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AGM 2017: Summary and Analysis, page-5

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Riskon22

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10/12/17

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Post #: 29513915
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Originally posted by Trommel ↑

Part 1

Three weeks ago Magnis held its AGM, revealing fully the scope of the shift in strategic direction that has been underway for some time. As has become the tradition with AGM’s, here for the benefit of SH unable to attend is a summary of events, on this occasion with some broader context and some analysis. The principal author (one of several contributors, including me) passes on his warmest regards to all holders in the sector.
Anyone who would like a stand-alone copy and is happy to put up an email address, I'll arrange for one to be sent.

ENABLING FUTURE ENERGY: RETAIL SHAREHOLDER REPORT AND ANALYSIS, MAGNIS RESOURCES AGM 2017

Introduction

We attended the Magnis Resources AGM 2017, held on Friday 17 November in Sydney. We are mid to higher-level retail shareholders with no professional ties to each other or the company. We’ve individually attended past AGM’s and subsequently posted summaries and observations, for the benefit of shareholders (SH) unable to attend. We’ve always found SH gatherings to be both enjoyable and illuminating.

This year’s AGM was particularly enthralling because it served to highlight the significant shift in strategy that the company has adopted in the last twelve months. Magnis Resource’s new disposition and ambition is exciting but also quite daunting in terms of re-conceptualisation. The change now well underway is from a focus on a single mining venture in Tanzania to a far broader and deeper strategic positioning within the future battery-energy marketplace. As such it’s taken each of us a bit to get our heads around, and, it seems, many others too. The lukewarm market response to the series of excellent, albeit piecemeal, Announcements that have begun to reflect it over the last six months are likely a result of general SH uncertainty, and even disappointment, as the Nachu project has appeared to have slowed.

For that reason, this year we present a joint AGM summary, in a broader background context, in an effort to articulate what we see as the new Magnis Resources ‘story‘. It’s all just our accumulated opinions, individual and casually shared, compiled mostly to clarify our own investment stances.

So strap yourselves in, MNS brethren: it’s a bit longer than the average post.

Disclaimers

The usual disclaimers apply:

1. Nothing that follows should be regarded as official Company information. These are our views of the AGM and the company’s strategy going forward as we see it. We will make non-AGM background context and personal analyses clear. Between us we have science, arts, economics and business degrees, various trade and vocational qualifications and skillsets, a wide range of employment histories, and a fair mix of investment, corporate and industrial experience. Still, to stress: for authoritative information and clarification of anything, contact Magnis Resources management directly. This is not official Company information.

2. The AGM components are based on hand-written notes and memory as best we can wrangle it. Any ‘quotes’ are presented in terms of conveying in best good faith the intent and spirit of what the speaker said, rather than a literal transcription. We do our best to represent accurately the position of our excellent Board and Management, but don’t claim stenographic or interpretive infallibility.

3. None of what follows should be regarded as investment advice in any way, shape or form. Do your own research, make your own decisions, shoulder your own responsibility for your own investments.

4. We especially invite other AGM attendees to use the subsequent discussion thread below to add, amplify, dispute, reject, clarify, correct and otherwise ‘value-add’ to the discussion start-point this post represents. It’s the best way to collectively transform an unavoidably subjective view into a more robustly objective picture, as well as correct any glaring errors, and debate points of legitimate dispute.

AGM PART 1: Welcome, Attendance & AGM formalities

The AGM was held in the conference room of Magnis Resources auditor BDO, Level 11, 1 Margaret Street Sydney on Friday 17 November 2017 (21 days ago). Shareholder (SH) attendance was as usual excellent - well north of 100, perhaps as many as 150. Board Chairman Frank Poullas (FP) opened the meeting at 9.32. He welcomed all attendees, commending once again the high turnout and level of engagement of the company SH base. He described the current moment as ’a truly exciting one in the history of Magnis Resources’, noting that while the last twelve months had included some ’significant challenges’, the state of the company and its coalescing strategy as it now stands marks the start of a transitional acceleration into a major new phase.

He then briefly introduced the Board & Management representatives present:
Board

Frank Poullas, Chairman
Johan Jooste-Jacobs, Non-Exec Director
Peter Sarantzouklis, Non-Exec Director
Marc Vogts, Non-Exec Director
Distinguished Professor M. Stanley Whittingham, Non-Exec Director
Dr Ulrich Bez, Non-Exec Director
Apology: Peter Tsegas, Non-Exec Director (Tanzania, unable to attend)

Management

Dr Frank Houllis, Chief Executive Officer

Also present at the meeting, introduced now or later, at relevant points:

Attendance in Management/Consultancy/Advisory capacity

Dr Stephan Spruck, Europe and Middle East Consultant
Mr Rod Chittendon, Ex-Ops Manager/CEO Optimal Mining (advisory capacity)
Mr Corey Cooney, Director Boston Energy & Innovation (advisory capacity)
Mr Travis Peluso, Marketing and Investor Relations (new appointment)
Representatives of BDO (Magnis Auditor)

Conduct of Business - Reports and Resolutions

FP addressed the conduct of business as advised in the Notice of AGM, being the tabling and consideration of reports and the consideration of Resolutions 1 through 7. SH were invited to present questions/comments regarding the Financial Report, the Directors’ Report and the Independent Auditor’s Report, as available on the company website and in hard copy form at the AGM. There being no Shareholder Questions (SHQ) FP declared the Reports tabled.

All Resolutions were then considered, passing unanimously on a show of hands, and with proxies by 94-98% majority total SH vote. The Remuneration Report (R1) and the increase in Aggregrate Non-Exec Directors’ Fees (R2) were ratified without SH questions, as were the granting of Director options (R5A-D). All Director re-elections/elections (3, 4A-D) were greeted by SH applause.

On Resolution 6: SHQ on the selection of the .70 exercise price.

FP responded that the choice of this exercise price was consistent with previous years’ options metrics, and expanded to explain that both the exercise price and the exercise dates adopted for Resolution 6 (Nov18) and R7 (7Apr18) were aligned with the company’s to-date successful ’cash preservation’ strategy. The Board considers the provision of equity-based payment for incidental corporate advisory and consultancy services as the optimum mechanism for minimising cash expenditure while maximising incentive/value-adding performance. (The exercise price of this tranche of awarded options would represent a 40% gain on as-at-AGM market valuation.)

Following the consideration of Resolutions FP declared that there being no further formal business the meeting was closed, at about 10:05.

AGM PART 2: Company Presentation and Q&A

Consistent with past practice FP then suggested that the interests of SH would be best served by an informal Company Presentation and Q&A session, to supplement the 2017 Annual Report, other Reports, and the AGM Presentation, all grouped under the rubric ‘Enabling Future Energy’. The presentation was available in hard copy form, and remains so with expanded information on the company website.

Enabling Future Energy: The Magnis Resources Strategic Shift
Introduction
By way of session introduction FP drew SH attention to the shift in the company’s strategic disposition over the last twelve months, commending the ’heavyweight Board, management and advisory expertise we have attracted over the years’ that has symbiotically driven and arisen as part of this shift. He described it as the accelerating transition of MNS from a prospective Tanzanian graphite miner to a globally-oriented, battery-energy technology and provisioning company, a process one gathering corporate pace, focus and concrete industrial/commercial shape. FP explained that the origins of this shift lay further back than just the last twelve months, noting the influence of interactive exposure to the new opportunities available in the changing energy marketplace, such as in early activities in the Indian sector. The Board’s growing recognition of the outstanding nature of the graphite in the Nachu tenement germinated relationships with some of the world’s leading battery-energy supply chain experts and an awareness of the dynamic nature of the battery supply chain generally. The realisation that the entire graphite marketplace would be fundamentally changed as part of a broader global energy ‘disruption’ kicked off a conceptual evolution, with the Board setting out to reposition Magnis Resources not merely as a provider of uniquely-high quality graphite to help supply that disruption, but as a multifaceted, embedded presence right across the future battery-energy supply chain. The planned project at Nachu will expand and extend, potentially to encompass other graphite sourcing/supply activities, as well as graphite processing activities yielding commercial and environmental cost advantages to both concentrate and anode feedstock stages, sector-leading battery research and performance refinements, the flexible, end-user responsive supply of battery cells and cell arrays, and so on.

This broadening of corporate ambition beyond the limited role of graphite miner both dovetailed with and gained impetus from the sovereign risk uncertainties arising in changing Tanzanian mining legislation early in the current calendar year, FP noted, but was driven mostly by the coalescing around the company and its unique graphite assets of globally-recognised technical and corporate expertise in sectors key to the world’s looming energy transition: from the ‘fossil fuel-refinery-ICE’ past, to the ‘renewables-battery-electricity’ future.

Enabling Future Energy Part A: Magnis Resources as Energy-Tech Company

At this point FP expanded on Professor Michael Stanley Whittingham’s (MSW) background before inviting him to address the meeting on the state of lithium ion battery technology today, and its likely commercialisation trajectory over the coming transitional decade.

Background: Distinguished Professor Michael Stanley Whittingham
For SH who don’t already know, MSW has over four decades of sustained experience at the laboratory, R&D and industry-academic vanguard of ‘secondary’ (rechargeable) battery technology. He was co-nominated for this year‘s Nobel Prize in Chemistry for his contribution to the evolution of the key principles and applications that still dominate the sector today. The ‘Invention of Li-ion Batteries’ (LIB) is a complex, multi-authored (and often quite bitchy) story, but MSW’s defining breakthrough remains indisputable: to conceptualise, lab-prove and evolve - and christen - the now-central role of ’intercalation’ in rechargeable battery cycling, thus opening the door to the subsequent harnessing of electrochemical energy at useable scales and stabilities. The layman can best understand intercalation as the orderly ‘stacking’ in a battery’s cathodes and anodes of the ionic flow that defines a battery’s internal electrochemical cycling, in a more stable, energy-harvesting and durable way than earlier battery types. When the positively charged ions that internally migrate to and fro - creating the discharge (or receiving the charge) current externally – can become ‘intercalated’ between layers of anode/cathode material, rather than mostly reacting at the electrode surfaces, pretty much every metric of performance skyrockets.

Key to understanding the importance of MSW on our Board today is that his breakthrough work on intercalation was done not in some academic ‘ivory tower’ isolated from economic pressures, but with energy giant EXXON, as a direct result of the ‘oil crisis’ of the early seventies. If the story of LIB is defined by one thing, it would be its resolute grounding in both the engineering and financial ‘real worlds’. EXXON, then the world’s biggest fossil fuel-energy company, employed MSW to invent a battery-energy future because they were worried that oil didn’t have one. Similarly, when Professor John Goodenough (MSW’s co-nominee for this year’s Nobel) later developed MSW’s work into the first commercially viable LIB’s in the 90’s, kicking off the smart device information/communication revolution, it was essentially electronics giant Sony providing the R&D driving impetus. The point to keep in mind is that while the evolving science behind batteries is now incredibly rarefied the direction it evolves in has from the start and will remain fundamentally shaped by the end-user markets it serves. While MSW/EXXON’s early batteries were never practical (the materials he used tended to blow up) his breakthrough work remains crucial: for all the radical new ideas now over-populating the battery R&D landscape and jostling for market-busting headlines, the process of incremental materials-variation and refinement in electrochemical intercalation he began remains the commercial ‘main game’ today, in the race for evermore enhanced LIB performance.

Today MSW is Distinguished Professor of Chemistry at Binghamton University (State University of NY), director of its Materials Science and Engineering program and also of its Institute for Materials Research. In this latter capacity he oversees the NorthEast Centre for Chemical Energy Storage (NCCES), a hub for cutting edge battery research not just at Binghamton but as part of a suite of similarly-focussed programs, at MIT, Cambridge University, America’s Argonne National Laboratory, and more. The academic, public funding, private investment, R&D start-up and industrial battery storage interests coalescing around Binghamton Campus and its surrounds exemplify the way the Yanks have so often before become market disruption first-movers. The three ’thrusts’ of MSW’s NCCES battery storage research and development program in particular - Intercalation Materials Chemistry, Electrode Transport, and Cross-Cutting Diagnostics – map out the most direct engineering and commercial transitional pathway to leadership in the battery-energy marketplace of tomorrow. As MSW went on to make clear to our AGM, it will continue to be incremental improvements here, in electrode and electrolyte composition, in electrochemical morphology, in casing, separator and regulator design and engineering, and in the use of nanotechnology and even biotechnology, that will deliver the continuously ‘tweaked’ metrics that underpin LIB market competitiveness: a constantly advancing edge in energy density, durability and reliability, cycle efficiency and performance retention, recharge rates, cost/energy ratios (weight, volume, dollars), and safety. The upwards arc of renewable battery performance has not been based upon ‘eureka’ moments in laboratory isolation, but a painstaking process of ‘trial-and-error’ accumulation, interwoven with engineering advances, time-intensive test cycling, stepped industrial upscaling and commercial viability factors. Magnis Resources has clearly recognised this, manifest in the company’s expanding suite of partnerships and joint ventures with both new and established sector players - the likes of C4V, C&D Solutions, Kodak Eastmann and Primet Precision, on which more later - and particularly, in MSW’s heavyweight presence on our Board.

MSW: ‘Predict the battery future by looking to the battery past…’

Addressing the meeting the MSW said that as far as the LIB went ‘we will best predict the future by looking to and learning from the past.’

He briefly reprised the early history of battery-energy in Electric Vehicles (EV), noting that electricity pioneer Thomas Edison and automobile pioneer Henry Ford both initially regarded the ICE as the likely candidate for market failure, on account of their noise, smell and combustibility issues, along with the consumer-unfriendly demands of the clunky drive train designs. They were good friends, and even worked on an early EV together. The secret then was as now, Ford telling the press in 1914: “The problem so far has been to build a storage battery of light weight which would operate for long distances without recharging. Mr. Edison has been experimenting with such a battery for some time…” Inevitably though, MSW said, the ICE car prevailed, as developments such as electric starters, fuel refining and rapidly-expanding supply infrastructure brought to bear gasoline’s vast superiority in the key element in the ‘energy storage marketplace‘: its energy density capabilities.

MSW pointed out that this comparative advantage stands today. Some rough calculations: 50 litres (about 40 kg) of petrol gives you roughly say 450 kWh of energy, which, even at only 15% ‘usable’ energy (due drive train inefficiencies) gives you nearly 70 kWh of on-road energy. This can take you say 600 km, at which point about $60 and 5 minutes will refuel you. In comparison an average EV like the VW e-Golf with the 24kWh battery array (330kg) will yield (even at 90% energy efficiency) only around 22kWh, and a range of maybe 135km. Then it’ll need 12 hours (at home) to recharge, or 3 (if you can find a charge station). Even an upper end EV like the Tesla Model S 70 can only nurse about 400 km from its 70kWh battery pack.

As for ICE/battery-energy dollar costs, MSW said the latter were quickly improving but there was miles to go: a simple graph showed that in the last half decade or so the cost of EV energy has dropped from around $3000-4000/kWh, to generally in the $200-400/kWh range today. Cost leadership - or claims there-of – in EV’s has lately got to the $150/kWh mark ($149 for Tesla’s latest model, $145 for GM‘s), but still doesn’t compare too well with that 70kWh (usable)/$60 tank of petrol (although we need to keep in mind the ‘apples/oranges’ nature of petrol/LIB comparisons). MSW added that today, industry generally regards about $100/kWh for battery-electricity energy as both realistic target, and generic energy-marketplace ‘tipping point’.

MSW then spoke briefly about other cost-factors that were increasingly ‘in play’, apart from that still-daunting mismatch between fossil fuel and electrochemical energy density. Here it’s worthwhile expanding on his passing comments about the role of environmental, safety and ethical trade factors, in shaping the renewables-battery-electricity energy marketplace.

Background: Energy metrics in the future energy marketplace

Across the fossil fuel-refinement-ICE energy century ’energy density’ could be regarded as a pretty simple proposition: the amount of energy a ‘storage means’ can store, typically expressed by mass (specific energy) or by volume (volumetric energy density). That is, kilowatt hours per kilogram (how heavy your ‘fuel’ is) or per litre (how much space it takes up). These will obviously both remain important and key to LIB marketplace viability will be the production flexibility to design and engineer a wide variety of shapes and sizes, with electrochemical/performance variations to match, to meet a range of end-user requirements. For example, an EV battery and an Energy Storage System (ESS) battery clearly have quite different specific/volumetric density priorities.

But ’energy density’ metrics can no longer remain restricted to the assessment of which form of storage simply yields the most energy. That truncated view is what got us to where we are today: needing to transition away from the energy density ‘winner’ of that first automotive marketplace head-to-head. As the world works through the energy market disruption, other factors will equally help define what ‘energy density’ superiority really looks like. Obviously, energy density per ‘environmental cost’ will be key (EV sales specifications typically include a grams/km CO2 emissions rating). Likewise energy density as a function of user safety, and even energy density per ‘social cost’ will matter, because in the battery sector such metrics are especially interlocked. Adjusting the composition and material of electrodes can not only trade off energy storage capacity for power (current/recharge) and vice versa, but also energy/power capacity for consumer safety (batteries that do/don’t ‘catch fire’); for materials cost; for sustainable mining practices; for ethical trade and even human rights principles. The obvious example is cobalt: a cobalt cathode (LCO) gives a battery splendid energy density. But cobalt is not only expensive; to some consumers much of it is also morally dubious, given the way it’s mined, and by whom. For all its superior ‘energy density’, like petrol it too may have a diminishing role to play in the battery-energy supply chain, as global brands grow increasingly reluctant to sully their brands.

This isn’t some starry-eyed ’greenie’ woolly thinking. It’s now hard economics. All over the interconnected world environmental, fair trade, and ethical investment considerations are biting hard into the established corporate practices of the fossil fuel-energy century, and future energy companies will have to situate a metric like ‘energy density’ in a holistic context within their battery-energy supply chain planning. If (for example) you want to provide battery anode feedstock it won’t be enough for your graphite ore simply to yield great ‘energy density’ anode feedstock. The graphite mine you build and run will need to apply industrial best practices; the processing you adopt along the way will need to limit environmental impacts; the contracts you strike will need to be politically and ethically acceptable to end-users and consumers alike, and so on.

You only need to look at Adani’s woes to get a sense of this. The coal up there in the Galileo Basin is pretty good in world-comparative ‘energy density’ terms. But we’d say their chances of getting funding for that project are now zero.

MSW: Closing the lithium ion battery performance gap

How, then, does MSW see current and future developments in the battery R&D space as the transition gets underway?

As he stressed repeatedly, and as above: the immediate gains won’t be extracted from any of the ‘new concepts’ in battery technology that seem to pop up in the popular media every other day: lithium-air batteries, glass cathode batteries, solid state batteries, ‘beltway’ batteries, and so on. He pointed out the sobering realities of battery R&D. Firstly, for all the advances since his work in the seventies, the performance gap between the theoretical capabilities and the current best applications of LIB’s remains significant (but thus, very commercially inviting). He said that the industry has in upscaled practice achieved perhaps 25-30% of what we can potentially squeeze out of the (growing) family of LIBs. Again he stressed the incremental nature of the work-in-progress: tweaking-and-testing, of anode and cathode material composition ratios, electrolyte additives, separators, nanotechnologies. By necessity, he pointed out, this approach takes one crucial element: time. To properly understand how one tiny change in, for example, a cathode’s cobalt-manganese ratio impacts an LIB’s performance, it’s not enough even to run multiple cycles at coin-cell scale. You need multiple cycles at multiple temperatures, voltages, rates of charge/discharge, physical stresses, each focusing on different performance metrics. And then you need to wait for X days/weeks/months and recycle the same array in the same way, all over again. And so on. It takes ages to be sure an ’enhancement’ in the lab really is an enhancement, and only then do you think about engineering an application-testable prototype that’s bigger than a bottle-top.

In short? In response to several SH questions at various points about the risk of ‘new technologies’ blindsiding the Company’s LIB strategy, MSW summed up the situation with regard to Magnis Resource’s current technical positioning (status and focus of R&D, and IP) in this way: ‘It will take all these new companies, with their new concepts and engineering approaches you see popping up, at least ten years to accumulate the equivalent battery technology corporate knowledge that we have now, of our LIB’s’.
What, then, does MSW think will keep closing that 60-70-80% performance gap in the intervening years? Here he gave us a brief potted survey of the work that will characterise the continued improvement in LIB’s. This will include the sourcing of better quality graphite ore, and more efficient anode manufacturing processes; the ongoing refinement of silicon and tin additions to graphite for improved anodes (energy density, cycling capacity, stability); enhancements in coating to improve Solid-Electrolyte Interface (SEI) performance (stability, charge/capacity, life); a variety of approaches to improving electrolytes (salts, sulphides, gels, additives); improvements in battery package/regulation/design/engineering (electrode packing, separators, electronic and nanotechnological regulation); and, as MSW sees it, the particularly fertile area of improving cathode performance. He thinks that graphite’s weight and volume limitations will mean we’ll eventually do away with it as an anode material altogether, but notes that for now additives are still extracting plenty more grunt, so that won’t be for at least a decade. Where he sees the greater LIB performance advances of the next 5-10 years arising is from the other electrochemical side.

Background: Cathodes and the LIB Performance ‘family tree’

At the heart of an LIB is chemistry: reversible chemical reactions between different chemical elements in a chemical solution. How much power an LIB can supply, for how long, how long it takes to recharge, and how many times you can do so…how heavy it is, how big it is, how safe it is, how tough it is and how expensive it is…all depend primarily on which chemicals in what proportion make up that mix. The cathode side is especially definitive. While developing them over the years the lab geeks have mucked about with pretty much every combination of metals on the table of elements they could get their hands on, in every molecular-structural configuration. To kick things off MSW had a crack with a titanium disulphide cathode (paired with a lithium-aluminium anode). As a rechargeable source of electricity it worked fine - in the lab. Alas titanium disulphide also cost a bucket, was tricky to engineer, stank like buggery in air, and often caught fire/blew up. Back to the old drawing board, and again, and again. Over the years boffins kept tinkering with the combinations, juggling the trade-offs: some metals are great at ‘storing’ electrochemical energy, but thermally or structurally unstable; others are stable and easy to engineer, but limited in energy terms; others collapse/crumble after a small number of charge/recharge cycles; some metals are plentiful and cheap, others aren’t; some compound structures are robust, others aren’t; and so on. The molecular-level electrostatic forces and mechanical strains of electrochemistry are significant (we’ve all seen collapsed car batteries), so of particular importance is finding combinations that can hold together through thousands of cycles.

It was only two decades after MSW’s first stabs, when John Goodenough – in series/parallel with many others - paired a cobalt based cathode with a graphite based anode, that a commercially-viable lineage could be spawned. From that marriage has since sprouted several informal ‘strands’ of the LIB ‘family tree’, identified generically according to their cathode make-up and offering a different balance of those electrochemical performance trade-offs.

AGM Continues
MSW gave a brief run-down of them, in the context of LIB’s today:

LCO: Lithium cobalt oxide cathodes, the original, and still-dominant, especially in modest-power electronic apps. Good cycle life at low power/charge rate, solid energy density, but limited by thermal/structural stability. Overcrank the power/charging amps/voltage (electrochemical ‘speed’) and you get the ‘exploding’ phone/hoverboard problem. High cobalt content, so getting pricier by the minute, quickly losing favour.

NCA: Lithium nickel cobalt aluminium oxides: adding nickel and/or aluminium reduces cost, maintains energy density, maintains power and cycle life performance, but at only moderate stability and with higher moisture sensitivity. Good for high capacity power tools, performance EV’s (Tesla, higher end Mercedes, Toyota). Tesla’s industrial level load surge/balancing ESS’s (i.e. Power Pack 2) tends towards NCA.

NMC: Lithium nickel manganese cobalt oxides, a more recent option which offers a good trade-off between energy, power, cycle life and stability, more cheaply than LCO, with more stability than NCA; arguably dominating EV developments now – with however the associated complex IP/patent implications. Car manufacturers choosing NMC batteries include BMW, Nissan, VW, Fiat, Kia, Smart, Ford, Mercedes. Also, at either end of the EV/ESS spectrum: Tesla Powerwall uses NMC batteries, as increasingly do e-bikes.

The LIB family tree has also sprouted a few cobalt-free strands over the years:
LMO: Lithium manganese oxide cathodes. Cheap, stable and with good power performance; lower cycle life and energy density. OK for power tools, modest electric motive power (e-bikes, that handheld of yours that drills through brick just fine – for all of two minutes, then dies).

LFP: Lithium Iron Phosphate Oxide, stable and with good power and cycle life, but lower energy density, needing more complex preparation (carbon-coating, or various cation ‘dopings’) to increase specific density. Iron being cheap, non-toxic and plentiful, this has to date been the dominant Chinese solution (both EV/ESS), although this is now rapidly changing. Advanced forms used in specialist/safety-intensive apps such as aviation. Recently pyrophosphate coating has MIT fully charging in 60 seconds their LFP-variant ‘Beltway Battery’ prototype (ions bypass the electrode traffic jams, geddit?)

LTO: Another very fast charging LIB branch uses lithium titanate nanocrystals (instead of carbon coating) at the anode SEI, increasing surface area/gram. The trade-off is low energy density; some limited use to date (Mitsubishi in Japan particularly), say in e-bikes, smaller EV’s and public transport.

There are other avenues, but it’s here – slowly accumulating, small improvements based upon the same basic LIB breakthrough he made forty-odd years ago – that SMW regards, still, as the ‘front line’ in the ongoing ‘battery market share’ wars. It’s a dynamic, incremental, complex and crowded battlefield, and trying to keep up with exactly what is in the ‘latest’ batteries (and who owns the IP!) is increasingly difficult. The materials, electrochemistry and morphology of LIB’s are constantly in flux and detailed prognostication about the transitional future is tricky.

However, MSW did make one prediction: the use of cobalt, and to a lesser extent nickel, in LIB’s will, of supply chain necessity, simply have to trail off. This, he said, will have major implications, since it’s the cobalt & nickel-containing branches of the LIB family tree - LCO, NCA and NMC - that are currently the family ‘daddies’: those racing fastest in a commercial/corporate strategy sense towards the renewables-battery-electricity future.

Background: LCO, NCA & NMC, and the cobalt & nickel $top $ign

Market projections in the LIB sector for 2018 are, roughly, as follows:

Sector leader Japan’s Panasonic to capture 33% market share of the world’s LIB in 2018; China’s BYD 18%; Koreans LG Chem 17% and Samsung 9%; other Chinese battery makers (including Wanxiang, GS Yuasa and Lishen, many others at smaller scales) 15%+ (and gaining fast). But you can dig out many different sets of figures, too. The battery world is nothing if not full of slippery numbers, over-reaching projections and hot air.

About all we can say accurately about ‘global LIB production’ (measured in GWh i.e. storage capacity) is that it is rapidly increasing. In 2014 it was about 50GWh. Last year it was 70-90GWh, this year 150-170GWh, by 2020 it might be as high as 250+Wh, and by 2025…well, anywhere from around 400 GWh to over 700 GWh. Useful, huh. But so profound is the energy market disruption just ahead that no one really has a clue just how much ‘battery stored energy’ we are going to (‘need’ to) make, store, and use annually in future – because all three are symbiotically interlocked. How much ‘battery energy storage’ will the world ‘need’ in 2025? Well, it’s a bit like trying to predict, back in 1990, how many smart phone chargers the smart phone charger makers were going to need to tool up to produce by 2010. Market disruptions by definition make a mockery of even the most cautious supply-and-demand projections.

For now, what we know is that there’s currently something like 14 or 15 (or is it now 20, or 25?) new Mega/Gigafactories planned and/or under construction worldwide, including of course Panasonic/Tesla’s 35GWh Nevada media darling (now two years ahead of its 2020 planned production date). Seven of those - eight, nine? - are in China alone. New battery factory projects at all scales – including ours, huzzah! – are sprouting everywhere. It’s going to be a crowded marketplace, and those existing battery-energy storage production leaders have both a massive head start and clear economies-of-scale advantages over any new entrant, right?

Probably. Sure. Maybe.

Here it’s more illuminating look at projections for LIB production by Li ion battery type as above, i.e. cathode material content categories. Overwhelmingly the heavy hitting Japanese and Korean output already skews towards LCO, NMC and NCA batteries. The Chinese, who in the past have focussed their burgeoning output on LFP cathodes, are now also aggressively moving to the cobalt variants. The net result is that projections (on current trends: yep, ho ho!) suggest that by, say, 2025 the combined ‘cobalt/nickel’ containing LIB types may have risen from about 40% (due current Chinese LFP focus) to as much 60-70% of LIB total market share. Or something like that. This is, of course, assuming no material supply difficulties arise. Which is a pretty dumb assumption, we think.

When it comes down to it right now the driving production-difference between LCO, NCA and NMC is the amount of cobalt in them. As noted the precise ratios vary but a basic LCO cathode is mostly cobalt; an NMC battery typically 20% cobalt (and 20% nickel); an NCA, 10% cobalt (and 50-80% nickel, depending on manganese). So let’s have a look at cobalt.

In 2016 there was 123,000 tons of cobalt mined, 66,000 of it in the Congo. About half of that goes into non-LIB uses, which are likely to remain fairly fixed. The world has about 7M tonnes of reserves (1M of them in Australia, second behind Congo), most accessible only as by-products of other ores (mostly nickel and copper). Pure cobalt reserves are vanishingly rare. Yes, there are new ‘cobalt’ plays sprouting up everywhere; yes, many dormant host-ore mines getting set to spark up; yes, plenty of R&D is going on in cobalt recovery and recycling. But the fact is that global capacity to ramp up cobalt production any time soon is extremely limited. That’s why the Chinese are quickly moving to buy up DRC’s operating cobalt mines (they have long been the leading buyer, user and exporter of global refined cobalt), and the price of cobalt is going through the roof. The race is ‘suddenly’ on to secure the world’s cobalt, but no matter who wins it, the fact remains: it will represent a very challenging battery supply chain bottleneck, perhaps even an insurmountable one. Last year cobalt spot price averaged around US$26,000/ton. Last time we looked it was close to $70,000. To a less urgent degree nickel (as an LIB component) will face similar issues.

AGM: The marketplace rules

As MSW pointed out the history of battery-energy, right from the early EV-ICE match-up, is the history of industry-engineering and consumer-economics. EXXON canned our Director’s hugely-promising early work only because the start-up material choices were too ‘expensive’ and the first-prototype engineering was too ‘problematic’. (Silly EXXON suits!) John Goodenough only got the lab time/resource elbow room to hit upon lithium-graphite because the economic ‘pull’ from the Sony personal electronics marketplace became so strong and so sustained: cashed-up consumers absolutely loved these new-fangled ‘camcorders’ and ‘hand-held phones’, it was just the wheelbarrow-sized battery packs they didn’t much care for.

So, too, in MSW’s view, will prove the case at this critical juncture, with cobalt (and nickel) based LIB’s. The more expensive these become the more the ‘optimum cost-viable solution’ will become not to just keep outbidding your competitors on the LME; rather, to re-orient your production so you don’t have to use the expensive raw materials at all. This turning away from both cobalt and nickel in LIB cathodes will be accelerated, MSW reckons, by those other ‘energy density’ pricing factors: environmental costs and ‘brand reputation’ costs, and well as the Western world’s increasing anxiety about Chinese strategic dominance of battery-energy supply lines as they stand. The likely net result is that the global LIB market ‘pull factor’ will start to ‘back away’ from precisely that strategic direction in which the leading LIB producers are, at least for now, heading. It represents, MSW thinks, an enormous opportunity for any company that can produce a commercially scale-able LIB that doesn’t need what they all desperately will.

Nachu graphite/The MNS-C4V Intellectual Property Assets

On that note MSW concluded his contribution to the AGM with some fairly brief and necessarily circumspect general observations on Magnis’s LIB R&D/IP position, which pivots on the Nachu graphite and our IP partnership with lead battery consultant Dr Shailesh Upreti’s company, Charge C3V (C4V).

MSW re-iterated that the Nachu graphite has proved a superb ’vehicle’ for his/C4V’s cutting edge R&D. Its purity, flake size and the greatly-reduced ‘destructive rigours’ inherent in Frank Houllis’s (FH) processing makes it ideal for coin-cell ’fine-tuning’. (The intense acid and heat processing most anode feedstock requires can downstream-degrade its micronisation, spheroidisation and coating suitability. Or as it was put it in a later conversation: ‘Put sheet graphite ore in (the chain), you’ll get sheet graphite anodes out’).

MSW then delicately touched upon the focus of AGM attention, as his contribution wound towards a conclusion:

The Magnis/C4V BMLMP battery

While MSW spoke FP had handed around an example of a recently-produced Magnis/C4V/BEI (‘IMP3’) BMLMP battery, which the company is using in its ongoing corporate-partnership negotiations. Here’s a happy snap we took:

The BMLMP stands for: Bio-mineralised Lithium Manganese Phosphate, and it refers to the most excellently-cunning composition on the cathode side of the long strip of cathode/separator/anode tape that sits neatly ‘jelly rolled’ in electrolyte and topped off with regulatory circuitry, all snugly inside that (to us) very sexy little packet of very big future upside. Size-wise, it looks like a ‘26650’ (we forgot to ask); that’d just refer to its cylindrical form, diameter (26mm) & height (650mm). Obviously as far as design goes there are lots of LIB sizes, forms and terminologies: not just many cylindrical options (14240, 18650, 2170, etc, etc); also, flat-packs, pouches, sacs, etc. As with all other ‘tweaked’ improvements in the particular way an LIB maker produces a standard form, our BMLMP’s design/engineering details are carefully guarded.

Similarly, the company is circumspect about what’s going on inside Mr ‘IMP3’ in electrochemical terms. It’s starting to reach the limits of our chemistry to have a stab at explaining ‘bio-mineralisation’, but here goes: if you plough through UP/C4V’s and MSW’s (many!) publicly available patents (US and global), in the context of what the AGM Presentation makes public, you can figure out that firstly, our battery needs neither cobalt nor nickel. Second, the graphite-anode side of the jelly-roll is likely silicon (or even tin?) enhanced, with significantly higher energy density yield; and thirdly, the cathode is likely the result of combining the electrochemical characteristics of lithium, manganese and phosphate in what is to-date the most efficient way rendered viable: the semi-organic production of an electrically-conducting mineral compound, by using some form of carbonated hydroxyapatite as a kind of compounding catalyst/vehicle. For the nerds among us, carbonated hydroxyapatite is a biologically-occurring ‘anisotropic dieletric’ material that, for example, helps form/comprise our teeth, bones and gristle. The essence (we think!) is this: when used to meld together the materials in our cathodes, bio-mineralisation takes a big step forward in terms of its energy density, stability and charge/discharge capacity.

Enough layman science. This is rarefied battery chemistry, right at the theoretical/engineering cutting edge. It’s also industrially and commercially highly sensitive, and the company is rightly protective about details. But the numbers are clear: despite having no cobalt and no nickel our BMLMP stacks up well against the current, going-forward ‘daddies’ in the LIB family:

Cathode material: Voltage (V) Capacity (Ah/kg) Cell Energy (Wh/kg)
LFP: 3.3 150 160
NMC: 3.7 155 215
NCA: 3.6 180 238
BMLMP: 3.9 160 230

Its numbers are frankly terrific. We’ve produced it using established, proven industrial infrastructure, easily scalable and very cost-competitive. It’s fully IP-protected in the US and globally. We’ve signed sales agreements for it with ESS and EV groups. To us that all spells ‘serious marketplace contender’. Certainly the Board is confident, thus.

It was a pleasure for us all to listen to MSW chat about LIB’s. It’s not every day you get to meet a Nobel Prize nominee. It’s even rarer for an ASX junior to have one on its Board.

At this point it makes sense to step out of the order in which the Presentation/Q&A unfolded and jump almost to the end, when Chief Executive Officer Frank Houllis (FH) spoke. The focus of his input flows more naturally from that of MSW.

CEO Frank Houllis: “You’ve got to own the technology, the IP...”

Everyone is familiar with FH, and will be aware from previous AGM’s that he is no slouch when it comes to the electrochemical, technical and R&D aspects of batteries and battery energy-graphite. He’s an industrial chemist by qualification and a hugely experienced ore-and-feedstock process manager across multiple major miners, ores and ore products, and at all entry-points of their subsequent supply and processing chains. It’s FH who’s driven the Magnis Resources innovations in graphite ore and concentrate processing, hands-on in his own labs during the development of the sample provisioning-and-testing relationships with other sector players, which have made clear - to our Board and to the wider sector - just how much of a start-point advantage the Nachu graphite affords us. As a core part of FH’s evolution of the feedstock end of our value-adding chain, he’s also become increasingly attuned to the IP/patent realities of the battery space landscape, something he stressed when he spoke.

He began by briefly reprising aspects of what MSW had to say about the continuous, incremental nature of performance enhancement. He likewise spoke about the ‘trade off’ aspects of battery-graphite provision: between energy density and power/charge rate, life cycle and weight/volume demands, material availability versus cost, and so on. Of Nachu graphite, he explained that quality ore gives the company great ‘whole of supply chain flexibility’ on this score. As a processing-focused mining executive, he said that key to navigating the transition into the new battery-energy marketplace will be inherent supply chain diversity, flexibility and agility: the capacity to service a rapidly-evolving range of end-user demands, but also, to enter the supply chain at multiple points, including, if need be, accessing multiple material and feedstock sources. He said that while long-term outcomes were pretty clear, in the short-term the growing demand changes would come unevenly and unpredictably. He also noted that production scale-up on the supply side wouldn’t be all smooth sailing: the current uncertainties in Tanzania a perfect case in point. He said that we ‘need to ensure that our eggs aren’t all in one basket’, at any point across the supply chain we’re hoping to join.

Expand

An absolutely brilliant series of posts @Trommel , truly gripping... far more in depth than any broker report.

Great additional background info that I’m sure all Magnis ‘brethren’ will appreciate and nay sayers, well, they would benefit from reading all 3 parts 3 times before posting in the near future

Last edited by Riskon22: 10/12/17

MNS Price at posting: 43.5¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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