Dundee Capital Markets' David A. Talbot on LLG and GraphiteFrom the 2nd part of the interview posted here:
https://www.resourceinvestor.com/2015/04/13/uranium-has-bright-future
TER: You also analyze graphite for Dundee. Any picks?
DT: We are seeing renewed interest in the graphite sector. The rumor that Apple will be building batteries for a driverless car has excited the market. Tesla remains a key topic of conversation. Graphite demand could grow at near double-digit rates, about 9% per year into the next decade.
Future demand will be powered primarily by the manufacture of electric vehicle batteries. We also see stable growth coming from historical industrial applications, such as refractories and crucibles. Graphite supply is 80% concentrated in China. Current demand is 1.2M tons per year, but supply exceeds demand by 200,000 tons. That picture is set to change. It will require two to three sizeable mines to maintain a stable supply balance going forward.
There are wildcards, of course, likeTesla Motors Inc.'s proposed Gigafactory. Graphite mine shutdowns in China due to pollution could pressure the supply/demand picture. It is worth noting that very few public companies operate graphite mines. But late last year we launched coverage on three graphite names. We have a Buy rating and a C.A. $0.90/share target on our top pick,Mason Graphite Inc. We have a Buy rating and a C.A. $0.60/share target on Focus Graphite Inc., and a Buy rating and a C.A. $0.40/share target on Energizer Resources Inc. It is our expectation that financing is key to which graphite companies survive, and that first to market is an important factor.
TER: Please explain the reasons for investors should look at these companies.
DT: Mason is nicely funded. It has an extensive following and investments in three well-known Québec-based institutions. It owns 100% of the Lac Guéret project in Québec, which is among the highest-grade projects in the world. Early metallurgical work demonstrates about 90% of recovery there. The deposit is 100% flake, which is the required product for end users looking to use graphite for lithium-ion batteries and other high-tech applications. The project is about 80km from an all-weather road, and 290km north of Baie-Comeau, a port city in Québec. Mason's management has extensive knowledge of the market and numerous relationships with buyers. While Mason's is not the most advanced project in the graphite space, of the three companies that we cover, we view it as having the best chance of being financed.
Focus Graphite owns the Lac Knife project in Québec, located within an established iron ore camp, near roads, rail, a port and a labor force. Lac Knife is a large, well-advanced, high-purity project with nice size distribution and quality management. It is one of few graphite companies with an offtake. It has demonstrated that coated spherical graphite from its project shows superior electrochemical performance when compared with commercial grades of synthetic graphite for lithium-ion batteries. The firm's President and CEO, Donald Baxter, brings production experience from serving as director of mining at Ontario Graphite. The company is actively seeking financing for the project.
Energizer Resources has a 75% ownership interest in the Molo project in Madagascar. This project is predominantly large and jumbo flake, and it looks easy to mine at the surface. We see a potential for offtake that could expedite the big project financing required to develop Molo.
Madagascar remains relatively unknown to investors and poses a challenge to those seeking equity capital. But Energizer's location situates it well for quick and low-cost shipments to Asia. Energizer could lean more on the strategic alliance with end users. But the product stands up well in testing, meeting all the requirements for a variety of uses. A recent feasibility study provided good improvement over the two-year drill program. The study sets up the company for a potential project financing within in the next six months.
TER: Do you visit these mines?
DT: Yes, I have visited several graphite, lithium and iron ore projects, plus about 85 uranium projects worldwide. I am a geologist with almost 10 years' experience in the gold exploration industry. With this background, we believe that we are able to quickly sight early-stage opportunities in these sectors—it's one of Dundee's sweet spots. We understand the geological environments, technologies, underlying risks and opportunities.
TER: David, thanks for your time.