The graphite price might not reflect it, but there are serious concerns about how the forecast demand growth for the anode material for lithium ion batteries will be met in coming years.
The concerns go beyond simply the lack of new mine developments and the current lack of incentive pricing to meet the expected demand growth, with serious supply shortages possibly emerging well before the end of the decade.
Beyond the current lack of incentive pricing, the concerns also take in China’s grip on the key battery material (unlike lithium, graphite is present in all of the key battery technologies), from natural and synthetic graphite, through to battery-ready material.
That grip was tightened in December when China implemented curbs on exports of natural graphite under “national security” concerns. Export permits (control) are now in place for graphite products critical to battery production.
China’s commerce ministry said the move on graphite was “conducive to ensuring the security and stability of the global supply chain and industrial chain, and conducive to better safeguarding national security and interests”.
It seems that China wants to ensure its plans to dominate the global EV industry cannot be derailed because of the coming graphite shortage. It already has its nickel supplies stitched up through its sponsorship of the explosion of nickel production in Indonesia.
That swings the spotlight over to the other concern – the sustainability of the environmentally-gross production of graphite in China’s mainland industry, particularly the synthetic stuff.
No one wants a “blood” diamonds. No one wants conflict gold. And before long, no one will want dirty Chinese graphite in their shiny new EV. The pushback is already underway.
The December export controls put in place by China and rising sustainability concerns have served to steel the will of governments with big auto industries – the US, Europe & the UK, Japan and Korea – to build an ex-China supply chain.
The lead ASX-listed graphite stock Syrah (SYR) is a beneficiary having recently became an integrated producer by matching up its graphite mine in Mozambique to an active anode material operation in the US with the help of the US taxpayer.
And the Australian taxpayer is ready to support the plans by Renascor (RNU) to become an integrated producer (to the purified spherical graphite level) from its graphite deposit in South Australia.
Both companies have had their share prices smashed in response to the slump in graphite prices due to low cyclical demand in China, inventory drawdown in China and the over-investment in synthetic graphite in China taking natural graphite prices down with them.
But as suggested, it seems that both companies will have their day in the sun before long.
KINGSLAND (KNG):
All of the above was a long lead into today’s graphite interest – Kingsland Minerals (ASX:KNG), trading at all of 22c for a market cap of $12.8 million.
A diary note suggests it must be close to releasing the maiden resource estimate for its Leliyn graphite discovery in the Northern Territory.
It’s the one that the company last year set a stock exchange-compliant “exploration target” for of 200-250Mt grading 8-11% total graphitic carbon (Syrah is more than 1 billion tonnes at 11.6% and Renascor’s resource estimate is 94Mt at 7.3%).
The host rock at Leliyn is a 20km-long graphitic schist. Importantly, the exploration target was based on only a 5km section, and only to a depth of 20m and 100m across.
Needless to say that the expectation is that the maiden estimate should be a big ‘un. How big remains to be seen.
In tandem with the resource estimate, Kingsland has also ordered up initial metallurgical testwork as there is no point having a world-scale deposit if the grades, recoveries and amenability to be processed in to battery graced material does not stack up.
The company has previously indicated the initial met testwork results would also be released sometime in the March quarter. And here we are with six weeks to go.
The company said the combo of the maiden resource/met results could be transformational for the company.
Given the ex-China world could do with another big deposit in a Tier 1 location, the newsflow could indeed be transformational. All inside a $12.8m company too.
GOLDS:
The stronger US dollar stemming from the delay in the timing of the first US interest rate cuts took its toll on the gold price and ASX gold stocks during the week.
But there were a couple of notable exceptions that were able to swim against the tide – Bellevue (BGL) and Spartan (SPR).
Leading gold stocks like Northern Star (NST) and Newmont (NEM) were off 3.5% and 1.6% respectively on Thursday from Monday’s close in response to gold’s subsequent fall below $US2000/oz.
But Bellevue was 4.6% higher at $1.33 over the same timeframe while Spartan lifted its chiton to race ahead 18% higher to 51c.
The price strength for Bellevue was due to the revelation that the ramp-up of its new namesake mine had reached the point where it was generating free cash flow after a 30% increase in month-on-month production.
It was holding $48.5m on December 31 before it started building cash and now has minimal remaining capex spend, and a comfortable debt repayment schedule ahead.
There is still a way to go before the mine reaches annual output of 200,000oz-plus of low-cost gold but all of the key metrics in the month of January were looking good.
RBC has a $1.80 price target on the stock and reckons that a contributing factor to Bellevue’s recent share price underperformance has been the potential need for a capital raise.
“This risk now seems to have somewhat abated. Halfway through the quarter, Bellevue has not required a raise, and the company is now free cash flow positive,” RBC said.
Spartan excited during the week with a report that visible gold (assays pending) had been logged 170m below the 952,000oz high-grade Never Never deposit at its Dalgaranga project in WA’s Murchison region.
Never Never already stands as a game-changer for Dalgaranga which had to put its 2.5Mtpa processing plant on ice in November 2022 because trying to make money from the then mill feed of less than 1 g/t was all too hard.
Never Never grades an impressive 5.74g/t and is set to underpin first production of high margin ounces through the mill in the second half of FY2025.
Spartan said the visible gold was at 878.7m downhole within a 20.5m hit from 871.5m which was “typical’’ Never Never-style mineralisation. It said the drilling had demonstrated the “exceptional growth potential of the Never Never deposit at depth”.
