This is the key distinction of WKT's resource. Ignore management, location, WKT got dealt a good hand by a shovel in the ground a few years ago. It's 60-70% large flake, no similar resources that I can think of. Then add in the high grade, near surface resource, and simple processing to achieve the type of concentrate that's typical of the expandable market, you have a small mine with low cost locked in. The flip side is also expandable market is relatively small - but nevertheless commands the higher price simply due to scarcity - even if pricing is opaque because unlike battery grade where the requirements are standardised across battery makers, expandables are specific for customer's product set/production method.
Battery graphite getting all the hype and you have most other projects designed around that market segment - the reality is, per SYR's facing, is if it is not an absolute low cost operation, and the price of battery grade graphite not on an uptrend, then mines are marginally profitable in the current environment and there's nothing that spurs funders to put in the money now. Other hopefuls without the same resource realise this so they adopt the 'down stream value add' aka kick the can down the road route to sustain the hype. Some are even successful at securing partial funding on the back of US/EU legislations, but never quite the full funding and with a lot of strings attached. But as you can see, the downstream processing path are not as rosy as they like to paint at the start of the journey. The RNU feasibility study, the NextSource BAM plants, paints a picture of sub 40% IRR projects on a lot of shaky assumptions, with high capital investment required relative to the size of those companies. Why has China became to dominant and situation unchanging for so long? I believe they are technically advanced compared to the rest of the field, instead of the typical China bashing of 'cheap labour/no environmental restrictions', it's the new startups that are up against it without the Chinese IP when it comes to BAM. You'd think if the field is so easy to get into and profitable, the major players would've build their own BAM plants by now not leaving the problem with a bunch of penny stocks to solve for the EV revolution.
If you want to invest in graphite because you believe the hype on EV and battery graphite demand, then you might as well setup position in SYR since they've already built and with enough capacity to make good money IF battery graphite price recovers. However they have geo political/production issues and not helped by their existing offtakes are priced below their production. The other hopefuls are even more of a crap shoot since they don't have the funds to build their mines and they tried to maximize production to maximize paper project NPV to a production target so big it will likely affect the price figures used in the very same feasibility study! Risk.
I see you hold VRC, I think such marginal mines are dimes a dozen and they initially bought the mine to increase their profile in funding negotiations to be a 'producer in Europe'. The war in Ukraine derailed whatever plan they might have had, but even then it is a historically marginal operation and more likely than not to be a negative cashflow generating asset.
Pick your investment based on answers to below questions:
- How sensitive are a project's profitability on price changes? A function of production volume and cost. Ask why it's necessary to produce say 250kt and what 30KT production will mean to the bottom line? What makes up the basket price is assumed into the study and how does that compare to peers and how realistic are they?
- Why there are phases to a project? To me it's a warning sign of initial investment being suboptimal for a hopeful future payoff, it says risky
- What other anode/spherical graphite projects that recently completed outside of China you can reference to gain some confidence in that particular route re technology, feasibility and actual capital cost to build such plants?
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