Much to the surprise of many, commodity prices have been rallying since the beginning of 2016. The increase in April was reported to be the largest gain in close to five years. So far commodities are outpacing both the ASX 200 and the US DJIA (Dow Jones Industrial Average.) The following chart compares the price action of the Bloomberg Commodities Index (DJP) against the DJIA and the ASX 200 over the last three months.
Australia’s Read Corporate is an investor relations mining and resources consultancy firm that offers a series of investor briefings called Resource Rising Stars geared towards the retail investor.
As one would expect the list of presenting companies represents junior miners and producers with an attractive story to tell. The 24 May conference to be held on the Gold Coast features a majority of iron ore and gold miners, but there are a few companies working in minerals long considered as candidates for “next big thing” status – lithium and graphite.
Both are essential ingredients in lithium-ion batteries. Surprisingly, graphite, not lithium, is the most critical element needed to create a high-performance lithium-ion battery, with ten times more graphite used than lithium. Li-ion battery use is proliferating like rabbits on steroids, not only in units but in size as well. Twelve volt power tools have given way to 18, 20 and 40 volt batteries. The once derided electric vehicle is gaining in popularity, perhaps led by the success of US based Tesla Motors (NASDAQ:TSLA).
That company plans to introduce a mass-market Electric Vehicle (EV) priced around US$30,000 following the success of its high-end Roadsters starting around US$100k.
Bloomberg New Energy Finance, a research and analysis operation for Bloomberg clients, predicts an upcoming “sea-change” in the acceptance and use of EV’s, driven largely by diminishing consumer cost. The following graph says it all.
Experts tell us for Renewable Energy sources like wind and solar to take hold a major obstacle needs to be overcome – storage. The winds come and go and the sunshine is more abundant in some parts of the world and absent everywhere at night. Excess energy produced on sunny and windy days in the future will be stored in batteries for retrieval on demand. There are competing technologies vying for this space, but lithium-ion batteries are currently in the lead.
Graphite’s “next big thing” potential extends beyond the battery. From graphite scientists have learned how to extract a material that has staggering potential. The material is graphene and some claim it is poised to replace silicon, plastic, and glass used in the world’s tech devices. Graphene is a thin layer of carbon atoms that under a microscope resembles a honeycomb. The thickness is an almost incomprehensible one atom, which means it has virtually no height. It conducts electricity better than copper and is stronger than steel. Graphene itself has been known to scientists since the 1800’s but it wasn’t until 2004 that researchers at the University of Manchester figured out how to extract the material for research purposes. Commercial applications are too numerous to mention but as is the case with many “next big thing” items, development may test the patience of even the most ardent long-term investor.
With that as introduction let’s look at the three graphite/lithium mining companies presenting this week at the Resource Rising Stars conference.
Kibaran Resources (KNL) is an exploration stage company with three active graphite development projects in Tanzania, East Africa along with a nickel prospect for future development. Kibaran is the sole owner of all these East African assets. The Epanko Deposit has been fast-tracked with production expected to commence in nine months with debt-financing in place. Kibaran already has two offtake agreements (agreement to purchase future production) with Europe’s ThyssenKrupp and a major European Graphite Trader. These 10 year agreements call for purchasing 30,000 tonnes of graphite. The Tanzanian government has granted a mining license for the Epanko Deposit as well as environmental approvals.
The company’s Tanga Project has secured a prospecting license from the government and has infrastructure access in place. The third project, Merelani-Arusha, is in the pre-feasibility stage. A five year share price movement chart for KNL provides a vivid demonstration of how volatile exploration stage companies with hot prospects can be.
Ardiden Limited (ADV) has two Lithium projects underway in Ontario Canada and a Graphite Project, also in Ontario. The company has permits for the project, financing in place and offtake agreements with Australian metals trading company Tennant.
The share price over the past year benefited from the company’s 100% acquisition of the two Ontario Graphite Projects – Silver Lake and Root Lake. Both have been explored and mined dating back to the 1950’s. Ardiden has another 100% Graphite Project in Ontario in the sample testing phase. Earlier this year the company announced positive drilling results at Silver Lake as well as progress in obtaining drilling approvals for Root Lake in the “near future.”
In March the company completed a successful capital raise to fund development at Silver Lake. The offering was oversubscribed and raised $1.25 million. The company announced the Silver Lake acquisition on 7 January and the stock price has been rising ever since. Here is the chart.
On 4 May the company announced additional highly positive drilling results from Silver Lake as well as the acquisition of drilling permits for the Root Lake Project.
Kairos Minerals Ltd (KAI) appears to qualify as a punter’s special at this time. The company was formerly a nickel exploration company before shifting its focus to lithium. On 18 April the company announced its applications for eight new lithium projects in the Pilbara district. If granted these projects would add to the company’s two existing Lithium projects in the area.
The company’s latest announcement touted the potential of its Mt York Project. This project is adjacent to the Pilbara Minerals (PLS) world-class Pilgangoora Lithium Tantalum Project and the Altura Mining (AJM) and Dakota Minerals (DKO) lithium projects, also under development in the area.
However, the results came from airborne data that serves to identify potential drilling targets. As yet no drilling appears to have begun and the new company has yet to complete its website, making researching the company’s progress a challenging task.
Perhaps due to its $1.2 billion dollar market cap, Syrah Resources (SYR) did not present at the Resource Rising Stars conference. The company’s stock price is up 14% year over year and has taken investors on a wild ride over the last four years. Here is the price movement chart.
In 2012 the company decided to sell its mineral sands portfolio to concentrate on what would become its flagship project – the Balama Graphite Project in Mozambique. One positive announcement followed another throughout 2012 and the share price took off.
The company’s feasibility studies and drilling results indicate the Balama Project could become the largest graphite producer on the planet. Production is expected to begin in the first quarter of 2017. The company has multiple sales contracts and offtake agreements in place, no debt, and completed a capital raise of $211 million last August to further fund the Balama Project.