While that paragraph sounds very positive and promising; I still don't buy what DC is saying.
Most graphite companies are private and or located in China, Brazil, Mozambique etc so it is hard to compare companies in the market so I have chosen Syrah.
There are plenty of good juniors too with good deposits in Quebec, all getting little to no interest. Sentiment on the ASX is strong for graphite but doesn't reflect the demand or interest needed to excel.
China owns a considerable market share with additional capacity if needed. The demand is not there, yet.
One of the big majors in Brazil with 50 year LOM actually halted a lot of production to let the graphite price recover and not over supply the market back in 2019.
Let's take a look at Syrah resources as a comparison, they have been slowly ramping up production and they have a similar flake size distribution to RNU. RNU 72% and Syrah 80% -100 mesh (fine) which is great for anode making feedstock but doesn't fetch a great price compared to large or jumbo flake.
RNU may do slightly better in basket price theoretically but not much.
The average sales price received by Syrah in their last quarter
• Weighted average sales price increased to US$688 per tonne (CIF) (the highest so far for their product)
Keep in mind this price is
CIF not FOB
Below is from the RNU DFS. The flake distribution difference just by looking at it shows they weren't too conservative in their sales price either.
As we know, RNU are assumed to be in the lowest quartile, $345/t US moving to $325 after year 5.
If we take the highest Mozambique operating cost from below it looks to be $450/t or less. Yet their C1 costs FOB show the lowest being $430ish, one quarter being over $1000 and a quarter with no real disruption or hiccups being $530.
$450 to $550 being a more realistic average in my opinion moving forward but they are yet to give guidance on this and they had some unrest pushing up C1 costs to $660ish for their recent quarter. Not good margins.
Here is Syrah recovery rate over the last 4 quarters
Recovery 2021---> til now 82% 76% 79% 80%
The assumed recovery rate RNU used in their DFS was an average of 91%, not exactly conservative but not out of reach. In terms of early cashflow you'd have to assume recovery would be under 91% and improve over time as it does with most mining companies starting first production.
Maybe the comment around the raise is a way for DC to put a positive spin on things without any backlash?
Graphite prices trending up and starting production earlier to bring in cashflow is always good news to shareholders.
Although, as a stand alone graphite mine we may not perform as well as what people think in terms of generating FREE cashflow. There are some higher grade parts of the resource that have been updated which may help further but I feel they were far from conservative in their estimations given the current basket price and I believe costs would have increased a fair amount due to inflation since the release of the study in 2019.
If you take a look at Syrah's financials they are struggling and have been making a LOSS every quarter, generating no free cash flow whatsoever.
Regarding off takes,
RNU (February 2022)
Large-scale PSG samples produced from the current campaign have been dispatched to existing offtake partners to support further customer qualification testing to secure binding offtake agreements; additional samples have been sent to other potential offtake partners.
As you can see it is a very long qualification process. So we have a while to wait on this I'd imagine. Timeframes are probably not too dissimilar to lithium producers trying to qualify hydroxide or carbonate product given .1 percent can make a difference. Unlike lithium where the price sky rocketed and companies deployed capital into equity investments, off take agreements, JV's, takeovers etc there is nothing to say demand is there yet for graphite. Nobody is trying to lock in supply. Nobody is turning MOU's into binding offtakes.
"Given Renascor's position as a near-term supplier of safe, clean, low-cost Graphite products into an increasingly tight supply chain, it is the Offtakers who will now be under pressure to come to terms with RNU. DC is confident he can get Renascor into flake production without being compelled to sign an agreement with offtakers IMO."
This is where I differ in opinion. I don't believe the supply chain is tight or getting increasingly tight. Give me an example where off takers are scrambling to get a piece of RNU? If they were, it would be evident.
If it was the case...What you would see for example, is the likes of POSCO locking in an off take for 30,000t of PSG at spot market prices as have lithium off takers for the last two years. There is no reason nor any downside for DC not to sign an agreement based on the spot market unless he didn't believe the price of graphite/PSG would decline. Once in production you could always renegotiate longer term contracts setting a ceiling price and a floor price to give security to both buyer and seller.
Of course, as always, my comments are up for discussion so let me know if maybe I have been a little harsh and why. Always good to debate and reflect what is happening in the market and your investment..
