Analyst on how Elcora has positioned themselves as a leader in the graphite space
The first flush of the graphite boom of 2013 consisted of a variety of companies promising to “build it big”. Needless to say that boom retreated faster than most others and thus far none of the “big” players have arrived at production. Then there is Elcora. Instead of going for big it right-sized its production and ended up as the first of the new crop to actually produce. Its current products are natural graphite, graphene, and anode (spheronized) graphite. All of these with a focus on “green” production methods.
In recent times we have been highlighting what we call the microproducers. Companies in this group do not have small ambitions for the long run, but they definitely believe in cutting their coat to suit their cloth during times of tough financing in the interest of being among the first to production. We believe that microproduction is a new paradigm with relevance to the recovery in the specialty metals and base metals spaces as well.
Elcora Advanced Materials Corp. (TSXV: ERA | OTCQB: ECORF) meets these criteria both in its actual mining operations and its planned value-added push into graphene and engineered graphite anode production. At Hallgarten & Company we have just published a research report on Elcora’s recent developments and take this opportunity to summarise the research note here.
In the three years prior to 2014 Sakura developed the project with clean-up and dewatering of the mine, with much of the mining equipment having been upgraded over the two years before Elcora acquired its stake.
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.
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Since Elcora became involved with the Ragedara mine the focus has been 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.
In November 2015 the completion of the construction of its Ragedara Graphite Processing Plant was announced and that it had started processing the stockpiled graphite at site, of which there was some 250-300 tonnes, with an average grade of 80-95%.
The map below shows the site.
During 2016 Elcora appointed Klaus Leiders as the General Manager for the Ragedara mine. He is a German national and a mining engineer and brings extensive experience to the Sakura Joint Venture. He oversees all facets of the operation, including the processing plant and the mine. Another key role will be to interface with customers like ThyssenKrupp.
In early October 2016 Elcora announced the first shipment of processed graphite extracted from its Ragedara mine. The shipment was distributed by ThyssenKrupp Metallurgical Products.
The mine is currently operating on one shift per day producing one to two tonnes of high quality graphite per shift aggregating approximately 20 tonnes per month at average at a cost of $136 per tonne of graphite.
The Ragedera Graphite Processing Mill
This was a key part of the upgrade of the mine as there had hitherto been no modern processing facilities for the mine’s output. Elcora has custom designed its processing technology targeting the high-grade graphite at Ragedara. This technology minimizes the use of chemicals and result in no environmentally damaging products, by products or waste, which makes the plant very environmentally friendly and safe.
The project involved the construction of a new housing for the plant. Long-order equipment was being modified to hydraulic drives allowing Elcora greater operational flexibility, including variable speed and torque on the equipment. Another task was the fabrication of custom designed graphite flotation vessels. On top of this the company needed to hire and train process engineers.
The now complete facility performs four refining activities: grinding, flotation, dewatering, and product load-out. The fully refined graphite has a purity of over 99% and size range between 5 microns to 1 millimeter.
A team of seven fulltime employees are currently working at the mill. The mill can operate both in batch mode or process a continuous flow of material in a closed-circuit mode. The current processing capacity is 2,500 tonnes per year; with final product purity reaching over 99%. This capacity can be increased to 10,000 tonnes without significant further investment once the mining production increases.
The team defined the targeted graphite particle size distributions and finalized the designs for various stages of the process circuit accordingly. As part of the plan, Elcora is capable of producing a particle size distribution suitable for lithium ion battery applications.
Below can be seen the mine entrance at the Ragedara site.
The Sakura JV expects to ship 5,000 tonnes of graphite this year at prices which will range from $1,500 to $2,500 per tonne.
The second module with a capacity of 2,500 tonnes per year will cost less than $1mn to build and Elcora has sufficient cash on hand to fund the development of this plant.
Graphene, which Elcora is planning to put into production through its wholly-owned Graphene Corp. subsidiary, is one of those products. Thus far it has delivered graphene in sample quantities to global national, industrial and defense, research laboratories and battery components’ manufacturers.
Elcora’s move into the anode paste market is part of its long-term strategic plan to be a vertically-integrated graphite and graphene company that mines its own graphite, conducts research and development, processes the raw material, and sells both it and products made from it.
Anode paste is made with carbon and is used in the manufacture of rechargeable lithium ion batteries and the world market for the material is currently about 250,000 tonnes per year. The market today is dominated by Chinese producers using acid treated graphite with fluctuating quality.
Anode graphite test samples sent out by request to a dozen Lithium Ion battery manufacturers, globally, and a full-scale anode graphite production facility is under construction in North America.
Halifax Graphite Anode Facility
The company has now progressed to financing an anode paste facility and the expansion of its Anode test program to encompass graphite sources other than those owned and operated by the company. These include, particularly, high-grade natural graphite sourced from the East Africa and the US. The move to other graphite sources is to ensure sufficient supply flexibility for anode production, and to minimize supply risk. Elcora’s separation process is specifically designed to be flexible and coupled with flexible supply will in turn ensure an uninterrupted supply to Elcora’s clients.
The intention of Elcora is to establish a $5mn plant that will produce 2,000 tonnes of anode paste per annum, hopefully moving up to a 20,000 tonne per annum facility. The funding for this was secured through a combination of equity finance, Federal government loans and grants. The first phase is expected to start producing by the end of this year and to employ roughly 25 people, mostly engineers and lab technicians.
Anode paste typically sells for US$10,000 to US$20,000 per tonne and Elcora’s product is expected to come onto the market at somewhere between $12,500 to $15,000 per tonne. This might imply revenues of $25-30mn per annum.
In our worldview view – production trumps all, and Elcora has both its more traditional graphite mining business and now its graphite anode business to exploit both the upstream and the midstream of the graphite business. The swift pace of implementation at Ragedara has meant that Elcora joined the very exclusive group of graphite producers during 2016. In doing so it has pulled well ahead of the other claimants to leadership in the graphite space.
While graphite shows little potential for the same type of price squeeze that has propelled other battery metals higher, there is a distinct feeling that major Western end-users want to see a non-Chinese graphite supply (and elaboration) industry evolve so they will not be vulnerable to Chinese policy gyrations or attempts at market manipulation. Elcora with its goal of producing graphite anode material in Nova Scotia is aiming to snatch for itself a niche in the Lithium Ion battery value chain in North America.
Beyond the initial mine, the fact that the company wants to also move in on the midstream of the Lithium-ion battery surge with an anode plant shows that it has grasped the reality that the margins are in the value-added. We have given Elcora a Long position rating with a 12-month target price of CAD$0.64.
To access the report, click here.