ENERGIZER RESOURCES INC T.EGZ

RE:Dundee report

[shakerman640]

According to Dundee Capital Markets:
 
https://personal.crocodoc.com/ntMeqi8

Graphite Sector
 
December 15, 2014
 
Graphite Initiation: Niche Commodity With Big Opportunity
 
Dundee is initiating full coverage on the graphite space. We believe demand could grow at near double digit rates (8.6% pa) into the next decade, driven primarily by electric vehicle battery demand, with stable growth from industrial applications such as refractories, foundries & crucibles (40% of current demand). Supply is concentrated in China (~80%) and few public companies actually operate graphite mines. Dundee estimates the need for at least 2-3 sizeable mines over the next few years to maintain a stable supply-demand balance. Wild card factors like demand from Tesla's (TSLA-US, Not Rated) proposed Gigafactory, and potential production shutdowns in China due to pollution could put further pressure on the supply-demand picture. We introduce investors to three high quality companies with top tier assets and realistic chances of being financed into production. We believe all three are great investment opportunities for those looking to gain exposure to graphite and the rapidly growing electric vehicle (EV) space.

Name                                 Ticker     Rating             Risk             Target         
Focus Graphite           FMS-T         Buy          Speculative        C$ 0.60
Mason Graphite       LLG-T        Buy        Speculative        C$ 0.90
Energizer Resources           EGZ-T         Buy           Speculative        C$ 0.40
Source: Dundee Capital Markets
 
• Graphite Pricing: Historically, flake graphite prices have increased at a rate of 7.9% annually (2004-2013), above physical demand growth of 3-5% pa. Pricing is not transparent, and we rely on quotes from Industrial Minerals. Broadly pricing can be broken into flake ($1,000-$1,700/t depending on size), amorphous ($500/t), vein (up to $2,800/t) and spherical ($3,400/t).
 
• Dundee's Supply-Demand Model: We estimate 2014 annual graphite consumption of 1.2 MMt and a supply surplus of up to 200,000t. However, with Chinese mine closures amidst rapidly growing battery demand, we estimate the need for 2-3 mines in order to maintain a stable supply-demand balance. Graphite supply is expected to grow at 1.7-3.6% CAGR between 2013 and 2020 (Dundee est.), trailing demand at 1.9-8.6%. We see the battery market comprising 17% of demand by 2020 from 8% now - this is a key driver.
 
• Tesla wild card: 50kg of spherical graphite is required for each EV, therefore ~120-150kg natural flake graphite. Not to be downplayed is the potential impact of Tesla's proposed $5B Gigafactory - demanding 84,000t-140,000tpa flake graphite according to Industrial Minerals. That’s equivalent to 2-3 normal sized mines or the amount of current battery demand in the market. We don’t currently model this into our supply-demand model to remain conservative. But, as Tesla moves towards materials procurement expected in late 2015 this should again have a positive impact on the graphite market and equities, already up 27% YoY on the excitement surrounding new battery demand.
 
• Valuation: Syrah Resources (SYR-AU, Not Rated) makes up nearly half of the public graphite equity market value, which currently trades at an average of 0.47x NAV. Focus is nearest to production and trades at 0.55x, while high grade peer Mason Graphite is at 0.62x. Energizer is the cheapest at 0.22x, given a longer timeline and jurisdiction risk.