extract.......(note Shaw's are one of SYR's Brokers and I guess they are responding to MNS's Binding off-takes)....and since TON is also mentioned, I'm posting in both...
TGR: Another commodity that you follow is graphite. What's your outlook for graphite, given its growing use in lithium ion batteries, permanent batteries and refractories?
VP: I'm probably not as bullish as others. Graphite is a bulk commodity. There are plenty of graphite resources around the world. Two companies with big resources are Syrah Resources Ltd. (SYR:ASX), which has over 1 billion tons (1 Bt), and Triton Minerals Ltd. (ASX:TON) with another 1.4 Bt. The graphite market is still developing. And forget graphene as an investment thesis because demand from the graphene-related technology will be low for the next three or four years.
Graphite use in batteries is on the rise but analysts tend to get a bit too emotional about how quickly some of these industries are going to soak up all the world's graphite. Tesla Motors Inc. (TSLA:NASDAQ) is going to produce 500,000 units annually; that demands lots of graphite and lithium, but by the time it starts production it's a 2019 story. Tesla is going to be selective and spread its love around the world. Some Canadian producers will probably supply Tesla but projects in Africa have a big advantage. In general, there are bigger ore bodies there at better grades than anything I see in Canada or the U.S. Companies mining graphite in Africa are going to have low operating and capital costs per ton.
If a company plans to provide flake graphite to the lithium ion battery market, think again because there are probably 15–20 companies negotiating with the same end users. Bulk graphite production is probably a smarter space to be in long term because it has much lower costs of production, so those companies are going to be profitable at lower graphite prices.
TGR: In your recent quarterly report, you noted that graphite prices dropped 5–7% in the previous quarter. Should investors expect further price weakness?
VP: Graphite prices are probably going to be fairly stable over the course of 2015. Let's see what happens after any new production comes on-line.
TGR: You mentioned Syrah. That company recently announced that it had a memorandum of understanding (MOU) with Asmet Ltd. for 100–150 tons per year of graphite at US$1,000/ton. Your thoughts?
VP: That's a situation where company management asked: "I have a lot of cash flow sitting in this deposit. How can I maximize the sales volume?" Syrah approached Asmet, a big producer of recarburized parts for engines, and said we can provide you with a very good product that you're paying US$1,200–1,500/ton for now. We can give it to you for US$1,000/ton. Syrah's operating cost per ton on large-volume production is going to be around US$200/ton.
If a company signs an MOU for US$1,000/ton and that becomes a binding contract, it is going to make a lot of money. Is bulk graphite going to be a growing market? Absolutely. If companies can provide bulk graphite at a low price into specific markets, those companies will make lots of money. If companies are targeting niche markets with battery-grade graphite, their costs of production are going to be high and those companies are not going to make as much money as people think.
TGR: What is next for graphite companies?
VP: The next question for a lot of companies is will they have the resource good enough to get financing in this environment? Very few companies are capitalized over AU$100 million (AU$100M). Syrah and two or three others are around AU$100M, then it falls to AU$50M. Capital costs are AU$100–150M to get into production—two or three times current market caps. It's going to be an interesting 2015 for graphite companies.
(20min delay)