Elcora – Fast-tracking Graphite to Production.
Flinders Resources (TSXV: FDR) (with its Woxna mine) and Elcora Resources (TSXV: ERA) (with its Ragadera mine) are the Roadrunners of the graphite industry. Most of the rest though are destined to be like Wile E. Coyote, looking down to find they have nothing underneath them. This is an all too familiar situation for those that have watched the Rare Earth space in recent years.
The difference between the two pacers in the graphite industry and the “rest” is that both Flinders and Elcora took on recently producing graphite mines with in situ facilities. With recently producing facilities also comes a knowledge base in local miners of what the deposits look like underground and data on production that one just does not have with an old mine that may have functioned 80 years ago. Not all past-producers are alike..
In this research note I shall be looking at the progress that Elcora has made, since I last mentioned them, towards getting the mine back into a fully functioning state.
Exotic Isle – Graphite in Sri Lanka
Sri Lankan graphite deposits are some of the richest on the planet. Under British colonial rule in the early 1900s, the nation was a significant graphite producer and exporter. Independence came in the 1950s and then there was a distinct socialistic trend in governments in the following decades culminating in the nationalization of the graphite sector in 1971. The private sector was allowed back into Sri Lanka’s graphite industry in the early 1990s, but by that time, problems with the civil war were preventing development on a large scale. Additionally many of the State owned mines had been over-exploited, allowed to deteriorate and had not been subject to meaningful exploration to find new reserves. The opening of the mining sector in recent years presents an opportunity for foreign companies to pursue Sri Lankan graphite on a significant scale.
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Sri Lanka is known to be underlain up to 90% by Proterozoic high grade metamorphic rocks with Proterozoic sediments, particularly along the coastal regions. According to the US Geological Survey Sri Lanka currently produces about 4,000 metric tons od graphite per annum. However, Sri Lanka’s graphite is a rather unique product. The country produces lump and chippy dust graphite and is the world’s only source of these particular materials. Lump and chippy dust graphite are the highest-value graphite products found globally. These unique and comparatively higher margin vein (lump) deposits currently make-up less than 1% of the world graphite production. In 2012, prices for Sri Lankan lump and chip graphite averaged $1,990 per metric tonne, significantly higher than prices reported for other products, such as flake or amorphous graphite.
Production in recent years has been sourced from two graphite mines:
Kahatagaha Graphite Lanka Ltd., owned by the Government of Sri Lanka
- Producing 80 tonnes monthly, and is planning to increase production to 125 tonnes monthly in 2013
- Currently mining at a depth of 350m (1,100 feet)
- Minimum 90% purity with majority by weight being lump type at 95% carbon, +10mm
Kahatagaha Kolongaha is one of the high-value mines accounting for Sri Lanka’s current output of lump and chip graphite. The mine has been in production since 1872 and reportedly produces a product with total graphitic carbon content greater than 90%.
Bogala Graphite Ltd., a 90%-owned subsidiary of Germany’s Graphit Kropfmühl AG (a part of the AMG advanced materials grouping)
- Producing 250 tonnes monthly from one single vein mine
- Being mined from both ends at 2,299 feet from underground
- Was producing 6,000 tonnes of value-added graphite annually prior to the global recession and restarted operation at its Ragedara vein mine in July 2012
The German company entered the Sri Lankan sector in 2000, buying control of the Bogala graphite mine, a historic operation dating back to 1847.
Arriving on the Scene
Elcora Resources has a lot to thank Zenyatta Resources for… all graphite was largely the same until Zenyatta came along marketing the idea that it had a better grade of graphite and that the only other places this could be had (historically) was in the North of England (at a mine famous for its pencil “lead”) and in Sri Lanka.
Elcora made it move into the graphite space when it acquired a position in Sakura Graphite (Pvt) Ltd that controls 99 acres in Sri Lanka, which includes the past-producing Ragedara graphite mine.
The map shows the relationship of the claims of Elcora, the Australian listed graphite explorer Bora Bora (ASX:BBR) and the state-owned Kahatagaha Kolongaha graphite mine.
In February 2014, Elcora announced that it had signed a binding letter of intent to acquire 40% of the outstanding shares of Sakura Graphite (Pvt) Ltd. Then on June 30, 2014, Elcora completed the purchase of 40% of the issued and outstanding shares of Sakura
The industrial mining license, exploration licenses and environmental license for the mine are currently being held by J.D.K. Wickramaratne for the sole benefit of Sakura and will be transferred to Sakura upon renewal. In addition, Elcora will earn 20% of the net income from the mine as the mine operator, and an additional 30% of the net income from the mine for managing the processing of the graphite, for the life of the mine. Elcora is providing the remaining capital expenditure required to put the mine back into commercial production.
Elcora issued a total 6,827,442 common shares of Elcora at a price of $0.19 per share to shareholders of Sakura inconsideration, plus 6,827,442 warrants. Each Warrant entitles the holder to purchase one common share of Elcora at a price of $0.19 for a period of five years. Sakura is entitled to appoint one director to Elcora’s board, but has not done so as yet.
The Ragedara property has an unrestricted exploration license covering four square kilometres and a mining license for unlimited monthly production. Historically, the Ragedara mine operated (under state-ownership) between 1974 and 1985 and produced as much as 18,000 tons per year of high purity graphite. The Ragedara graphite is of natural crystalline vein type.
Sakura developed the mining project over the last three years with much of the mining equipment having been upgraded over the two years before Elcora acquired its stake.
In the first few months of this year Elcora completed an underground survey of the existing workings of its Ragedara mine site, It has also planned a Phase 1 underground drill program. Expansion of the underground workings has commenced. The underground survey was conducted starting at the surface level 0 and on the 52, 125 and 164 foot levels. The map below shows the site.
The zero level (green) adit runs approximately parallel to the veins and joins the main drift 173′ from the entrance. Just past this junction is the main shaft. Running from the drift are a number of veins mined out at this level. The same veins are found at the 53 and 125 foot levels displaced to the south as they are dipping at about 80 degrees. Limited older workings are found at the 164′ level as CO2 levels are considerably elevated at this depth which limited traditional mining as it was done, rather frighteningly, without ventilation using coconut oil lamps.
It is anticipated that underground geology and ventilation studies will be completed shortly. The Phase 1 drilling program is scheduled to be conducted in parallel resulting in a detailed model of the veins in the vicinity of, and under, the old workings.
Current site activity is focused on supporting the underground exploration and construction work including construction of emergency exits from the underground workings, and the mitigation of safety hazards such as low hanging ceilings and inadequate ventilation in some areas, and establishing proper safe locations within the workings.
The Ragedera Graphite Processing Mill
In a recent release, Elcora’s management reported that construction was advancing well on its Ragedara graphite processing facility. The construction project is running “on time and within budget”. These are not words one has heard much used in recent years.
Construction progress as of last month was:
- The foundation and walls of the building are in place, structural completion of the building is on schedule and targeted for the middle of May with plumbing and wiring completed by June first,
- The long order equipment is being modified to hydraulic drives which will allow Elcora greater operational flexibility including variable speed and torque on the equipment,
- Fabrication of custom designed graphite flotation vessels is well-advanced,
- Process engineers have been hired and training is underway.
Current construction timelines aim to complete construction of the mill building and complete the necessary equipment modifications by the end of the second quarter of 2015. Equipment installation, commissioning, and completion of training of processing engineers and operators are scheduled for the end of Q3 2015. Subject to satisfactory completion of these scheduled construction and start-up elements, mill operations and initial sales of processed graphite are expected to occur in the fourth quarter of 2015.
Elcora are anything but extravagant and the progress being made is being done under very tight budget considerations. Recently it was announced that the company had entered into two-year syndicated limited recourse convertible loan agreements totaling CAD$1,388,040 with eight lenders including one insider. The principal of the Loan is convertible into common shares of Elcora at $0.14 cents per share. If the Loan was converted in full a total of 9,914,571 Elcora shares would be issued.
The only thing Elcora has not delivered on its recent times is frankly something I have mixed feelings on. It had announced shareholder approval at the start of the year to change the company’s name to the Graphene Corporation. Admittedly the name is uber-sexy but we can’t help but wonder whether the company has pulled its punches on implementing the change as it might jinx the move to becoming a producer. After all how many companies with “Rare Earths” in their name vended anything more than snake oil. Staying Elcora and getting into production and THEN changing the name would be truly “mission accomplished”.
The swift pace of implementation means that Elcora will join the select group of graphite producers at the start of next year. It is so select that the totality of producers would fit in a phone booth with room to spare (if one could find a phone booth these days…).
As the market becomes clearer on the progress that Elcora is making towards production we would not be surprised to see money being flung at the company by investors wanting to get aboard a real “live and kicking” production story.
As we have said in the past on various specialty metals, the race will go to the swift and Elcora is one of the few that is pulling ahead of the pack in the graphite space.
Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>