EDITOR: | June 16th, 2014 | 6 Comments

A New ERA

| June 16, 2014 | 6 Comments
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Jack-Lifton-TMSELCORA (TSXV: ERA)  is a modern, by which I mean an intentionally and very well designed vertically integrated (anchored on a mine) natural graphite company. ELCORA will mine, refine, and manufacture industrial graphite specialties. It deserves your close attention as a paradigm, a model, of the only way that a technology metals producer can achieve financial success. This puts ELCORA into sharp contrast with most of the graphite juniors. ELCORA’s business model is also a good illustration of what the rare earth junior sector should have done in the last 10 years, and I predict that, from now on, no successful (i.e., profitable) production will come from any technology metals venture based solely on mining.

The rare earth situation of most of the past decade was based on the potential for “financial” success being measured solely by the size and grade of a “good” deposit.  This was based on a false analogy with gold mining, and it fooled even many seasoned investors, many, if not most of whom, actually used the gold mining model as their metric. I remember how surprised I was when on a due diligence visit to a rare earth deposit site in South Africa in 2009 the trained-first-as-a-geologist, London based, BIG Canadian bank representative said to me “Can you explain this situation to me in terms of gold mining, which I think I understand?” My answer was “Yes, I can. This is not gold mining!”

Let me first take this opportunity to expand my definition of technology “metals” to include “technology materials” such as graphite. Graphite is a solid form of carbon, found “native” as well as being able to be manufactured synthetically, that forms as parallel sheets of planar (flat) hexagonal molecules, which, although tightly bound together (the “two dimensional” sheets individually that is)  by strong covalent forces, are not anywhere near as tightly bound to other parallel sheets of graphite molecules. Thus graphite is very slippery, and, since it is not very reactive at the range of temperatures and pressures in which we live and in which most of our moving machinery operates, it becomes an excellent lubricant. The popular product, WD-40, is nothing more than a suspension of graphite in a solvent that easily evaporates leaving a lubricating film of graphite behind. Even more importantly graphite in solid form is an ideal electrode for high temperature or in highly corrosive electrolytic operations. Thus graphite electrodes (anodes) when submerged in the molten natural mineral cryolite in which bauxite has been dissolved cause aluminum to form on the graphite coated (cathode) surfaces of the cell containing the molten cryolite/bauxite and then flow, molten, to the bottom of the cell where it can be recovered by tapping the bottom. The world production of aluminum is nearly 50,000,000 tons a year, and this takes a lot of graphite.

In the USA’s mature industry most steel is made not in blast furnaces fed with iron ore, coke, and limestone but in electric arc furnaces, using ferrous scrap as a principal feed. The electrodes in such furnaces are graphite, because graphite is both stable at very high temperatures, and also because, although carbon is not a metal, it conducts electricity better than any metal at the temperature of molten iron. The global production of steel is 1.5 BILLION tons per year, and the percentage of that produced in electric arc furnaces is already 28% worldwide (perhaps 80% or more in the USA).  Those of you reading this who know something about steel will understand that steel itself is an alloy first of all of iron and carbon. In electric arc furnaces the graphite electrodes are not part of the chemical reaction, as they are in aluminum production, they are used to create and maintain the enormous flow of electricity needed to keep a thousand tons of steel molten for mixing and alloying. Graphite compositions are used to line the furnaces. There is no possible practical replacement for graphite in these uses.

The global production of naturally occurring graphite is today about 1,000,000 tons, and for graphite mining grade is really an important metric of value. The highest grades of natural graphite in the world are found in Sri Lanka, which is and has been a producer of graphite for some time.

ELCORA’s business model is well described on its web site, and I urge you to read it, but suffice to say that ELCORA has taken ownership or control of several existing Sri Lankan high grade deposits that were worked in the recent past. This work was suspended when the easily accessible high grade materials were taken, but ELCORA has found that with modern graphite mining and concentrating techniques an even larger amount of high grade graphite than was recovered in the past can now be produced from the same deposits.

ELCORA has also decided to build a graphite processing (upgrading) operation that will be open not only to its own in-house produced material but also to off-takes from other Sri Lankan deposits and for tolling. In addition to the upgrading facility ELCORA says it will look at downstream value added product manufacturing.

ELCORA is a Integrated Graphite “Company”, not just a mine. The developers of this company are in a real sense the antithesis of junior miners. They did not find a deposit and try to develop just it as is the case with all of the junior miners up until now; they selected a known deposit group and studied it along with graphite chemistry and technology to see how far downstream, in terms of product,  they would need to go to have a profitable venture not dependent on any one deposit. The result was ELCORA.

The backers of ELCORA are businessmen who are working in the natural resources arena. This is exactly the type of group that must be involved in order that any natural resource project be brought to completion.

Watch ELCORA and anything else in the future that its financial backers bring to the market.


Jack Lifton

Editor:

Jack Lifton is the Sr. Editor for InvestorIntel Corp. and is the CEO for Jack Lifton, LLC. He is also a consultant, author, and lecturer ... <Read more about Jack Lifton>


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Comments

  • Tim Ainsworth

    “The backers of ELCORA are businessmen who are working in the natural resources arena. This is exactly the type of group that must be involved in order that any natural resource project be brought to completion.”

    Not “bean counters” obviously Jack.

    And they are certainly not the only ones establishing a manufacturing operation based on a proven graphite resource.

    June 17, 2014 - 6:02 AM

    • Jack Lifton

      I am fascinated by the reaction to the term, “bean counter.” I mean by this term people who “count” the money after the fact. It is easy, after the fact, to make the judgement that someone did something wrong. All you have to do is calculate if the venture made a profit.
      If the new CEO at Lynas is a marketing specialist, and if this is what Lynas needs, then she may prove me wrong. I think that the technology metals space has confused institutional investors who do not seem to understand that the first thing that MUST be done before developing a mine is to see if there will be a market for its immediate products at that time WHEN it could actually come into production. The second thing, assuming the first is positively resolved, is to determine if the product must be moved downstream of the mine, but in-house, to make the venture profitable. This is the most important aspect of technology metals new production marketing.
      The mistake made almost universally by the rare earth, lithium, and graphite juniors is to put the cart before the horse. They talk of grade and reserves rather than “good market.”

      June 17, 2014 - 9:21 AM

      • Tracy Weslosky

        I just finished redirecting the audience on our week-in-review Jack to ‘hear’ the nice and professionally astute comments that you made that were endorsements of Amanda. The term ‘bean counter’ translation depends on the generation of the commentator. The Baby Boomers are cool with it, but the GenX and GenY’s perceive this negatively. Perhaps you will fare better with “The Next ERA”…GenZ…

        June 17, 2014 - 2:02 PM

  • Graphite

    All I can say is talk is cheap and actions speak more then words. I have heard this before that this Jr Graphite mining company is different. Every new Jr Graphite mining company reports they will “look at downstream value added product manufacturing” Not one Jr graphite mining company has made this happen.
    The simple question is can this Jr graphite mining company mine and produce natural graphite the market demands and make a fair profit?

    June 17, 2014 - 9:00 AM

    • Alex

      Jack sad the same about gwg in its early stage,he does not talk about them much anymore,moved to pushing uncut and others,when jack first talked about graphite,that was the time to get in,make your bet on the supplier tesla picks

      June 17, 2014 - 2:26 PM

  • Springtrader

    Hi Jack. Would you mind expounding a bit on the types of downstream value adding you would expect rare earth miners to offer in order to improve their chances of profit? Is separation into individual ree oxides enough; or would you expect more? Thanks for your contributions to my ree education.

    June 18, 2014 - 9:11 AM

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