Agoracom Blog

Graphite’s gleam

Posted by AGORACOM-JC at 11:21 AM on Tuesday, August 21st, 2012

With big jumps in price and demand, mining companies are rushing to find new sources of the mineral and revive old ones. But even as graphite projects spread across the Ottawa region and beyond, investors need to remember the risks of resource development

OTTAWA — Across the Ottawa Valley, the Outaouais and many other parts of the Canadian Shield, mining promoters are racing to get the graphite out.

Rising global demand, new uses and high prices have moved the mineral far beyond its longtime role as a substitute for lead in pencils.

Light and strong, graphite is a key component in industrial processing, and finding new uses in such items as lithium batteries and fuel cells. In the future it could be an important part of emerging products such as super-light and super-strong graphene.

Prices are also rising because China, the world’s biggest user and producer of graphite, is controlling exports in a bid to protect its industry. The same country put many old Canadian graphite mines out of business by flooding markets with low-cost graphite in the 1980s.

Now, 30 years later, new mining companies are drilling near abandoned mines and analyzing old discoveries that did not make economic sense when prices were lower. Potential projects dot Eastern Ontario and Western Quebec, with the largest proposal a $103-million mine and processing operation at Bissett Creek, about 15 kilometres from the Ottawa River between Deep River and Mattawa.

But that operation, like other graphite projects, faces significant financing and stock market challenges before construction could start early next year.

Graphite prices recently dipped more than 20 per cent into the $2,000 a ton range as global economic growth slows and the prospects for a red-hot electric vehicle market cool. While the figure is still far above previous levels of $800 a ton just a couple of years ago, many mining stocks have lost 50 per cent or more of their value. These prospects need confident investors to proceed, but many of the graphite-play stocks that were trading above $2 in the spring now are back deep in penny-stock country.

There are many contenders in the race to market.

Northern Graphite Corp. is the company working on the Bissett Creek property midway between Pembroke and North Bay. Chief executive Gregory Bowes told investors recently that based on an independent engineering report, the plant can produce graphite for $850 per ton and make a healthy profit.

Bowes said Northern plans to build a $103-million open pit mine and processing plant capable of handling 2,300 tons a day and employing about 80 people. He said the Bissett Creek ore contains high-purity and large-flake graphite that is prized by industrial customers for a broad range of uses. There are roads to the property and it is only a five-hour truck ride to Montreal to reach global markets.

“This is a conservative and realistic study that indicates the project has attractive economics and that there are a number of immediate, low risk opportunities to further enhance project returns.”

He said the open pit mine has reserves to produce for 23 years. The ore will be easier to mine than some other properties and processing the ore with natural gas will reduce costs. Northern is working with Panacis, an Ottawa maker of advanced lithium batteries, to refine the graphite for a promising and profitable market. The National Research Council is testing Bissett Creek ore.

Bowes said Northern, which has $10 million in the bank, aims to have financing in place for the mine by the end of the year. While a weak stock price does not help, he said there are big industrial partners who are likely to invest to ensure there is another new source of graphite outside China.

“No new graphite properties were developed in the last economic cycle and the pressure on supply will be more acute in the next cycle.”

Standard Graphite Corp. of Vancouver wants to develop two properties in the Madawaska Highlands district about 50 kilometres west of Renfrew. It said surveys of two properties, including reserves around a flooded Black Donald mine that last produced in 1950, found positive results. it has 13 properties in Ontario and Quebec.

One is the Mousseau East property, about 40 kilometres northeast of Mont Laurier, Que., and about 50 kilometres from the Timcal mine, one of two producing North American mines. The Mousseau property was discovered by road builders in the late 1980s and more than 60 holes were drilled up to 1993, but no mine was developed.

Logan Copper of Delta, B.C. is exploring more than 6,600 acres near Notre-Dame-du-Laus about 130 kilometres north of Ottawa. The La Piece Perdue property is close to the Asbury graphite mine that closed 35 years ago. The Asbury mine was recently bought by Bolera Resources from $300,000 and other rights.

Soldi Ventures Inc. of Vancouver said in late July that it plans a drilling program near Maniwaki. It said tests of samples from a Cameron Township property near Ste-Therese-de-la-Gatineau, 10 kilometres southeast of the town, revealed high graphite concentrations in the 25 per cent range. The samples were removed from a shallow pit that dated back to the last exploration effort on the property in 1965.

Still another player is Galaxy Graphite, formerly Galaxy Capital Corp. It has conducted an airborne exploration of a graphite property near Buckingham.

Outside of this region, a company led by former Ottawa technology executive Gary Economo is working with Hydro-Québec’s research operation to develop high-grade graphite at Lac Knife, a property about 350 kilometres northeast of Quebec City. Focus Graphite, formerly Focus Metal, aims to start producing by 2014.

Reached during a business trip to England, Economo said investors in London, the U.S. and Canada have made verbal commitments to help finance the $130-million mine and processing facility. In addition, he said customers in Japan and Korea want to start receiving pure refined graphite by the third quarter of 2014.

Economo said the Lac Knife property contains reserves of up to 16 per cent graphite, an usually high grade that will significantly reduce costs and help the company manage market turbulence. Even if world prices settle around $1,700 a ton, the property, “we will have a very significant cost advantage,” he said, adding, “Our goal is to become the largest and lowest-cost producer in the industry.”

A sister company, Grafoid Inc., is developing technology for advanced grapheme materials markets.

With $30 million in the bank, Economo said the latest drilling on the site continues to generate positive results and the company plans to drill more than 40 holes this season.

Yet with so many contenders in the race in this region, and many others in play around the world, only a handful will likely make it to market.

Much of the demand for graphite is met by synthetic production from petroleum products. Carbon fibre, a rapidly growing market in sports and protective equipment, is one such product made from synthetic rather than natural graphite. But natural graphite has strong markets in batteries, lubricants and other uses.

Some observers are warning investors not to get sucked in by the latest “next big thing.”

The growth in demand for graphite has been impressive, up 25 per cent in the last two years, according to Mickey Fulp in a report for the Resource Investor service. The price change is even more dramatic, more than doubling in the last 18 months.

The result is a flurry of announcements from junior mining companies involving older and new properties.

“Now it seems every snake, shark, charlatan and shysters within a half kilometre of Vancouver’s Coal Harbour has a new graphite deal via a capital pool company, shell, IPO or change of business. The bubble has blown up quickly with over 35 listed Venture Exchange companies and more than 50 worldwide,” Fulp wrote.

“Like recent junior sector bubbles (e.g. uranium, lithium, rare earth elements) the graphite space will fill with many pretenders among the very few contenders. Many will mine the stock market until the another next big thing comes along.”
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