The world’s ‘big problem’ with graphite presents opportunities for Australia
3:53PM MARCH 24, 2024
The world has a “big problem’’ when it comes to graphite — at least if you ask the analysts at S&P Global Mobility.
It’s a problem which Australian graphite miners and aspirants are hopeful they can help fix — profiting in the process — and like many global commodity issues, China is at the heart of the matter.
Late last year Beijing announced it would require approval for graphite exports, and with China producing an estimated 77 per cent of the world’s graphite, and most of the world’s spherical graphite according to the US Geological Survey, the supply side constraints are obvious.
And we care now because graphite is a key component in the manufacture of lithium ion and other batteries, whose use is only growing due to the need to store energy and power electric vehicles.
Industry watchers will recall similar supply-constraining moves a decade ago, when China added a value-added tax to graphite, making it more expensive to export, and shut down several mines.
The story then was more focused on graphene technology, however the expected Australian graphite mining renaissance failed to eventuate, with the mostly South Australian-situated projects being promoted at the time failing to fire.
This time looks a bit different, however.
A S&P report released in recent days points out that under the massive US Inflation Reduction Act, that country is aiming to build domestic electric vehicle supply chains, from the mined resources to the finished product.
The US government also in December introduced guidance on the foreign entity of concern (FEOC) rules, “which restrict federal tax credits for EVs using batteries or materials primarily sourced from China’’, S&P says.
And while other minerals in the battery supply chain can compete on a technological basis, graphite holds a special place in battery production.
“There are many topics debated in the lithium-ion battery anode market,’’ S&P says.
“For example, which cathode chemistry is most appropriate for which application — be it nickel, cobalt, manganese or iron in varying ratios with lithium.
“Rarely up for debate, however, is the battery anode material. That’s because it’s almost always graphite.’’
The problem for the US is that its domestic graphite production is currently negligible.
“The problem for the auto industry is that the US government is trying to build a resilient electric vehicle supply chain that levers away mainland China’s influence on the EV battery supply chain. When it comes to graphite, this is a big problem, albeit not insurmountable,’’ S&P says.
Senior research analyst Ali Adim said the new FEOC guidelines disqualify batteries from claiming tax credits if they use flagged materials at any stage of their manufacture.
“This stringent requirement has compelled American automobile and battery manufacturers to rush to secure their graphite supply from FEOC-qualified sources,’’ he said.
“However, the feasibility of decoupling from China remains uncertain due to China’s extensive monopoly over the graphite supply chain, its cost competitiveness and the fact that most anode projects in North America are still in the developmental phase.”
One company which is hoping to be able to directly contribute to plugging this shortfall is aspiring producer Renascor Resources, which aims to mine graphite on the Eyre Peninsula and process it further into spherical graphite at a proposed plant in Adelaide.
Quantum Graphite, which is progressing is Uley 2 graphite mining project also on the Eyre Peninsula, recently briefed the US government on its graphite mining plans, and Lincoln Minerals last year brought on a new managing director and restarted drilling, announcing an 87 per cent increase in the graphite resource at its Kookaburra Gully project in December, with resource expansion drilling ongoing.
Lincoln is aiming to release an updated feasibility study for its mining plans, targeting a production rate of 60,000-100,000 tonnes per year, in the second half of the calendar year.
Meanwhile, Renascor’s most recent quarterly update shows it has just shy of $125m in the bank, with the company currently focused on updating its detailed engineering and design plans, as well as securing offtake partners.
The company has an agreement with the federal government, announced in early 2022, for an $185m loan facility to help build the Siviour project, as part of the Critical Minerals Facility which seeks to progress Australian critical minerals projects.
While Renascor had been aiming to make a final investment decision over the integrated Siviour projects during 2022, that timeline has slipped considerably, although the company has secured the required state government approvals and long lead time procurement for the mining operation is underway.
Renascor shares have traded as high as 25c in the past 12 months but closed on Friday at 8.4c, giving it a market capitalisation just above $220m.
Quantum Graphite recently presented to the US government’s Department of Energy and EXIM Bank (Export-Import Bank) on the prospect of its Uley 2 project feeding into the American supply chain via the export of 100,000 tonnes of concentrate per year, to be processed into flake graphite at a facility operated by Sunlands Co.
“The proposed facility would be the single largest supplier of high-purity graphite outside of China and serve the key advanced manufacturers of isostatic graphite, lithium ion anode, and Sunlands Power’s own thermal energy storage cells,’’ the company told the ASX.
“The company and Sunlands Co have accepted an invitation by one of the agencies to submit to its funding application process under the agency’s program to develop alternative supply chains in critical minerals and industries.’’
Quantum has estimated capex to start its mining project at about $150m, however a “multi-generation” mining operation is envisaged following further exploration.
The near-term strategy is for 20 years of mining, while a longer-term, district-wide approach could stretch beyond five decades, the company says.
The Uley mine, near Port Lincoln, was discovered in the early 1800s, and produced intermittently from the late 1920s, before being placed on care and maintenance in 1993.
Valence Industries — the previous name of Quantum Graphite — reopened the Uley mine in 2014, however suspended operations in late 2015 before going into administration.
The company relisted on the ASX in September 2018, and Quantum also attempted to take over Lincoln Minerals in a scrip bid which was abandoned in mid-2023.
Outside of South Australia, Syrah Resources is mining graphite at its large Balama deposit in Mozambique and recently started production at its Vidalia active anode material (AAM) facility in the US, where it produces materials to feed into the battery and automotive industries.
Syrah is aiming to quadruple the size of the Vidalia operations, and recently sought to raise $98m through the issue of new shares at 55c, with AustralianSuper committing to take up its portion of the raise.
Syrah said in its capital raise presentation that since December, Chinese and global trade in graphite and anode products had dropped to the “lowest monthly levels in recent years with uncertainty over the Chinese government intent, and lack of clarity on process implementation”.
“Limited export licences were granted for December 2023 shipments by significant AAM and anode precursor suppliers exporting to certain countries including South Korea, but not US, Japan and most European countries,’’ Syrah said.
“Chinese customers have tempered orders of imported natural graphite, including from Syrah, while awaiting progress on licences to export spherical graphite and anode material products from China to ex-China markets.
“Syrah expects Chinese exports of these products to be constrained in the March 2024 quarter and to increase from the start of the June 2024 quarter, assuming granting of licences increases.’’
Syrah told the ASX recently it had raised $80m through the institutional proportion of its raise while the retail offer remains open.
Shaw & Partners has a $1.30 price target on Syrah, compared with the current price of 52c, and says an offtake agreement signed with Korea’s POSCO is a meaningful step towards diversifying away from China.
“Syrah continues to assess seven additional ex-China agreements for AAM facilities in various stages of progress in the US, Canada, South Korea, Europe, South East Asia, and India,’’ Shaw told its clients in a research note.
“A spot contract for trial shipment for an AAM facility in Indonesia has also been concluded, which is expected to commence operations in 2024.’’
Shaw also has a buy recommendation on Black Rock Mining, which is developing its 84 per cent owned Mahenge project in Tanzania, which is also backed by POSCO.
“The combination of high margin and low cost means that Mahenge should be one of the first graphite producers to supply into a tightening graphite market,’’ Shaw says.
In recent days, Kingsland Minerals has also announced what it says is Australia’s largest graphite resources at 14.2 million tonnes, at its Leliyn project in the Northern Territory.
Managing director Richard Maddocks said the company was now well-placed to develop the project into a significant supplier into the global market.
“The initial metallurgical test work is progressing and this, along with the mineral resource estimate, are important initial steps into developing Leliyn into an important critical minerals project in the Northern Territory.’
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