For your consideration >> The Mining Report (2014) interviews Stephen Riddle
TMR: Dozens of new graphite equities are trading on exchanges around the world, but not one has brought a new mine into production. What should the absence of new mines tell investors about the graphite space?
SR: First, I would emphasize that just because graphite mining has a low capital expense (capex) compared to other minerals, investors shouldn't assume that graphite mining is an easy industry in which to make a return on investment.
Second, public reports issued by the industry rely on much higher average selling prices per metric ton than I would consider realistic market prices. New graphite mines will most likely have to sell at below-market prices to entice end-users to change suppliers. In addition, real world demand is not what most people report; it's typically less. Part of that is optimism, and another part is because most deals are kept private in this very small industry.
Third, junior mining companies assume it will be easy to sell out their full graphite output once it is mined and produced. Graphite is not like any other mineral. You have to sell all the qualities and all the particle sizes that you produce at the mine. This becomes extremely difficult.
For example, TIMCAL Stratmin Graphite in Canada closed last year because it couldn't sell portions of its output. Why keep producing more graphite if you can't sell all of your output? People think that graphite is easy to sell. It's not. It takes graphite miners years to develop a customer base. Thus, companies need cash flow to cover any losses during that period
MUS Price at posting:
1.9¢ Sentiment: None Disclosure: Held
