Changes in the global graphite market have only just begun
We may be stuck in the China groove so far as rare earth elements are concerned, but there seems little doubt that a ground-shift is under way in the graphite sector. In fact, one Australian company has already called it. There is no doubt, says John Parker, who runs Lincoln Minerals, a company exploring on Eyre Peninsula in South Australia (and some of whose ground is just 2km from the old Uley graphite mine soon to be recommissioned).
As he notes in the company’s latest quarterly report, China has dominated graphite production for the past 20 years, producing about 70% of the world’s graphite (65% global flake graphite and 89% global amorphous graphite). However, in mid December 2013, it was announced that eight operations at Pingdu, Shandong Province, had been ordered closed by local government authorities on environmental grounds. These operations represent about 20% of China’s flake graphite production, as reported here on Investor Intel on December 18. As we explained then, Shandong is home to most of China’s graphite processing plants. However, many of the mines in Shandong are typically deep and, consequently, water inflows are a problem. Furthermore, the average grade is low at between two per cent and three per cent total graphitic carbon (TGC). The graphite is associated with clays and processing is costly and environmentally damaging because mines use acids in the process. In the past, acid-rich tailings were deposited direct into local river systems.
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Since then there have been reports that graphite mines in Heilongjiang province are also facing environmental problems and there are fears they could face the same fate as those in Pingdu. But, in the case of Heilongjiang, there is also serious air pollution. And that area produces 43% of the world’s flake graphite. We don’t know what companies are involved but there are some big players. For example, Heilongjiang Austrian Yu Graphite is located just outside Jixi City and, at 80,000 tonnes a year, is China’s second largest graphite producer (flake, powder, spherical and expanded natural graphite). The largest producer is seventy-year-old Jixi Lui Mao Graphite; apart from its own mine, the company has a joint venture with state-owned Sinosteel. Two years ago, its reserves stood at 360 million tonnes (of Jixi’s 750 million tonnes then still to be extracted). This company employs more than 1,700 people and its new owner, China Aviation Industry Corporation, was planning to inject around $1.6 billion into the company to increase R&D on engineered graphite for the aviation, aerospace and automobile sectors. The plan was to make Heilongjiang the graphite capital of the world.
Dr Parker’s second point in his case that the industry is changing came on December 20 2013, when Focus Graphite announced a strategic off-take agreement for up to 40,000 tonnes per year of graphite concentrate and value‐added products with an industrial conglomerate located in Dalian City, Liaoning Province, China. Focus Graphite President and Chief Operating Officer Don Baxter noted at the time: “Not only is this off-take agreement the first of its kind in the graphite industry, it is significant in the fact that it encompasses the wide spectrum of Lac Knife’s offerings in pioneering the sale of small flake to extra large flake and value added technology products,” Focus’s Lac Knife’s graphite resource is located 27km southwest of Fermont, Quebec.
Dr Parker sees the next important development being the announcement earlier this month by Australia’s Lamboo Resources that it had entered into a memorandum of understanding with China Sciences HengDa Graphite Co. Ltd, the only miner and supplier of flake graphite in Central China. The intent of the MOU is to conduct commercial production trials on Lamboo’s Australian flake graphite deposit as a lead-up to establishing an off-take agreement. HengDa is described as one of the biggest enterprise of mining graphite and graphite products downstream processing in the country, with a resource claimed to total 40 million tonnes. As Lamboo described their new potential partner, HengDa is fully integrated with a 300,000 tonnes a year mine at Yinjiaping producing 30,000 tonnes of graphite, which is then manufactured into an array of industrial products at the company’s plant at Yichang on the Yangtze River.
As Dr Parker summarises: “The combined effect of these announcements implies that there is and will continue to be an ongoing change in global graphite markets. Since 2007, graphite exports from China have significantly reduced, maybe by as much as 50%, opening up opportunities for new producers in the western world.”
He adds that, over the past 10 years (and ignoring the highs in 2010-2012) the price of premium flake graphite has continued to rise by about 15% per annum so the latest developments indicate these price rises and opportunities are likely to continue into the future. He applies that comment to Lincoln’s prospects: but they apply generally to the non-China graphite players.
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