AGORACOM Small-cap Investor Relations Blog

Richard (Rick) Mills
AheadoftheHerd.com

As a general rule, the most successful man in life is the man who has the best information

Today I’m speaking with Jody Dahrouge of Dahrouge Geological Consulting Ltd. Dahrouge Geological is in charge of the exploration programs for Strike Graphite Corp. TSX.V – SRK

Graphite has long been used in the aviation, automotive, sports, steel and plastic industries, as well as in the manufacture of bearings and lubricants. Graphite is an excellent conductor of heat and electricity, is corrosion and heat resistant and is also strong and light.

Currently, the automotive and steel industries are the largest consumers of graphite with demand across both industries rising at five percent per annum. The steel industry uses graphite as liners for ladles and crucibles, in the bricks which line blast furnaces and to increase the carbon content of steel. Graphite has already replaced asbestos in automotive brake linings and pads and is used for gaskets and clutch materials. Sparks plugs are also made incorporating graphite.

New, high-tech applications – Flexible graphite sheets, graphene, lithium-ion and vanadium batteries, fuel cells, semi conductors, nuclear, wind and solar power – require more and more graphite production. Graphene seems to be a wonder material and a lot of time, effort and money is being spent researching it – 3000 research reports were written just in 2010.

The natural graphite market is 1-1.2 million tons per year and consists of several different forms of graphite – flake, amorphous and lump. Historical applications primarily use amorphous and lump graphite, however most newly emerging technologies and applications require large flake graphite. Of the approximately 1.2 million tons of graphite that are processed each year just 40% is flake.

China, India and Canada are responsible for most graphite production and processing with China producing the lion’s share at 70–80%. China’s production is 70% amorphous and lower value small flake graphite.

Strike Graphite has recently acquired three graphite projects within mining friendly, politically stable jurisdictions; Deep Bay East, Saskatchewan, Simon Lake, Saskatchewan and the Wagon Graphite Project in Quebec. All three projects possess geologic traits for the discovery of significant, large flake graphite deposits.

Rick: Jody tell us about yourself and Dahrouge Geological Consulting.

Jody: I graduated from the University of Alberta’s geology program in 1988 and for the next three years I worked in the resource industry. The industry is pretty cyclical, being completely tied to the resource market and at that time the market hadn’t yet experienced the explosive growth in commodity demand as a function of Chinese growth.

Consequently a lot of geologists would work for a few years, get laid off, work for a few years and so on. I was employed by ATCO Power, a major coal and electricity producer in Alberta. While working full time for ATCO I decided to go back to University and graduated in 1993 with a degree in computing science.

Upon graduation, instead of going to work in the high-tech industry, I decided to claim stake for industrial minerals in British Columbia. I went to work for a company called Halferdahl and Associates, a consulting company based out of Edmonton that was run by Laurie Halferdahl. Laurie passed away in 1999 after operating his business since 1971.

I purchased the Halferdahl assets from his estate in 1999 and have since run Dahrouge Geological Consulting, we’re primarily focused on industrial minerals and rare metals. We work primarily in Canada and the United States, though we’ve worked around the world, East Africa, China, Australia and South America. We have worldwide experience but we’ve been lucky enough to stay active primarily across North America.

I was also President of Fission Energy for a short time.

Rick: What’s your take on the graphite market?

Jody: Graphite is quite unique because of its unique combination of properties. Graphite in terms of being an electrode has one of the highest conductivities and as you’re aware the amount of graphite in a lithium-ion battery is anywhere from 10 to 20 times the amount of lithium.

The demand just from that one use could potentially double the market over the next ten years to over two million tonnes annually. That type of demand growth would require 25 new mines at 40,000 tonnes per year.

The United States Geological Society (USGS) says the need for graphite in the type of fuel cells being developed could consume as much graphite as all other uses combined.

All of these markets demand the highest quality large-flake graphite, that’s where the most growth would be.

Graphite in itself is not necessarily rare, it’s carbon. It’s an extremely common mineral occuring in a wide variety of geologic terrains. However what is rare is the greater than 177 microns or 0.2 mm large-flake graphite.

Large-flake usually occurs only in very specific geologic environments such as high-grade metamorphic terrains. Metamorphic rocks are those which have changed from their original formation by increasing pressure or temperature, the change gives rise to large-flake graphite under specific conditions.

In order to capture the highest value, you have to beneficiate your graphite deposit and produce this coarse-grained graphite and make sure it’s relatively free of impurities. You need an excess of 94% to 97% carbon content to make the battery-grade graphite.

Rick: Okay, what else is graphite used for?

Jody: One growing demand, or perceived growth in the market, is going to be graphene, which is an exceptionally strong man-made mineral with high conductivity, so there’s all sorts of technological advances that can fuel this growth even further.

Rick: When I look at the recent report by the United States Geological Survey on graphite, there’s no mine production of graphite in the United States. The US relies 100 percent on imports and has for years.

Jody: Yes, and there’s only two mines in production in Canada, one’s in British Columbia and is a small producer, the other is in Quebec. But there are in excess of 40 graphite producers in China. A vast majority of the Chinese mines are producing amorphous graphite, which is generally less than 37 microns, and commands much lower prices than large flake graphite.

China controls about 73% of the market, India is next with 10% to 15%, North Korea is a big producer, less than India, but bigger than Canada in terms of its graphite production, but China consumes most of North Korea’s production.

This is all in terms of a strategic commodity, so once again North American seems to be left out in the cold and beholden to production from China and other Asian countries.

Rick: In 2011, China, Canada, and Brazil were in descending order of tonnage, the major suppliers of crystalline-flake and flake-dust graphite, and in 2011, China produced the majority of the world’s graphite. There’s talk about China cutting back on their graphite production, but this is not, I want to make it very clear that this is not the rare earth space.

The mineralogy and the metallurgy of many rare earth deposits are not well known or understood here in the West, whereas with graphite, we’re perhaps the leaders in mineralogy and metallurgy, we understand it.

Jody: Certainly the experience with rare earth mineralogy is quite important. There’s only been four minerals that are known to have produced rare earth’s; monazite, bastnasite, xenotime and loparite. So the process ability of those minerals is well known, when people started exploring for rare earth deposits, they found rare earths formed numerous minerals that have never been commercially produced.  Hence the large learning curves towards the unknown metallurgy.

There are 17 different rare earths and they are always found together in the host mineral. There are tens if not hundreds of rare earth minerals, some of which are very complicated and not known to be amenable to processing using standard techniques. So, people were finding rare earth deposits, but what was more important were recoveries and processability of the minerals once you recovered them.

Rick: Why is China going to become quickly irrelevant to this market?

Jody: Graphite is a different story. Graphite is a mineral on its own, it’s one mineral. It may have some built-in impurities or may occur with other minerals, such as mica, which may be somewhat difficult to separate from the graphite. However graphite has a relatively low specific gravity allowing a concentrate to be produced by conventional floatation techniques. If the 94% to 97% carbon cutoff for their product was not then attained, they could apply an acid bath to their product to further remove deleterious constituents to upgrade it. It’s not complicated mineral processing or metallurgy. It’s pretty straight forward, overall.

Rick: I was reading about one company using air in the floatation, they got 85% recovery. When they used a pine oil, they got +95%, and then when they went to an acid, they achieved 99.99% purity. It wasn’t a complicated procedure.  It’s not proprietary methods, there’s nothing secretive about it is there?

Jody: No, nothing secretive about it. It’s pretty simple and pretty straight forward. It’s a recovery technology that’s been around for in excess of 100 years. A company that finds a large deposit of coarse-grain flake graphite, with little in the way of impurities, can put a deposit into production a lot faster than say a company that finds a metallurgically complex rare metal deposit, which would have to have a very unique metallurgical process and a mineral upgrading process designed specifically for that deposit.

Rick: I was reading a news release from Northern Graphite saying they just raised $10 million. However, what was interesting was they said that the $10 million is for all the normal stuff, but also they are going to do a prefeasibility and metallurgical studies. I was shocked at just how far $10 million will carry a graphite company through their studies and permitting activities to actually get to the point where you’re going to build a mine. It was mindboggling how far relatively little money could go in this space.

Jody: Exactly, that’s a very good point because the geology of these deposits are typically pretty straight forward. So in terms of getting from the discovery, say an outcrop with graphite all the way to the resource stage, you could, depending on the geology, advance that in terms of months as opposed to years.

Rick: Most people think this is a race to get to be first to production, but that’s not the reality is it?

Jody: The first one to production might garner the most attention, but go back to our comments earlier on regarding the explosive growth of the sector, there’s going to be many mines required to fill the void, not just one or two.

Rick: I’ve had a lot of people asking me about what the industry means by ‘large-flake’ and why one flake is more valuable than the other. Could you explain to our readers exactly what is meant by flake size?

Jody: Well, large-flake graphite is generally referred to as 80 mesh. Mesh size is a technique of measuring openings in a screen. Different mesh sizes correspond to measurement sizes of the screen openings. Millimeters, or microns would the best way to characterize a mesh size.

80 mesh corresponds to greater than 177 microns in size, 0.177 mm. So, that is what the large-flake graphite is classified as, greater than 177 microns, and it demands the highest price.  You can always crush something that is coarse grained and make it smaller, but it is far more expensive to upgrade something that is fine grained into something coarse grained.

The reason the large flake demands the greatest price is because it has the greatest electrical conductivity – it makes the best batteries. Large-flake graphite costs anywhere from $2,500 to $3,500 per tonne.

Rick: Okay, could you explain the different sizes they talk about with respect to the grade and the money they get, the 40 mesh etc., get into that?

Jody: Ok, large flake refers to grains that will not pass 80 mesh and is greater than 177 microns, which is 0.177 mm and up. I prefer to use the micron size, which is in millimeters (mm) as opposed to mesh size because it’s a lot easier for people to understand.

Medium-flake graphite is in the 149-177 micron range. Fine flake is less 149 microns, which is 0.149 mm. Amorphous graphite is generally less than 37 microns and the price is generally under $1000 a tonne.

From the fine flake and above, you start to get a dramatic jump in prices.  Currently, fine flake ranges from $2,000 to $2,500.  Medium flake is actually priced very close, and the large flake can be anywhere from $2,500 to $3,500 or above even.

Rick: How did you get involved in Strike Graphite Corp. TSX.V – SRK?

Jody: I’ve been conducting exploration for various commodities in Saskatchewan since the beginning of my career, and Dahrouge Geological Consulting has been doing it for over 30 years. Saskatchewan is often ranked as one of the best jurisdictions worldwide to do business, I’m sure you’ve seen the Fraser Institute rankings.

We’ve had a lot of success doing business in Saskatchewan. They’ve put every commodity you can imagine under the sun into production, uranium, potash, industrial minerals. They have a booming oil and gas business and they’ve got gold mines and base metal mines as well. So, with the fantastic geology that’s in Saskatchewan, and my background looking for various commodities plus my involvement in the uranium sector, I recognized the potential and the correct geologic area of Saskatchewan to host deposits of graphite.

In the case of Saskatchewan graphite, there’s lots of Canadian Shield-type rocks that have undergone high-grade metamorphic conditions. The rocks were originally sedimentary and when you start going through government files and our private office files, you recognize lots of graphite occurrences.

Rick: Many times uranium is associated with graphite.

Jody: One of the common ways to do uranium exploration is to complete an airborne electromagnetic survey looking for conductors.  As we mentioned, graphite has great electrical conductivity and uranium and graphite often go hand in hand.

In the Athabasca Basin, which is one of the premier uranium exploration and development districts in Northern Saskatchewan, uranium companies will fly these airborne surveys, and they’ll identify a conductor. Commonly the conductors are located along faults. Graphite being primarily carbon, is a great reductant, so when oxygen-rich fluids impregnated with uranium meet this conductor, they deposit out the uranium.

Hence, the prolific uranium district in Northern Saskatchewan. In the course of flying all these airborne surveys over Northern Saskatchewan for 30-40 years, numerous conductors all over the province associated with uranium, and not associated with uranium, were identified, and a number of companies interested in graphite exploration started looking at these occurrences in the early 1970s.

Rick: One of these companies was Superior Graphite.

Jody: Yes, they had identified a project around Deep Bay in East Central Saskatchewan and they explored the property in 1972. What they were doing was following up a 1968 discovery by Sherritt Gordon Mines, in which very rich graphite zones were discovered around Deep Bay while searching for base-metals. In 1968 they drilled several holes, conducted an airborne survey, did ground work etc. Upon finding very little in the way of base-metals, they allowed the property to lapse.

Then in 1972 Superior commissioned a report on the area that focused on the graphite potential. They went as far as bulk sampling, processing, market studies, hypothetical mining, milling, processing scenarios and transportation scenarios. All this work was based around two deposits, one on the west side of Deep Bay, the other on the east side of Deep Bay.

Dahrouge Geological staked the property on the east side of Deep Bay and vended the project into Strike Graphite.

Rick: The project on the west side of Deep Bay is more advanced than Strike’s Deep Bay East property.

Jody: Deep Bay West is within a Native Reserve owned by the Peter Ballantyne Cree Nation and they’ve done a lot of work on it. There’s a historic resource, not 43-101 compliant, we haven’t done the necessary work to confirm the resource, but based on assessment records, we’re pretty confident in that it has in excess of a million tonnes of greater than 10% graphite.

Historic records indicate 60% of that graphite is coarse grained, and work done by Superior Graphite in 1972, 1973, showed greater than 80% recoveries, recent work has shown they can upgrade that deposit to 99% carbon. So graphite in this area will demand the highest prices.

Rick: Is there similarities between what the Natives have and what Strike has?

Jody: It’s not the same deposit, but it’s in the exact same stratographic package, the exact same rock unit, except we’re on the east side of Deep Bay, and they’re on the west side of Deep Bay.

There’s lots of infrastructure in place and they’ve done everything necessary to get to the point where they can start mining and processing. But we believe our deposit has a higher tonnage potential.

Sherritt Gordon and Superior Graphite identified a target area that was 1.6 km long, they drilled four holes into it and results include 35 m of 8.5% graphite. Sherritt’s and Superior’s mineralogy and metallurgical studies showed greater than 40% of the material they collected was coarse-grained 80 mesh or greater.

Preliminary metallurgy showed 80%-85% recovery so I’m quite confident we can get a high-quality, high-value product from our deposit.

Rick: In a February 29th news release, the preliminary data from a VTEM survey confirmed the historic conductor at approximately 2.5 kilometer (km) strike length, and a second, newly discovered conductor, of approximately two km in length.

Jody: What that survey showed is actually not two separate conductors but rather one conductor folded back on itself giving a total strike length of about 5 km. So that gives us a lot of exploration upside for this project.

The target we’re developing is a conceptual exploration target that’s roughly 2000 m in length. It’s up to 35 to 50 m wide and if it continued down to 100 m or beyond in depth we potentially have 18 million tonnes or greater.

That’s not a 43-101 resource, that’s a conceptual exploration target, but we believe, based upon the historic work that was done, we can achieve that target. Remember I believe the airborne survey that we’ve just completed shows the conductor to total in excess of 5 km.

Rick: Let’s talk about the newest project that SRK has, the Wagon property.

Jody: The Wagon property was discovered about 30 years ago by Michelle Roberge, he was a metallurgist at the Niobec Mine, a niobium operation.

This project is located 10km east of the Timcal Mine. The Timcal is the largest graphite producer in Canada, consequently the area has lots of infrastructure, power, mining knowhow and numerous roads.

The way the claims were originally explored was by surface outcrops, they mapped over 100 outcrops. Samples ranged from 4% to 18% graphite and this was by chemical analysis. The geologists described flakes of graphite up to 3 mm, which is exceptionally coarse. So, it’s in the right location and at 3000 hectares in size it’s a large project that is very near an existing graphite mine. Quite frankly, you couldn’t ask for a better project.

Rick: SRK has another project that we want to talk about.

Jody: The third project is called Simon Lake, it’s located in Northeastern Saskatchewan just off highway 905. This highway leads to a group of uranium mines and mills in the eastern part of the Athabasca Basin.

Again, this is a project that was explored originally for base metals but we found a relatively big conductor. It was in coarse-grained metamorphic rocks that were subsequently subjected to high-temperature/pressure conditions and therefore it had the potential to develop coarse-grained graphite.

We originally staked a 500 hectare property covering a 10 km strike line for this conductor but after flying an airborne survey over a much expanded area what we found was a 25 km long conductor that was relatively continuous. Within this conductor were historic drill holes that tested this conductor over approximately 5.5 km of strike length.

I have to caution this isn’t chemical analysis, there could be a lot of inaccuracies in the terms of percentages of graphite, but visually they intersected anywhere from 9 m of 35% graphite to 42 m of 38% graphite.  They never did chemical analyses, as I said they were looking for base metals.

They describe coarse flakes of graphite up to 4 mm across all the way down to fine-grained graphite. Given the length of this conductor at 25 km long and that almost all the holes drilled into it bottomed in graphite we’re assuming, based on the geophysics, a potentially very large source of graphite may exist. We really don’t know what the grade is, but we believe that this is the elephant of graphite deposits in Saskatchewan.

Rick: Nobody is saying we have a mine here, nobody is confirming historic numbers, people talk about seeing moly in drill cores, it’s easy to see molybdenum, the same as visible gold and native copper and electrum. What your saying is “we’ve got something, it appears to be large, we need to go in, spend some money, and find out exactly what we’ve got.”

Jody: Absolutely, we’re not saying the historic visual estimates are reliable, we’re saying they’re a good indication that there’s significant quantities of graphite over a vast area. But it’s important to point out this work was done over the 1960s, 1970s and 1980s, multiple geologists at different times tested this feature, and they all describe graphite. So, there’s a high degree of confidence around the potential of this project.

Rick: Graphite is graphite. You’re not going to mistake it, it’s either there or it isn’t. If it’s there you see it and you can judge flake size in the field.

Jody: It’s pretty difficult to mistake it. As we talked about earlier, it’s very important to recognize that, in terms of geology, you fly an airborne survey, you find a conductor. Step two is to get boots on the ground, confirm drill targets, step three is drill test that conductor. The first project we’re actually going to explore in a significant way, is Simon Lake. We intend to drill this conductor at various intervals and are also going to drill unique geophysical characteristics all along this 25 km feature.

We’re going to take the material and analyze it as quickly as possible, look at the mineralogy. If it appears to have coarse-grained characteristics to it or a large percentage of it is coarse grained, we’re going to ship it off quite quickly for metallurgical test work. We hope to come back in the fall with a follow-up drill program and build out a resource around the best part of those combinations of grade, ability to process, and coarseness.

Rick: What about infrastructure in the area?

Jody: We have a road on the west side of the property.  It’s highway 905 and it leads to a couple of uranium mills at Rabbit Lake and McClean Lake and the transportation hub of Points North, which is host to a lot of infrastructure for the uranium explorers. The Cigar Lake Mine is in the area, it’s under development.

On the east side of the property, we have a second road that’s under construction, that goes to Wollaston Lake. Simon Lake has fabulous infrastructure for an exploration property in Northern Saskatchewan.

Rick: If you hit it’s going to be a discovery.

Jody: Yes, a grassroots discovery.

Rick: Give us a step by step breakdown on how you, as a geo running the show, plan to approach this.

Jody: Based upon our review of the historic literature we identified Simon Lake as having high potential to host a graphite deposit of significant size.  So, the very first step beyond that is to conduct an airborne VTEM survey.  The VTEM survey is an electromagnetic survey.  It pumps a current into the air which is transmitted into the ground, that electricity is measured and a conductor, if it’s there is identified.

Rick: Wherever it flows, that’s a target for ground follow up?

Jody: Yes, and it flowed in a very consistent way over a full 25 km. So, our next step is to do ground follow-up. Get some geologists on the ground, where there may be outcrops and lots of granite. Approximately 60% – 70% of the ground is covered by glacial till but the balance of it is rock and our geologists can evaluate that in detail. They can take a close look at these rocks, and they can see graphite right away.

They should be able to see grain size right away and they should be able to get good guesstimates as to the percentages of graphite. So, the next step beyond that is if we want to further targets for drilling, is to conduct ground geophysical surveys, which will further identify the boundaries of these conductors. The next step beyond that is drilling, which we’ve scheduled for the second quarter 2012.

Rick: We understand flying the VTEM to identify a conductor. We understand boots on the ground. What are the ground geophysical surveys?

Jody: We can do ground electromagnetics as well, just like you can do airborne. One common type of survey is called a Max-Min survey and is where two people will read the conductivity of the ground. It involves carrying a cable that is 50 or 100 m long, at one end you have a transmitter and at the other end you have a receiver allowing one to measure the conductivity of the ground. That will allow you to very accurately delineate the most conductive parts of the rock below the surface.

Rick: You’re fine tuning the VTEM.

Jody: That’s exactly what you’re doing. And quite frankly, it might not even be necessary. It might be a bit of overkill because the VTEM survey is extremely accurate and extremely useful on its own. And so, when the geologist goes on the ground he can identify outcrops with graphite in them, right away he might see a drill target. We don’t believe we will need to do any further ground follow-up.

The target is a zone of sedimentary rocks that were subjected to high-grade metamorphic conditions, which likely produced coarse-grained graphite. One of the first targets we’re going to drill is to simply twin one of the historic holes that intersected graphite.  We must reproduce them and in the modern context confirm what they were observing 30-35 years ago.

Rick: Are we going to do any exploratory holes in this first round?

Jody: Absolutely. We intend to drill at least five holes in the first round.  One of the holes will be a twin, and the next four will be exploratory testing various parts of the 25 km long conductor. Once we’ve done that, we’re going to take core samples, log them and write down our own observations.

We will then split the core and send half of it off for analysis, that will tell us exactly what we have in terms of graphite content. We are going to try and identify all the pertinent characteristics that make a graphite operation successful.

Rick: And we’ve got two backup plays?

Jody: We have backup plays. But I’m very confident in Simon Lake. If we have success, with the drilling, the mineralogy, the geochemistry, and with the processing, we can come back in the third quarter, say September to November, and we can further drill test at a very, much tighter spacing, instead of drilling every five km, we could be drilling every 50-100m, and build out a resource in and around a discovery. The resource will be calculated by someone independent, presuming we’ve intersected what we’re looking for. Hopefully we could publish resource numbers sometime in the 1st quarter of 2013.

Rick: Anything you’d like to add Jody?

Jody: The graphite market is not like the rare earth space. I truly believe in the rare earth space, and I think long term it will prove out to be as good as people had anticipated early on. It’s just that with the complexities of those deposits, there may lots of bumps and hurtles, but in the graphite space, those bumps and hurtles are a lot smaller and a lot easier to overcome.

Rick: Thank you, it’s been a pleasure.

Richard (Rick) Mills

[email protected]

www.aheadoftheherd.com

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Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

 

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Legal Notice / Disclaimer

 

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

 

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

 

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

 

Richard Mills does not own shares of Strike Graphite Corp. TSX.V – SRK

Strike Graphite is a sponsor of Richards website www.aheadoftheherd.com

Source:  http://aheadoftheherd.com/Newsletter/2012/Ahead-Of-the-Herd-With-Strike-Graphite.html