which presents opportunities for suppliers like Madagascar.

Understanding a niche market

One of the major challenges for Stratmin has been infiltrating what is a private
and niche sector. While flake graphite is a global industry and a key raw material in steel making and batteries, only a handful of companies dominate the international marketplace.

This problem was one faced by former MD, Yannaghas, who explained to Benchmark: “Graphite customers are very specific for what they want. The guidelines are very tight. If it falls outside of these specifications they won’t take it”.

Graphite is end user driven. Knowing your customers and working to their needs are factors that can make or break new graphite producers and what sets it apart from larger commodities such as iron ore, coal and copper.

Yannaghas’ message was echoed by Boynton.

“It’s naïve to think you can just build a mine, get an offtake deal and be successful. You need to understand the market and focus on your core competencies,” he explained.

“Our core competencies are developing and operating in Madagascar. We now actually have cash flow and have proven consistency of grade.”

The country has long suffered from underinvestment in the graphite sector. While being well regarded for the quality
of its flake graphite, Madagascar has lacked the financial power and forward planning to significantly expand production.

With both Stratmin’s present sales into North America and a route into the Indian market with its Tirupati deal, all the pieces for a new era in Madagascan graphite production are being put in place Madagascar has always been a niche but high quality producer of flake graphite concentrate.

Analysts: Madagascar's global graphite position
by Simon Moores

Over the last decade, production has ranged between 3,000 and 8,000 tonnes with almost 100% of output destined for the US or Europe. This is only a fraction of total global supply, however, which is dominated by the two majors, China and Brazil – both of which accounted for 86% of flake graphite output in 2014.

Despite this minor volume position, Madagascar has found itself a loyal customer base for its high quality, large flake (+80 mesh or larger) product.

Production to date has been dominated by French company, Etablissements Gallois,in the east of the country, close to Stratmin’s operation. While the Gallois mine has a 10,000 tpa capacity, output in recent years has been roughly half of this.

Since 2010, supply from Madagascar has been hovering around the 3,000 tpa mark, but with the emergence of Stratmin this year, this figure is rising. The accompanying chart shows the emergence of the new production, with exports between January and May up 28% on the same period last year.

Should the trend continue, Madagascar is on course of have its largest year of production in a decade.

The east African country has also been subject to extensive exploration over the last five years.

Canada’s Energizer Resources has been a major contributor to uncovering the extent of Madagascar’s flake graphite resources through drilling at its Molo Deposit in the south, which exceeds 80m tonnes at a grade of 5-8% C.

The company’s feasibility study in March showed an ex-mine operating cost of $352/ tonne. Compared with the majority of producing countries in 2015, Madagascar holds significant potential to expand output should the new mines be able to replicate the quality product of Gallois. Stratmin’s partnership with India’s Tirupati Carbons could also be significant in a global context.

With India’s domestic graphite resources struggling to expand and producers increasingly reliant on reprocessing imported ore, Madagascar could be a logical option to replace the bulk of India’s present mined output, which was around 25,000 tonnes in 2014.

Tirupati is one of two companies that dominates India’s graphite industry and accounts for around half of the country’s output. Should the new venture with Stratmin take-off, it could be the start of an Indian supply shift from domestic resources to Madagascar.

China’s slow withdrawal from the international marketplace is also likely to have a positive impact on the country’s fortunes.

Shandong was a leading source of large flake graphite material, but mine closures and increased processing restrictions in the province have restricted the amount of +80 and +50 mesh material available. Buyers have turned to other countries including Madagascar to replace this shortfall.

Benchmark Mineral Intelligence estimates that, on average, Madagascar is a lower cost producer than India and on a par with many provinces in China, but the country has lacked the scale to offer any significant international impact to date.

With the new investment and continued government backing, the country is set for a path of increased graphite output at a time when new supply is needed.