Interesting news story, page-13

Andrew, we always start these interviews talking about cash, so tell us what your current burn rate is and how much you’ve got in the bank.

Thanks, Alan. At the end of last quarter, we’ve got cash of $50 million which was the result of a capital raise early last year and last quarter we burnt about $1.3 million. We’ve got sufficient cash reserves to develop our vertically-integrated developments and that will accelerate, the cash burn will accelerate, over the coming quarters as we go into construction.

How long do you think the cash will last you?

We expect about 18 months as we go through the construction period of our downstream manufacturing facility here in Western Australia and the strategy for the company is then to advance some of these discussions we’re having with strategic partners in the supply line, EV manufacturers and battery manufacturers, to come in and support our developments through project equity. We’re hoping not to be able to go back and access further capital at the equity market.

You’re demerging part of the business, but before we get onto that just tell us a bit about the background. You started the company 10 years ago, it was a nickel business and you put in some graphite assets, is that right? Tell us what you did back then.

Yeah, that’s right, Alan. We saw the opportunity to develop a graphite business around this New Age demand for clean energy. Graphite is a major contributor to this transition. East Africa, Tanzania host some of the best quality graphite and we picked up the ground and put the assets into the company and as a result of that, we’ve developed really a significant vertically-integrated HFfree battery anode materials business that is centred around the mine in Tanzania, but we’ve developed a downstream manufacturing process to take natural flake graphite and manufacture purified spherical graphite as the first precursor using our proprietary HFfree technology. That first facility, we’re looking to locate in Western Australia, we’ve had great support from…

Just before we get onto that too much, your nickel business was in Tanzania, right?

Correct, the company was founded on nickel and the company before the graphite assets went into the company was quite a considerable amount of data was acquired and the company spent a significant amount of money…

So, you had nickel in Tanzania and you found some graphite there as well, is that what happened?

No, no, the graphite was vended into the company and new management came in which included myself. The nickel dataset has been dormant and I guess, as a consequence of a number of sequence of events, we’ve decided to demerge the nickel data and that’s really…

When you say nickel data, what do you mean by nickel data, is it nickel or is it nickel data?

No, well we’ve got a nickel dataset that we’ve been able to utilise and in fact, during an apply for quite a significant ground holding. We’re going to be one of the largest ground holders in Tanzania and as a result of Tanzania opening back up to foreign investment, we’ve seen BHP enter back into Africa and particularly Tanzania in the acquisition of their investment in the Kabanga Nickel Deposit, which is the largest undeveloped nickel deposit in the world and we think Tanzania hosts further deposits and is a great frontier to really explore for nickel. So, we’re leveraging off the historical database…

Do you have a nickel deposit there or just nickel data?

No, no, it’s an early stage nickel exploration opportunity and the assets have got no value in our company at present and we felt the best way to create value for EcoGraf and its shareholders was to demerge the assets.

Right. Did you try to sell that to BHP?

No, we haven’t. I guess we’ve been really focused on the graphite, developing our graphite business and it’s been sidelined.

Okay, so you’re demerging that into something called Innogy, right?

Correct, absolutely.

And what, you’re saying it’s got no value?

Well, currently the assets have no value in EcoGraf. We’ve got a market cap of $250 million and that’s centred around the business on a vertically integrated HFfree business. We see considerable value demerging these assets out of the company and creating a new vehicle and being able to explore. The shareholders in EcoGraf have come in to support the transition to clean energy through our business and this is an early stage nickel exploration play, so a different set of shareholders.

Yep, so you’re focusing on graphite now?

Correct.

Have you got in your head, the amount of money that you’ve spent over 10 years developing the graphite business?

We’ve spent over $35 million in developing the business to date, that’s US, and the value proposition for the company with its core developments is quite significant. The EBITDA of the downstream and the mine, at current demand, it is around just under $US8 million once the projects are in development.

Now, your share price popped up from 15 cents to $1 last January and it’s kind of back to 56 or so cents now. What happened then? I couldn’t actually identify you had an announcement…

I think it was really the market recognition. There was two significant events occurred. The EU Commission coming out with a range of new policies around traceability, responsibly sourcing raw materials and Trump being ousted with Biden being elected and Biden announcing their government’s going to all electric vehicles. It was a sort of light bulb moment that this transition to electric vehicles is happening, so I think that’s what’s occurred here and we’ve been at this developing the business over eight years. It was very pleasing to see the result that we achieved, it would have been much nicer to see the value being developed more gradually over the time, but I think it’s recognition of our clean, green…

Anyway, your share price has held up above 50 cents so that’s okay.

Absolutely.

Just tell us what you’ve got now, you’ve actually got graphite in Tanzania, right?

Yes, we’ve got a mine that’s undergoing the development bank finance. We’ve had the support of KFW, which is Germany’s largest state-owned bank, for $US60 million financing. We’ve got offtake and sales partners that include Thyssenkrupp and Sojitz, they’re the largest traders for graphite outside of China and the process is very much underway.

What percentage of production is covered by the offtakes?

We’ve got sales agreements for 44,000 tonnes, we’re planning to produce 60,000 tonnes. That’s about 5 to 8 per cent of the market on an ex-China basis and we’re planning to scale up the production as the demand increases. I guess, as an industrial mineral, it’s really important to match production with demand, producing more material than you can sell is fruitless, so it’s very much a staged development in Tanzania and our focus is also very much on our Western Australian development, where we’re starting with a demonstration plant around 5,000 tonnes and then expanding that to 20,000 tonnes which is really based on the same metric on the demand on the ex-China basis.

The business is really centred around supplying the rest of the world. Not many people are aware that all graphite that is being used in no matter what industry that requires high purity graphite is being purified in China using hydrofluoric acid, which is a really toxic acid. There is no other source of graphite or a very limited source of graphite outside of China, so we’re developing an alternate supply chain to this Chinese supply.

So, you’ll be digging up flake graphite in Tanzania, is that correct, and shipping how much of that to Western Australia?

At the moment, we’re sourcing our graphite from existing producers. At the moment, there’s no production of graphite in Australia, but we are qualifying and we’ve evaluated all the graphite producers globally and we’ll be sourcing the material on market and as the Tanzanian development comes online, we’ll be feeding that into our facility. But by the time the Tanzanian supply comes online, it’s likely that material will flow up into the European market. There’s enormous demand coming but at the moment the market’s growing at about 30 per cent and we expect that by 2025, the manufacturing of graphite will be diversified, come out of Asia and into Europe and into Australia, which is one of the reasons why we’re looking to develop our first facility here in Western Australia.

So, you’re saying you won’t be vertically integrated, so you won’t be supplying your own graphite into the Western Australian plant, you’ll be selling the Tanzanian graphite onto the world market or the European market and then also buying graphite for your plant in Western Australian on the market as well?

Yeah, absolutely. The downstream facilities are standalone, ultimately makes sense to feed our own material and I guess the five-year vision is really to source the majority of our material from our own operations.

So, you’ll eventually become vertically integrated, will you?

Correct, yes.

But there’s a timing issue, you’ll have built your Kwinana factory before the mine’s operating, will you?

Ironically, yes, that’s the way the development has played out and largely around the challenges that we saw initially in Tanzania. Tanzania is opening back up, there’s a new President and we very much expect the financing that we’ve been working on for some time now to proceed and the support for Tanzania is significantly growing.

I suppose you could get another new president next year who shuts the place down?

Look, it’s really unusual to see in Tanzania, it’s been a very favourable location for Australian mining companies and it was, I guess, a blip in Tanzanian history that we went through a period which was quite challenging, but we don’t expect that to occur again.

Okay, fair enough. Tell us what you’re building in WA exactly? You’re going to be making spherical graphite, is that correct?

That’s right. We take natural flake graphite and manufacture spherical graphite using our own technology that we’ve got a patent process underway. The facility will be the first facility outside of China to produce an alternate spherical graphite material and it’ll be one of the first facilities to manufacture a critical and battery mineral, value-add a critical battery mineral here in Australia. So, we’ve seen quite strong support. We very much complementary to the huge investment on the cathode development here in Western Australia and the plan is to build the facility, produce purified spherical graphite, sell that into the anode cell manufacturer’s supply lines.

But also, the longer-term view is to value-add the spherical graphite further and there’s a number of value-adding opportunities we can pursue. We can further go down the value chain in terms of coating material. But graphite is really a unique mineral, it is one of the major raw materials to decarbonise the economy. It has a number of industrial uses from a fire retardant thermally conductive properties and no matter what the battery chemistry or the battery type, it’ll be highly desired and there is going to be enormous growth like there is on the cathode side of the business. Not many people are aware that the lithium-ion battery, half the battery is graphite and everybody thinks it’s a lithium-ion battery – I think Elon Musk once said, it should be called a nickel-graphite battery because that’s the concentration of minerals in the battery, Alan.

You should be hanging onto your nickel then.

Well, we are. EcoGraf is going to retain a significant shareholding in it and we felt the way we structured the demerger is in the best interest of EcoGraf and its shareholders to create value in an asset that isn’t being valued at the moment.

Can you just take us through the business model of how the WA factory is going to work? You’ll be shipping in flake graphite into WA which you’ll be buying on the market and then sort of upgrading it into spherical, what do you pay for the material in the input and what will you get, what’s the value uplift?

We buy the material, the price range – the pricing is increasing which is really great to see, but the feedstock typically ranges between $450 to $700 a ton and we sell the product at the moment for between $3,000 and $3,500. We take natural flake graphite, there’s a mechanical shaping process that essentially increases the density, that’s the purpose of the mechanical shaping to increase the density to get more carbon in the space. We’re buying the carbon at typically around 94 to 95 per cent carbon. To meet battery grade, the specification has to be 99.95 or above and we’ve developed a unique purification process which does not use hydrofluoric acid, it’s a multi-step chemical process. We started developing the process back in 2015-2016 and it removes the impurities, all the impurities. The process can be located in any industrial park.

Did you do that in your own labs there?

Yes, it started off here in Australia and then we optimised it in a lab in Germany.

What do you mean, optimised?

Optimised the chemical process and developed the engineering flow sheet further. It’s been a process of about five years, it’s taken us to commercialise the process flow sheet. There’s an enormous amount of product qualification and I guess the important thing around graphite and carbon, it’s not like the cathode metals that’s an LME metal. Carbon is something that you give to the end user and they determine whether it’s suitable and saleable. So, we’ve undergone quite a significant product qualification process over the last five years as well.

Did you say you’ve got global patents on that?

We have got a patent in play at the moment…

What do you mean, in play?

Well, we’ve got a patent application going through submission. We’ve received the advice from the examiner that all 25 claims are novel and inventive, which is a really strong position and the process is going through the patent office and we’re very confident of that patent being approved.

Unfortunately, China doesn’t always respect patents, so they might pinch your technology.

That’s right and I guess we were very cautious of when we were going to go through the patent process, because exactly right, it’s very difficult for a company of ours. But I think what we’re really pleased with is the policies that are coming out of Europe that are really requiring this high source of traceability of raw materials and ethical sourcing of raw materials in the supply chain. I think that is also very protective of new developments coming in.

That value uplift that you talked about from $450 to $700 a ton, up to $3,500 a ton, obviously is pretty big. What’s your margin, what’s the cost of that conversion? What sort of margin do you make?

Absolutely, we make about $1.50 a kilo and in contrast to the mine, we make about 50 cents a kilo. So, value-adding and going further downstream, the margin increases multiple times. From the mine processing we make 50 cents a kilo and the initial first stage downstream is $1.50 a kilo, so the margin increases and that’s the aspirations of trying to go further downstream because as you go further downstream the margin increases. But we’ve got to start with the mine and the downstream before we can really consider the next step.

No, but you’re going to build the plant in WA first, right? When will that be finished?

Construction on – we’ve just submitted our approvals to the local council and State Government, that’s a three to four month process approval. That is underway and we don’t see any delays at this stage. We very much expect to be in construction early in the second half of this year and it’s an 11 to 12 month construction period.

And you got some money off the State Government too, didn’t you?

Yes, we were very pleased to receive $US40 million. We’ve led the charge from the Critical Minerals Fund to support the expansion. That $40 million goes towards the expansion from the initial 5,000 demonstration plant to 20,000 tonnes per annum.

And that’s just a grant, is it?

It’s a loan.

Righto, you’ve got to pay it back.

But a very favourable loan in terms of, really a loan to support modern manufacturing here, modern manufacturing of critical minerals and battery minerals, so it’s really pleasing to see the support from the Government to support modern manufacturing of critical minerals here in Australia.

What did you say the output’s going to be when you’ve upgraded, when you’ve taken it up, 5,000 tonnes to 20,000, did you say?

20,000 tonnes, that will take an additional $US50 million …

That you’ll have to raise?

Yeah, we will have to on the expansion next year, we will, but we’re very much in discussion with a number of parties and we’re looking to secure project partners to support the additional developments. We’ve got aspirations of developing additional facilities as this transition and growth grows from 2025. We’re very much planning a second facility in Europe.

Right, so you’re looking for a partner, someone to come in and own part of the WA one who will then help you build one in Europe, is that the idea?

Correct, yes, absolutely.

How much of the WA one will you hang onto, 50 per cent or less?

Look, as much as we possibly can. It’ll be quite advanced, we’ve done all the work and I guess we’re looking to find the equity partner to come in to support the developments overseas as well, somebody within the supply line. I think the EV manufacturers need to do a lot more to support the supply lines outside of China and I think we’re starting to see that particularly over the last three months. They’ve all got very strong ESG governance statements, but they could do a little bit more in the supply line and I think there’s pressure from Government now to see greater industry support, but governments are doing a lot more and very much are aligning with governments in South Korea, Japan, Germany, India and the US.

I think they’re all key battery markets that’s going to require a lot of raw materials in the future from Australia and a lot of graphite in the future as well from Australia, and localising the supply chains in these Gigafactory developments. It’s really important for their local economy, but also protection of IP, IP around new battery technologies, the specifications for the materials is really critical, so that’s one of the other reasons for driving the strategy, to look at multiplying these facilities overseas.

In fact, what you’re trying to do is leverage your technology, right?

Correct, and that’s part of the support we’ve had from the Australian Government recognising what we’ve achieved and it’s a really exciting opportunity that our development supports the cathode development that’s going on, because given that the anode is such an important component part of the battery – you can’t have anode without the cathode – and at the moment there is no other supplier outside of China, so it’s really a major risk in the supply chain that the industry’s also just awakening to as much as governments.

You’re also getting into the recycling business as well, is that recycling of lithium-ion batteries?

Correct. We’ve applied our proprietary purification process to the recovery of the carbon anode material. As you’re aware, most the recycling is recovering the nickel, the cobalt, the copper, the cathode metals and the rest of it’s being discharged into the waste stream. The EU is also developing policies that greater recycling has to occur and we’ve spent the last two years evaluating a number of batteries. All the major EV battery manufacturers, we’ve looked at their production scrap and we think we can add a lot of value into the supply chain of recovering the production scrap.

Production scrap is quite a large market, 10 to 30 per cent of their manufacturing ends up as scrap because the testing, the safety and the performance and testing is enormous and at the moment, the carbon is not being recovered and we think recovering the carbon can put a dent in lowering carbon emissions, but also what’s really important to the manufacturers is lowering their cost, so at the end when you look at the anode which is a very precise product that is at a substantial cost because our purified spherical graphite is just at the beginning of the supply chain, at the end of it when you’ve got anode coated copper, that can range between $7,000 to $15,000. So we’re looking to recover that and put that back into the supply chain.

It's really interesting, Europe and the US see it far more important, they really refer to it, Alan, as urban mining and Australia should adopt the same approach. We’ve really got the unique opportunity of blending which we see as an enhancement of the reuse and recycling of this recovered material by blending our high purity, high performance natural spherical graphite into the recovered carbon to see greater recycling. We’re working with a number of companies and we’ve done a number of tests at a lab scale and we’ve got an early stage design around a piloting plant and we’re hoping to be able to advance that piloting plant. But we’re part of the solution for this closed loop circular economy, we’re not the complete solution, we’re a bolt-on solution of picking up the carbon and putting it back in and as I mentioned, that will take some effort and we expect about an 18-month product qualification period once the pilot plant is developed to give the customer back the material and work with them to try and get it back in a state that we can reuse the material.

Our focus is, at the moment, on the production scrap, but also we see end of life batteries is going to be a big market and the days of dumping all those batteries in the waste is over and we need to find other markets to recover that carbon and put it into other industries and we’ve developed a strategy around that.

You haven’t kind of nailed it down though, have you?

No, look, at the moment we’re just coming from a lab scale to a pilot scale and we need to demonstrate the value. That’s probably a two to three year program.

Right. Okay, so the immediate thing is to get the factory built in WA, right? And that’s, what, 12 months away?

Correct, yes.

And then the mine in Tanzania after that?

That will flow after that and then the facility in Europe, in parallel with the product development activities that we have going on at present.

Very good, great to talk to you. Thank you, Andrew.

Nice to be with you, Alan, thanks for the time.

That was Andrew Spinks, the CEO of EcoGraf.