On Friday morning First Graphite Resources (FGR) made a very significant announcement - one that underlines the reasons why I have decided to switch out of Talga into FGR. It has completed design and production of its first commercial scale graphene production unit which will have capacity to produce 5 tpa of graphene. This will be operational by the end of July.
We have all heard about how graphene promises to change the world due to the amazing properties of strength, conductivity and flexibility to name just a few. Many graphite companies have tried to add the word graphene to their ASX releases to show that they will have a role in this exciting new frontier of nanotechnology, often causing strong positive movements in their share prices.
That is understandable, but investors need to consider economics rather than just technical possibilities. In theory you can recover graphene from any source of hydrocarbon or carbon based product, be it methane gas, synthetic graphite, concentrated natural graphite, recycled plastic bottles or even used car tyres. Those flake graphite companies that say they can make it from graphite are probably telling the truth, but they need to fess up that first they have to mine, crush, treat and concentrate the product to lift it to > 95% carbon. That exercise is not cheap, depending upon individual project economics. It takes tens and hundreds of millions of dollars just to get started. The financial hurdles to entry into the industry are not to be sneezed at.
This is where vein graphite presents itself as a no-brainer. It comes out of the ground at approximately 95% TCG. It requires no above ground processing other than a little bit of hand sorting to make sure that barren rock hasn’t made it into the supply. The vein graphite is a high value product that can be fed directly into the electrochemical exfoliation graphene production unit that has just been constructed by First Graphite. This promises to be able to convert vein graphite to graphene at a yield of 80%, at an average size of 30-40 microns, making it undisputedly the lowest cost source of high quality graphene for bulk applications of
graphene. The capital cost of each unit, being less than the costs of an average car, is tiny compared to the revenue that it can generate.
This is a world first. It is disruptive technology. It is a game changer. Choose your own superlatives and cliches. It will bring the cost of graphene down to levels where it will be more rapidly adopted by industry. It will make supplies available particularly for bulk uses, adding to the progress being made in electronics. It will accelerate the adoption of graphene in the battery making technologies, be they lithium-ion, aluminium graphene or silica-based technologies. Graphene has the potential to improve almost anything it is added to provided the science of adding - characterising and functionalising - is undertaken, optimised and successfully achieved.
First Graphite expects to be able to mine and sell its vein graphite on strong profit margins. Revenue is likely to be in the range of US$2,000-$3,000 pt for ROM ore that is estimated to cost less than US$700 pt to produce. Some investors have been saying that it needs to secure off-take agreements to get the next tick, but that it not so. Vein graphite has never been sold on long-term off-take agreements. They are not needed as there is actually a shortage of high purity vein graphite. Further, there is no need to lock in a sales contract as a condition precedent to achieving mine finance as the capital costs are so low. In the case of FGR it has already raised sufficient capital to develop and commission at least several mine shafts.
Mining and selling the vein graphite promises to be very profitable with an enviable rate of return on capital, but the super profitability will come with the diversion of graphite supplies to the production of graphene. Whatever tonnage of mine supply is sent down this path will likely result in a 10x lift in profitability per tonne. That is what you need to understand.
FGR has to determine the best business model to maximise its earnings from graphene. A simple approach would be to produce and sell graphene like any other product, but it may make a lot more sense to collaborate with industry and take a royalty in graphene based products. That would open up the door to an unending growth curve that would only be limited by the size of the market. There is still much work that needs to be done here in order to optimise the revenue model.
The graphene market is embryonic and it will take time to show its full potential, but developments in the supply of graphene such as the production unit announced by FGR will be very important for universalising the use of graphene in industry. Cost and availability of supply will not be the impediments they have been. FGR is leading the field in this regard. It has a first mover advantage and has made much faster progress than Talga Resources, which first opened my mind to the possibilities with this very efficient production process. The investment community is yet to awake to the possibilities and the “what if” scenarios.
