Elcora: Lowest cost/Highest quality graphite in the world !Hi guys,
What grabbed my attention in the latest financial statements (year ended 31 march 2017), is the extremely low costs of operations and production on Ragedara Mine in Sri Lanka.
The company has more than 70 full-time employees working in the mine and the processing plant, mining and processing at a rate of some 500 tons per year of graphite. At first glance and at current throughput, the costs do not look very impressive : total expenses are 729.000$ per year (including depreciation and amortization) for 500 tons of production, that is a whopping 1458$ per ton.
However, it should be noted that most of these expenses are fixed costs no matter the production rate (administration, management fees, salaries of employees, electricity bill of the offices, a big portion of energy consumption for the equipment especially now that the processing plant is working continuously, capital expenditures to build necessary infrastructure...etc). That is why once the production rate increases, the expenses wont increase that much. It is primarily a matter of finding the veins, building the necessary undergound tunnels, elevators and ventilation systems (all these are once and for all fixed costs), and better management and distribution of tasks for mining operations (higher efficiency with the same number of employees).
In order to achieve the targeted company throughput in 2018 of 4800tpa, fixed costs would remain mostly the same, but the variable costs would icnrease due to higher energy consumption, more expensive logistics and higher transportation costs while adding some staff, which we may assume would realistically increase total annual expenses by 25% or at worst case scenario by 50%. This provides us with the number of approximately 1.1Million$ of total costs per year for 4800 tons of graphite, or only 229$ per ton !
This number (229$ per ton) would put Elcora as the lowest cost producer of graphite in the world, way ahead of the chinese (400$+ per ton). At the same time, Elcora would be producing the highest run of mine graphite quality in the world (from 97.5% up to 99%+ mostly super jumbo flakes at 32mesh+). The profit margins would be out of this world. Lets do some back of the enveloppe calculations :
Assuming an average price of graphite of 1600$ per ton (97.5% large flakes are sold at 1400$ per ton while 99% super jumbo flakes are sold at 1800$ per ton), and a 229$ cost per ton that is a whopping 1371$ per ton margin !
At 4800 tpa that is 6.6Million$ of annual profits for the joint venture !
Elcora owns 40% equity of the joint venture, which entitles it to 2.64 Million$ of profits + 20% fees on net income on mining + 30% fees on net income on processing = 50% share of the remaining profits or 1.98 Million$ out of 3.96 Million$)
(Note that you may also consider Elcora owning basically 70% of the mine, but due to sri lankan laws they own only 40% and they compensate the remaining equity by sharing the net income).
That is a total of 4.62 Million$ of annual profits for Elcora from Ragedara operations !
At 10x earnings = 46.2 Million$ fair market cap without any spherical graphite or graphene sales. Just run of mine graphite feedstock (and without considering future expansion to historical 18.000tpa levels !).
IMO, if Elcora management succeeds in ramping up production to 4800 tons during 2017-2018, we are in for a hell of a ride regarding the stock price ! Elcora could well become in the next months the lowest cost, highest quality graphite producer in the world ! Cant wait for announcements during next weeks from management on next sales/shipments to our off-taker thyssenkrupp in germany under the higher throughput of the mine ! Exciting times ahead of us.
Happy graphite investment to all !