The following is a Stockhouse Q&A interview with Great Lakes Graphite Inc. (TSX: V.GLK, Stock Forum) CEO Paul Gorman.
1. What is the investment case for Great Lakes Graphite right now?
Great Lakes Graphite is a particularly compelling investment right here and now because we are so close to getting cash flow started and the market has not priced that in yet. We will be producing micronized graphite from the Matheson facility by the end of the year but the market has not responded to that development. When you look at our stock price versus our peer group, we have the strongest business plan, the most capable management team and therefore,in my opinion, we offer the most upside.
2. What sets you apart from the competition in the graphite space?
What really distinguishes us in the graphite sector is our business plan and our ability to execute it. We are getting into the business of producing upgraded graphite products to a well defined North American marketplace even before we have a deposit in production. That is the reverse of a traditional approach but one which we believes is the right approach right now.
3. What exactly is micronization? Can you give us some context on how micronization works in the graphite space?
Sure, micronization consists of taking graphite powder or fine graphite flake and making it even smaller, or micronizing it. To put it in context, human hair ranges from about 70 to 200 microns in width. We will be producing micronized flake graphite products in the 10-45 micron range. So, particles that are a fraction of the width of a single hair. Large flake graphite carries a premium, but there is also a premium at the smallest end of the spectrum. That’s because it requires additional time, energy and resources to create those extremely fine product grades. There are over 200 companies we have identified that buy micronized graphite, especially in the lubricant industry as well as the gasket and seal and additives business.
4, Can you discuss why you opted to lease the Micronization facility at Matheson and say how it fits into your strategy?
Absolutely! Having the ability to acquire access to an existing micronization facility, as opposed to having to build one from scratch, gives us enormous leverage and flexibility. Building the same facility today would require at least $15-20 million. We are bringing it online for a small fraction of that. We had to rethink our business plan, but basically we are just taking the part of our plan that deals with upgrading and moving it up to the present. Our strategy was always focused on the value-added portion of the business, but Matheson provided us a vehicle to dramatically accelerate that part of the plan in an extremely capital efficient manner.
5. What is the capacity of the facility and what will it be producing once the commissioning phase is complete?
The plant will be capable of achieving our long-term targeted production rate upon commissioning. So the plant is not a gating factor in bringing it to capacity. That will be determined by how soon we are able to achieve our revenue targets.
6. Who will be the end users of the material that is produced from this facility?
We are targeting markets that are traditional consumers of micronized flake graphite. The production levels we are targeting are relatively modest percentages of those target markets.
7. How many jobs will be created as a result of your decision to re-commission the Matheson facility?
Right now most of the labor related to Matheson is being provided by contractors as the refurbishment work is a one-time activity. When the plant is commissioned it will be staffed by 3-4 employees per shift.
8. How much will it cost to bring the facility on line?
We have a budget of approximately $800,000 to get the plant through commissioning. All of the work has been quoted by now, so we are confident that we have a solid understanding of what is required here.
9. Is there any connection with your flagship Lochaber property?
Lochaber is on a separate and parallel track. We are working a systematic plan that unhinges the dependence of revenue and cash flow from the development of our deposit, which under the best of conditions and fastest plan will still take at least 2 to 3 years to get into production.
10. You recently announced a supply agreement with DNI Metals. Who are they, and how does that deal fit into your strategy?
DNI Metals is being run by a group with excellent connections in markets where we are able to source graphite. Working with someone that has local trusted liaisons enables us to move faster and to focus on the things we need to accomplish to get all of this going very quickly.
11. You recently raised $719,462 in a private placement financing. How does that leave you in terms of how much cash is in the treasury?
The company is well-placed currently but we do require additional capital to get Matheson into production. Fortunately having an asset that will generate cash flow in the near term has enabled us to attract considerable interest from a number of capable parties.
12. Where do you hope to take the company within the next couple of years, have your goals changed?
Our goals have not changed, but we are now in a position where our chances of achieving those goals and more have vastly improved. We continue to mitigate risk and to position the company to become a significant participant in the North American graphite market.
13. What does your management team bring to the table that other competitors do not have?
The natural tendency in the resources sector is for a management team to begin with an asset and then build a plan around that. The GLK management team has gone the opposite route and built the plan we believe is right for the sector, at this time. We then set out to acquire the assets that would enable us to execute our plan and reach revenues at the earliest point to internally finance all of the other operations that GLK will be managing. Others might have considered Matheson and passed on it because it would have caused them to re-think things. In our case, one look was enough.
There was never any question for us.
FULL DISCLOSURE: Great Lakes Graphite is a client of Stockhouse Publishing.