Graphite companies counselled make end use major focus

THE CONFERENCE CALLER: Opening the inaugural Paydirt 2016 Australian Graphite Conference in Perth, Paterson Securities resource analyst Jason Chesters warned graphite explorers to rethink their marketing strategies.

Chesters told Australia’s graphite hopefuls it would prudent for them to, “cool their heels”, and to not participate in what has become a boast fest about flake size and grade in recent times.

He said it would be a much wiser move for all players if they were to instead, concentrate on and prioritise whether or not the mineralisation in their respective deposits can actually be used in products a customer wants.

According to Chesters the global graphite market is currently experiencing a period of transition.

This is being driven by demand from traditional industrial applications slowing while the prospect of rapid growth in newer high-tech applications offered more promise.

“There are a growing number of graphite hopefuls chasing the perceived opportunity and hoping to land a lucrative sales contract in a total graphite market of approximately two million tonnes per annum,” Chesters said.

“However, the reality is that expectations of a required supply response to meet the additional demand may fall short of expectations and almost certainly not be sufficient to accommodate all newcomers.”

With this in mind, Chesters cautioned his audience that the current rapid growth of graphite hopefuls is pretty much likely to result in a whole lot of disappointment across the boards.

“The recent project and corporate failures in the graphite sector have given investors pause as the market comes to better understand the added complexity and additional attributes required in a good graphite project,” he advised.

“Customer relationships and product qualification is essential.

“Ultimately, the opportunity exists for a number of new graphite projects producing a required range of products, to be successfully developed to fill a future demand growth.”

Chesters defined his ideal for a successful new graphite project, describing it as being less about just size and grade (although higher grade helps the economics of a project) but more about – for a flake graphite deposit – flake size distribution, product purity (average concentrate purity), deposit location and infrastructure, timeframe to production and above all, customer relationships.

“There is just one real question and that is, can you sell what you produce,” Chesters said.

“Can your project actually produce a range of graphite products to a required specification and sell these to “long-term” quality customers for a reasonable market price.

“Simultaneously, the project owner must achieve a cost of production lower than most other competitors but the real critical focus needs to be on end use.

“Graphite project owners must, at their earliest feasible time, conduct testwork on the graphite product samples produced to determine its suitability of use and potential value for end-users.”

Chesters said, by nature, graphite projects require a slightly different approach to advancing a project when compared to other non-industrial mineral projects.

Additional considerations including, skills, and market intelligence are required to be successful, particularly as investor interest and, just as importantly, understanding in the sector is low.

“Graphite as an investment opportunity is generally not well understood,” he said.

“Although knowledge is improving and the combined stated scale of production of graphite companies has led to a perception of potential oversupply.
  
“While raising capital under the current market conditions is challenging, a quality project correctly managed and communicated, should continue to attract investor interest.”