Hi all, here is a new article on the state of junior graphite investing by analyst Ben-Kramer Miller on seeking alpha. An interesting read.
Summary
The graphite sector is bifurcating as investors reject the "old-guard" strategy of developing large graphite deposits.
Investors have realized these "old-guard" companies have generally taken an overly simplistic approach to the industry, thus rendering their feasibility studies incomplete.
As these companies fade away or reinvent themselves the "new-guard" is emerging: this includes companies developing small projects with specific markets in mind.
The "new guard" is beginning to outperform despite weakness in the TSX.v or the global stock market generally, and we believe this can continue.
The Canadian graphite junior mining sector is undergoing a shift. Investors have begun to wake up to some of the fundamental realities of how the market works, and as a result they're no longer buying several stories that are out there.................................
https://seekingalpha.com/article/3505796-graphite-industry-update-newcomers-outshine-the-old-guard?isDirectRoadblock=true&uprof=
Unfortunately Ben dosent mention some important graphite companies in the TSX.V (ALP, CCB, Elcora...) in his article. I pointed this to him in the comments section. Here is a copy of my comments :
Thanks Ben for this another interesting article on graphite investment.
I am surprised you didnt mention Alabama Graphite (ALP) in your analysis of the sector, eventhough ALP is the closest direct competitior to Mason Graphite (LLG) in the race to start the first new graphite mine in north america since the 90s. (both companies count experienced management who were involved in previous graphite mines in north america, and both have serious distinct arguments to convince Tesla buying their graphite for lithium andoes batteries).
Main advantage for Mason is that they possess the highest grade graphite deposit in north america (18% carbon content), yet ALP with low grade ore (3%) has the nearest to surface oxidized graphite deposit with the lowest stripping ratio and benefits from the best location and infrastructure for a graphite deposit in north america.
I dont think any graphite investor could count yet neither ALP nor Mason out of the race. IMO they are the latest (only?) survivors of the graphite bubble burst (the bubble started as you mentioned in 2011, and IMO burst in 2014-2015).
Another (yet less surprising) omission in your article, is that in contrast to Zenyatta big project, you didnt mention Canada Carbon, neither Elcora Resources, both developing vein graphite deposits (in canada and sri lanka, respectively).
While Canada Carbon didnt yet succeed in calculating a resource estimate (it is a very complex process to define vein graphite resources, the veins are generally small in width (tens of centimeters)/length (1 meter+) and each vein should be found, defined and hit by the drill, to achieve a reasonable measured resource resource), on the other hand Elcora resources are already producing graphite and they are finishing the construction of a processing plant.
I would compare Elcora to GLK, both have the same philosophy of targeting value added graphite and pursuing a realistic step by step strategy for specific markets, with a clear/defined business plan. and both are making huge progress compared to other unrealistic big graphite projects.
It would be also great if you write up an article covering/analysing the new entrants/already producing junior graphite companies, did they succeed? if not why ? and what are the prosspects ? : flinders resources / Valence / Stratmin.
looking forward to other interesting, as always, graphite analysis of yours !
regards,
Ben's answer :
I counted Alabama out of the race when they announced that in-ground graphene nonsense. This is promotional BS. After the PR I spoke with Ron Roda. Seemed like he knew a little bit about graphite although not enough to be running the company. I ask him about the in-ground graphene and I'm told that I can speak with the scientist at U of A. There's no follow-through. I reach out again and say I really want to discuss this in-ground graphene to find out why it is so physically unique. I say I can speak to the guy any day, any time of day. No response. I found this to be highly unprofessional and felt that it just proved my initial suspicion that the in-ground graphene story was a pump-n-dump.
The fact is that flake graphite is just layers of graphene so theoretically speaking every graphite comapny has in-ground graphene. It's just a matter of marketing.
And it got worse when DB joined the team. This guy told me so many things re: Focus that never came true that his presence at AG is a red flag. Other than the fact that Mason and AG both have Timcal people there's no comparison. Mason is a much better buy today although it isn't cheap compared with GLK or FDR so I'd rather get in cheaper or once I've seen the FS and the company's downstream plans, and I'm avoiding AG like the plague.
Note that Mason has recent insider buying and institutional interest. None of that in AG.
My reply (with a hint to silica investing) :
@Ben : I understand your frustration regarding the lack of transparency of ALP management, and I do agree with you on that (especially when we contrast it to the legendary transparency of GLK management), but at the same time one shouldnt judge the whole company on one aspect.
I agree that graphene is still too early and the "naturally occurring graphene" was a marketing stunt, but which junior companies who dont indulge in such exagerations/outlandish marketing claims ? some are more subtle (smarter?) than others in doing do, but its the nature of those juniors (all starting from zero and claiming the sky is the limit and they want to go from 0 to 1 as Peter Thiel put it in his latest book). It is the investors job to distinguish between realistic claims and unrealistic ones.
I am long ALP and even if I wasent, I wont count them out of the race yet, yes they are late in their exploration efforts / PEA / battery anodes testing / flow sheet for spherical graphite...etc but if they accelerate their efforts (and Don Baxter is helping them in this regard), they could score a hit with a tesla contract (like Bacanora for lithium did).
Bacanora is far behind many other lithium junior companies, yet the quality of their deposit/location, did it for them (eventhough I suspect they dont have quality management to succeed and wont achieve any of their milestones on budget and in a timely manner, and WLC / Orocobre will far surpass them in a short time, but thats another subject of discussion). ALP has simply the best location/infrastructure of any graphite company in the world, and this advantage cannot be understated. the thing is : they have also other key ingredients for success (experienced management and at surface oxidized low stripping ratio graphite). IMO if they accelerate their on-going efforts and manage to update their resource estimate with some 4% grade graphite, interesting things would happen.
On another note, are you also interested in silica investment ? its a hot industrial mineral like graphite but with better prospects, I am long a junior company in the TSX.V called Rogue Resources (RRS) that show a huge potential for success. its management is a high quality/adaptive one showing similarities with the great GLK management.
In my opinion Rogue Resources (RRS) is as rare as a great tsx.v opportunity could get, they have great management, an amazing silica property they are exploring/defining resources, and the stock is a multi-bagger in the making (very little coverage of this company thats why the stock price is still cheap with little volume, management spend money on what matters for the time being, i suspect they wll spend more on marketing once drill results come in). the time opportunity to get in in the cheap is closing rapidly (first drill results in 1 or 2 weeks at the latest).
RRS stock price went up recently after the publication of an extremely positive trenching sampling results (up to 99.9% purity silica) and the discovery of a new high purity quartzite. For those interested they can read more about RRS in the linked below valuation commentary by an analyst :
https://bit.ly/1KhxvFW
Regarding graphite investing VS silica investing, High purity Silica quartz prospects are IMO far better than graphite. Silica is the future (needed in solar panels, aluminium alloys, electronics, and maybe future graphene-silicon lithium battery anodes and future LED-silicon lights production). I cant think of another industrial mineral having better prospects except for lithium (far more complicated/costly to extract, silica on the other hand is very easy to extract but high purity deposits are very rare, and RRS possesses one). A number of silicon metal processing plants are being built around the world to cope with increasing demand and tight supply.
For graphite, only value-added graphite has a bright future, but run of mine graphite is already too cheap and on global over-supply, it is impossible to compete with the chinese price-wise regarding run of mine flake graphite. FDR in europe were obliged to stop producing run of mine graphite because they couldnt compete. (700$ per tonne for medium flake 94% purity and less than 1000$ per tonne for large flake 95% purity. That is why IMO the best graphite projects are those focusing on value-added graphite rather than run of mine graphite, where supply is tight and profits could be made, unlike run of mine silica which is already in tight supply.