Let me now tackle the next point :
Bass Metals has a business Moat in the form of rare super jumbo flakes (35 Mesh+)
First of all, for those not familiar with the concept of business or "economic moat", I highly recommend the following introductory articles with some interesting quotes :
http://www.investopedia.com/ask/answers/05/economicmoat.asp
What is an economic moat? "The term
economic moat, coined and popularized by
Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and
market share from competing firms."
https://microcapclub.com/2016/12/how-can-i-hurt-you/
How can I hurt you ? "“You give me a billion dollars and tell me to go into the chewing gum business and try to make a real dent in Wrigley’s. I can’t do it. That is how I think about businesses. I say to myself, give me a billion dollars and how much can I hurt the guy? Give me $10 billion dollars and how much can I hurt Coca-Cola around the world? I can’t do it. Those are good businesses.” –
Warren Buffett, University of Florida Lecture (1998)"
"If a competitor had unlimited resources, how quickly could they duplicate the company’s competitive advantage? This is a simple question that I ask myself and management when I try to measure the moat of a microcap company. Microcap companies are small companies and often times vulnerable to larger competitors with more resources. Paraphrased, even further,
How Can I Hurt You?, is very powerful."
"
“The majority of small companies have little to no economic moat around them. In these cases it is pretty easy for upstart competitors to start competing against these companies as there are often few barriers to enter the industry which allows them to steal market share from incumbents. These companies are often situated in industries that are so competitive that it is often impossible to determine what the future holds because industry economics can change rapidly. Developing a vision for these companies’ futures will often prove highly inaccurate.
"A much smaller percentage of small companies possess one or more of the economic moats discussed above which prevents new and existing competitors from attacking their businesses. With these companies, you can develop a vision of the future with much more certainty of accuracy because you can see beyond the near term that their economic moat will be enduring. This should allow them to continue to generate good returns on invested capital due to the protections offered by the economic moat.”
What makes Bass Metals Graphite business a long term profitable business with an economic moat protecting both its customers and pricing power ?
The answer is "super jumbo flake graphite". It is graphite in the form of very large flakes sizes (500+ microns or 35mesh+). It is extremely rare in nature and highly sought after in the highest quality refractories, crucibles, brakes, lubricants and the booming expandable graphite businesses.
Due to the huge size of the flakes, Super jumbo flake graphite offers the highest electricity and highest thermal conductivity compared to smaller flakes. If the graphite comes out of the ground very pure with little to no iron content (such is the case of Madagascar graphite), it also allows the highest oxidation resistance, an important caracteristic for the aforementioned industry uses.
While small (-100 mesh) and medium size (+100 mesh) graphite is very abundant (just take a look at Syrah graphite huge resources in Mozambique), that is not the case of large flakes graphite (80mesh+) and more so for the jumbo flakes graphite (50mesh+) and the super jumbo flakes graphite (35mesh+) which is the rarest in nature.
What makes super jumbo flakes graphite an "economic moat" is its extreme rarity, derived both from its rarity in nature and the impossibility to create it artificially from smaller flakes. In fact, it is possible to micronize large flakes to obtain smaller flakes, but it is technically impossible to glue smaller flakes together in order to create larger flakes.
Moreover, larger flakes are easier to float/purify and come out of the ground at a higher purity. Within the same deposit, larger flakes end up always at a higher purity level after flotation compared to smaller flakes. Besides the stronger performance, one of the reasons customers prefer to buy large flakes graphite is the guaranteed higher purity and consistency of the material compared to smaller flakes.
At least 66% (up to 71%) of Bass Metals produced graphite will be of the large flakes variety (of which at least 16% is super jumbo flakes and 28.8% is jumbo flakes). (source (metallurgical lohorano test results) :
http://www.asx.com.au/asxpdf/20161115/pdf/43cx4pvf200x4x.pdf
This will make the company virtually immune to any future competition or pricing pressure coming from Syrah (will produce mostly small and medium graphite) for example or any other big graphite company entering the market in the future.
To keep a story short, Super Jumbo Flakes graphite is extremely rare in the market, it is highly demanded, demand is growing (expandable graphite) and supplies are limited in nature while chinese/brazilian resources of the material are dwindling, and no new supplies coming on board anytime soon from competitors. This is the perfect "economic moat" for Bass Metals for tens of years to come, that will protect its customers, its pricing power and ensures ts long term profitability.
Hope that helped,
Happy multi-bagger graphite investment to all,
(20min delay)