From the Far East Capital report over the weekend.
The difference between flake graphite and vein graphite:
There seems to be some confusion as to what FGR is really doing and where it fits into a competitive market, so I will explain it one more time. The Sri Lankan vein graphite is a premium product that is very different to all the flake graphite markets. Everywhere else in the world a graphite mine starts with a grade of between 5% and 15% (with some exceptions). The ore has to be mined and run through a processing plant that could cost anywhere from $50m to $200m, depending on scale. The low grade ore has to be concentrated into a saleable product, usually > 95% TGC. This can involve many steps beginning with crushing and grinding, followed by multiple stages of flotation, concentration and regrinding to remove impurities while at the same time trying not to reduce flake size below acceptable sizes. Some mines will require a further chemical-based stage to clean out the remaining deleterious elements before a saleable product is achieved.
Commissioning risk of large scale plants:
All of these steps cost money and can require very precise process management. Success in a laboratory, under very controlled conditions, is much easier than trying to do it in a commercial size operation. This scaling up will challenge any new mine and not all mines will be successful. A critical point that all investors in the new wave of flake graphite hopefuls need to understand is there is virtually no experience in building and operating graphite mines in any ASX listed company. It is a steep, and probably expensive, learning curve. Never overlook commissioning risk.
Converting graphite concentrates to graphene:
Once a saleable graphite concentrate of 96-99% has been produced it is ready for the market. It may also be used for graphene production by applying a number of processing methods. The preferred process and the quality of the graphene will depend upon the metallurgical characteristics of the graphite concentrate. Not all processes are commercially or environmentally acceptable even if they are technically possible. The most cost effective and environmentally safe method is electrochemical exfoliation. The important point to remember is that it will be an expensive process for a flake graphite producer to upgrade its material before it can even consider the next step of making graphene. It won’t be worth it.
Vein graphite circumvents all of the concentrating costs:
Vein graphite comes out of the ground at 95% +. Natural processes have taken care of all the enrichment and concentrating steps referred to above so that a vein graphite miner doesn’t have to spend all that money building an expensive treatment plant. It doesn’t have to move millions of tonnes of ore and waste so its operating costs will be much lower. The trade-off is that tonnages are smaller in narrow high-grade mines, and the JORC standard is not compatible with narrow high-grade mines (ask any high-grade underground gold producer), but that shouldn’t worry an operator who is dealing with much higher profit margins. The objective should not be to become the biggest gorilla in the sector. It should be to earn the best return on capital at the lowest capital and operating cost risk. If a company can achieve this, it will minimise financing dilution and it will be able to avoid punishing debt on the balance sheet. Shareholders will own the mines, not the banks.
FGR is the only vein graphite company that is delivering:
As a vein graphite miner FGR is very different to all of the flake graphite companies. It is currently developing the first three shafts in Sri Lanka and will soon have saleable, 95% TGC product from it own mines. In the interim it has secured a third party supply of like-for-like product so that it can push ahead with securing customers, not dependent upon the rate of own mine development. At this ultra-high grade you could say that this is like dealing with a concentrate, but it is the run-of-mine (ROM) product. It won’t have any of the metallurgical issues or deleterious materials though, that come from the underlying geology of flake deposits. Mining underground does require more specialist skills, and the development of shafts and underground workings can throw up engineering challenges along the way, but experienced operators know how to handle these. Narrow vein underground mining is expensive in Australia due to very high labour costs but in a country like Sri Lanka there is a distinct cost competitive advantage. There is something further that needs to be understood about vein graphite. It is a very different commodity to flake graphite and flake graphite concentrates. It has unique high end properties that occur due to the crystalline nature and the very high temperatures at which it forms. It has only recently been learnt that vein graphite includes several different crystal types. Mesoporous graphite is a type that could offer breakthrough superconductor capabilities. This offers new openings that are yet to be fully understood or appreciated.
FGR’s process for making graphene is the most efficient:
All of the above comments relate to graphite. Now I will explain succinctly the process of conversion to graphene and the cost advantages with FGR’s graphene production cell. FGR can take its ROM ore and place it in the graphene cell. In a one step process over a 24 hour period it can convert approximately 80% of the graphite into graphene with average platelets sizes of 40-60 microns. This is much larger than the typical 3-5 micron size for CVD graphene, the primary source of graphene production in industry to date. The larger size makes the graphene easier to handle and easier to engineer. Perhaps the simplicity of the process has to be seen to be believed. When scientists already involved in graphene are told about it for the first time they are usually astounded by the simplicity and the very low cost. The production cell costs no more than a small car. The capital cost is minimal. There is no need for units that cost hundreds of thousands or millions of dollars. The physical size is small enough to fit it into a tiny room. It is easy to transport. It can be added on to any production facility that wants to add graphene to its products without any major reconfiguration required. Thus it is very user friendly. The graphene initially comes out in layers of three to ten layers in thickness, but if you want single layer thick graphene, the ultimate 2D material, FGR can run it through a secondary processing step to achieve that size. There is nothing magical about the process other than the fact that it works (if you have the right feedstock). There is another ASX listed company that is using a similar methodology but the feedstock ore runs at 24% TGC, compared to the 95% grade for the vein graphite. The different metallurgy and the presence of other materials in the ore give much lower yields to graphene of about 10%, compared to 80% with the vein graphite. That means for each tonne of ore that the other company treats it recovers only 20-30 kg of graphene. The vein graphite gives you 800 kg per tonne, which leads to enormous savings in material handing and capital costs for the vein graphite.
It is all about the economics:
At the end of the day the winner in the graphene production race will be the lowest cost operator (after the technical quality issues have been satisfactorily addressed). FGR is in an enviable position. It should be able to make good profits from a standard graphite mining operation, producing and selling high value product for which there is no risk of oversupply. FGR is positioning itself to have a commanding position in the supply curve as the lowest cost supplier. The super profits will come from the graphene side of the business. We know that the graphene business is embryonic. It needs the development of more applications, particularly bulk use applications, before momentum really gets going, but all around the world scientists and industry are working to make it happen. The availability of high quality low cost graphene, such as that which FGR can supply, will greatly accelerate the commercialisation of graphene. It doesn’t rely on FGR alone to develop applications. Any progress elsewhere, by any other organisation, will have positive implications for FGR. Its graphene probably won’t be suitable for very expensive high end applications, that can afford to pay CVD prices, but that shouldn’t matter. FGR is at the start of a very steep growth curve covering the entire value chain from mine to market. FGR is not a cyclical stock that will be popular today and in the doldrums tomorrow. This is a growth stock that will benefit from structural changes in the development of industry materials over many decades. It is the stock you buy and hold to get a position in the future of materials. It is not a question of “if” as much as “when”. How steep will the growth curve be and how rapidly will it develop?
Some comments on terminology:
One point that might need clarification concerns purities and grades. When you are talking about measures of purity or grades you are talking about graphite. A quoted grade refers to the graphitic content in ore. When you concentrate the ore you get a concentrate grade, which is also a purity measure, but when you get to this point you need to know more about what the impurities comprise. You need to know how problematic those last few percentage points will be in terms of contamination and possible compromising deleterious elements. When you talk about graphene, it is either graphene or it isn’t. There isn’t really a grade or purity measure. An exfoliated graphene batch might have a small percentage of incompletely formed graphene, represented by micrographitic particles, which are incidental and not an impediment to the application. Graphene measure is all about quality and size. Graphene can be single layer in thickness or that thickness could extend right up to ten layers. Another parameter to consider is the size of the graphene platelets. They can be small at 3-5 microns in size (length/width), or they can be as big as 100 microns. Further, a very important measure is the level of defects. Different methods of production, and different raw material sources, will give varying defects that will affect whether it is suitable for purpose or not. Raman spectroscopy is used to measure defects.
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