Offtake key in graphite growth

Offtake key in graphite growthWednesday, 13 May 2015

Jack McGinn

WHILE securing funding for development in the mining space has been a challenge for many in recent times, it appears confidence in graphite projects is as strong as ever.


Over the past 18 months, a number of graphite projects held by ASX-listed miners have attracted significant funding from across the world as they progress through the stages of project development.


Among those drawing the attention of Asian investors is Triton Minerals, which attracted a $A20 million funding facility from Hong Kong-based Long State Investments in January and this week placed $16 million in Australia and abroad to progress its Nicanda Hill project in Mozambique.


A Chinese equity firm, Shenzhen Qianhai Zhongjin Group (SQZG), is also doing due diligence over Nicanda Hill having signed a letter of intent to supply $200 million worth of funding for the project.


But Triton is not alone on the funding front. Valence Industries announced this month that it had secured $US75 million ($A95 million) worth of finance facilities from Singapore’s Chimaera Capital Management to progress stage two of its Uley mine in South Australia.


Meanwhile, the development of Magnis Resources’ Nachu project in Tanzania was boosted at the end of March after it secured a $150 million binding financing package from offtake partner China National Nonmetallic Minerals Industrial Limited Corporation (SINOMA).


Outside of Asia, a European finance institution recently expressed interest in co-financing the development of Kibaran Resources’ Tanzanian Epanko project to the tune of €20 million ($A28 million).


And looking further back, Syrah Resources completed a $A35 million placement to develop its Balama project in Mozambique in December 2013.


A growing market


According to GMP Securities mining analyst Duncan Hughes said while graphite was not the only commodity attractive to investors, its appeal to the market was its immense potential moving forward.


“It’s important to note that graphite is not the only material that’s attractive to investors, but in its case the appeal is in the fact that it’s a growing market with regard to both demand and supply,” he toldMiningNewsPremium.


“We’re seeing key developments in the graphite space that perhaps we’re not seeing in some of the more traditional markets.


“Tesla is now talking about batteries for housing as well as the traditional battery market, so there’s a huge amount of potential in the growing battery market.


“There are a lot of alternative opportunities in graphite and I think that’s the appeal to investors – they can definitely see growth in this market.”


Offtake importance


However while Hughes said growth in demand for graphite was set to continue, he warned abundant supply could make life difficult for those in the space without offtake agreements in place.


“One of the things about the graphite market is that there’s never really been a shortage of supply – graphite is quite abundant,” he said.


“I’ve always said that not all new players in graphite will make it, and I stand by that.


“The key game changer for those in the space is binding offtake. Once you’ve achieved that you can have the confidence that there is actually a market and someone to buy your product.”


One company with offtake locked down is Triton, which secured a 100,000 tonne per annum binding, 20-year offtake agreement with Yichang Xincheng Graphite Co. in April which included a price floor of $US1000 per tonne.


In addition, as part of its non-binding letter of intent with SQZG Triton would provide an additional 200,000tpa at $875/t to pay off funding provided by the equity firm, before entering a further 10-year offtake deal with a price floor of $750.


Magnis is also well progressed on the offtake front, having signed binding agreements in December last year to provide 80,000tpa to SINOMA over a five year period and 100,000tpa to Sinosteel for ten years, with both deals linked to market prices.


A total of 80,000tpa of graphite from Syrah’s Balama project will be purchased by Chinese Aluminium International Engineering Corporation under an agreement signed in February at prices to be negotiated quarterly.


Meanwhile, Kibaran committed 10,000tpa of graphite over five years under a binding agreement with a European trader in December 2013, and would supply a further 20,000tpa from its Epanko and Merelani projects to ThyssenKrupp under a LOI between the pair.


Demand on the rise


According to Hughes, the quantities committed under graphite offtake deals signed currently suggest market demand for graphite products is higher than was previously thought.


“What we have seen come out from a number of graphite players is that there seems to be much more demand in the graphite space than perhaps we’d assumed in the traditional market,” he said.


“People are quoting demand growth of 5% per annum, but I think the indications are that the demand will be greater from China.”


However, he maintained those with larger resources would be well positioned to capitalise on future demand.


“If you’ve got a large resource base like Triton or Syrah you’re probably better placed to meet strategic supply demands than someone with a smaller base,” he said.


“The larger resource gives you the flexibility to cherry-pick to suit changing demands from offtakers – that’s going to be quite important moving forward I think.”