1. Low cost, high quality production (First Graphite)
2. Commercialisation into industry (Imagine IM, Pacific American)
Markets encouraged as China re-inflates
It is worthwhile reading through the various economic commentaries in the newspapers, not because they offer sage opinions, but because you need to be aware of what is influencing other investors. Very few investors are brave enough to be countercyclical and stand in the way of popular opinion so they can easily be influenced by the press.
This week started off with the front page of of the AFR saying that credit creation in China was growing at 21% p.a., and without this high level of monetary expansion the growth rate would only be 3%. This is clearly inflationary but popular opinion says that inflation is good. There are many countries trying to inflate their flaccid economies to cause a reckoning, but the same article said this is unlikely to be an issue for another five years.
The credit expansion is delivering the desired result as China has reported that exports rose to an annualised growth rate of 18.7% in March, compared to a decline of 20.6% in February. Imports grew at a rate of 1.7%, compared to the 8% decline in February (how much of this can be attributed to Chinese New Year events?).
This news bolstered the market mid week, tilting the odds in favour of further rises. Iron ore stocks received a fillip. BHP breached its downtrend. RIO has run from $42 to better than $48 in a straight move over a six day period. Looking at our share price charts, a number of them that had breached short-term uptrends and were contemplating moves lower have actually rallied to, or above previous highs. This suggests that less steep secondary uptrends are forming. These would be less aggressive but be longer lasting – more sustainable. It all looks positive.
First Graphite delivering quality graphene
In its latest update on the graphene program FGR has delivered some very impressive results, producing large graphene platelets averaging 30-40 microns in size, in the range of 3-10 atoms thick (and the ability to go down to one atom with sonication). The large platelet size is significant because it has positive implications for quality and suitability for applications, particularly in batteries.
While the size is a big plus, the really stunning result from the latest tests is the yield, at better than 80% conversion of graphite to graphene in less than 24 hours (with better than 50% being achieved in the first four hours). For every tonne of graphite processed FGR can recover 800 kg of graphene. This is dramatically better than what Talga can achieve. For every tonne of graphite ore processed by Talga, it can recover in the order of 25 kg of graphene. FGR’s recovery is 30x more efficient.
This efficiency will come to light on a number of fronts. It will be able to manufacture and install graphene recovery units at nominal capital cost. It won’t need a large treatment plant. Rather, it will be able to install small modular units in the factories of the end customers. There will be very little cost in transporting the 93% pure graphite to location and there will be very little waste product to dispose of later. Add a functionalising module to the equation and you will have a very efficient customer oriented production and delivery system; just-in-time graphite, on demand.
The biggest obstacles to commercialisation of graphene to date has been the availability of large quantities at reasonable cost. FGR is the answer to both of these issues as it should be able to produce graphene at a fraction of the costs of any other method. Talga was the first company to tout this capability, but FGR will be able to do significantly better because of its superior grades and yield.
In recent years the high-grade Sri Lankan graphite has been selling in the range of US$1,700-$2,000 per tonne, and FGR expects this will be the base price range for unprocessed vein graphite. In contrast graphene has been selling at prices of up to US$300 per gram, but not in bulk. As more graphene makes it to the market we are likely to see the price of graphene settle at much lower prices. Some operators are suggesting a realistic price would be US $55,000 per tonne once it is commoditised. Accepting this proposition, the logic driving FGR in pursuing the graphene strategy in parallel with graphite production is clearly that conversion to graphene could result in a 25 times uplift in value when compared to sales of run-of-mine product. FGR will be well positioned to deliver graphene into the market as and when the market requires supplies.
Graphene commercialisation breakthrough
As we have said, the ability to produce graphene is only half the battle. You have to be able to sell it. The graphene produced by CVD methods has been an inhibitor to commercialisation due to the scale of production and the high cost, but the emergence of electrochemical exfoliation methodology promises to change that and make graphene affordable in volume; but you have to have the right ore type. First Graphite and Talga Resources are leading the field in this aspect, with First Graphite finding that the vein graphite (93% TCG) gives significant operating and cost advantages over the lower grade Talga ore (24% TCG).
In a significant breakthrough, the private Australian company, Imagine Intelligent Materials Pty Ltd (Imagine IM), announced this week that Australia will be the first country in the world to use graphene in the large scale manufacturing of an industrial product. Imagine IM has entered into an exclusive licensing agreement with Australia’s largest geotextiles manufacturer, Geofabrics Australasia Pty Limited.
Geofabrics will use the technology to offer its customers an improved ability to locate and remedy leaks with applications in landfill and mining tailings dam construction, areas of increasingly environmental scrutiny given the BHP tailings disaster in Brazil. The technology to introduce graphene and make the geotextiles conductive gives the ability to detect pin hole size leaks, thereby preventing seepage of toxins into groundwater.
Imagine IM estimates that its technology will save customers around 20 to 40% on their current costs. According to the General Manager of Geofabrics, this is a “game changer” for the geotextile industry. “It is a high tech solution at an extremely competitive price.”
You may recall that Imagine IM and Pacific American Coal (PAK) are currently seeking shareholder approval for a transaction that will initially see PAK owning 20-40% of Imagine, and it is about to conduct a placement. PAK will continue to fund Imagine IM and will likely own more than 50% of the company before the end of 2016. Thus PAK should be seen in the market as a graphene commercialisation company and an IP developer upon the completion of the transactions.
This development is positive for First Graphite as that company has a HoA with Imagine IM, whereby it proposes to supply graphene for commercial purposes.
Eden Energy market capitalisation now > $250m
When we first noticed that EDE was kicking goals with carbon nanotubes in concrete the share price was 1-2¢ and it was being funded by loans from directors. That was a year ago. This week the share price hit 24¢, taking the market capitalisation above $250m.
The spur for this week’s rise, from 13.5¢ to 24¢, was the announcement that it had received a US$24.7m financial assistance package to establish an EdenCrete plant in Georgia, USA. This comprises a grant of 45 ha of industrial land ($2.8m), savings in property taxes ($5.8m), road and rail access ($3.5m), water facilities ($1.5m) and various tax credits. This all helps the plan to build a US $67m production facility, in four stages, over the next seven years.
Eden’s performance is an example of what can happen to the share price of a company specialising in the new carbon based technology when it becomes apparent that the technology is being commercialised. In this case it is carbon nanotubes (CNTs) that are bringing approximately 50% improvements to concrete across a range of parameters. As the next generation material after CNTs, and more simple to manufacture, graphene will offer similar commercial opportunities. Advanced carbon materials offer a future for industry not dissimilar to that offered by the introduction of plastics 60 years ago. Graphene will make plastics stronger than steel as well as making products conductive and flexible.
More thoughts on cobalt
See the chart on the cobalt price below. It has been very stable in recent years as increased supply from the DRC has prevented runaway price movements. In 2015, the global cobalt supply was 92,900 tonnes. However, recent and impending closures of nickel and copper mines could result in more than 10% fall in supply of cobalt at just the time that battery demand is accelerating. This is the perfect mark in which speculators like to come out and play. The risk is on the upside and if historical markets are anything to go by, a 3-5x spike in the cobalt price is not out of the question. As one pundit has written, “cobalt is an immense supply chain risk”.
About the Author
Warwick Grigor, B.Ec, LLB, MAusIMM, FAICD
Mr Grigor is a highly respected and experienced mining analyst, with an intimate knowledge of all market related aspects of the mining industry. He is a graduate of the Australian National University having completed degrees in law and economics, majoring in accounting.
His association with mining commenced with a position in the finance department of Hamersley Iron, and from there he moved to Jacksons, Graham, Moore and Partners to become Australia’s first specialist gold mining analyst. Mr Grigor left to be the founding research partner at Pembroke Securities and then the Senior Analyst at County NatWest Securities.
He left from County in 1991 to found Far East Capital Limited that was established as a specialist mining company financier and corporate adviser, together with Andrew “Twiggy” Forrest. In 2008, Far East Capital sponsored the formation of a stockbroking company, BGF Equities, and Warwick assumed the position of Executive Chairman. This was re-badged as Canaccord Genuity Australia Ltd when a 50% stake was sold to Canaccord Genuity Group Inc. in 2012. Warwick retired from Canaccord in October 2014, returning to Far East Capital.
Mr Grigor has at various times been awarded accolades for outstanding industry performance including being named as The Best Mining Analyst in Australia for three consecutive years by the Register of Australian Mining and Best Gold Analyst in Australia by the Australian Financial Review. He was an inaugural inductee in into the Australian National University, Economics and Finance Department Hall of Fame.
For a long Time I have predicted and others that 1 dollar Veiners is inevitable. Whatever you think about price; what do you think about Value and Fundamentals?
I think the Flaker Flight will be epic; happy to be wrong but I really have thought for years now that the Flakers will not move like a trickle but a flood for their own self-interests. We will know when they have this by the teeth when this one moves ...
Why would Flakers Fly over to us?
What are your thoughts of this insightful work by Warwick Grigor?
Kind Regards
FGR Price at posting:
11.0¢ Sentiment: Buy Disclosure: Held
