Epstein interviews Paul Gorman on Great Lakes Graphite’s industrial minerals advantage
The following interview of Paul Gorman, CEO of Great Lakes Graphite was conducted on July 29-30 by phone and email. Great Lakes Graphite stands out in many respects for a small cap company. As you read this interview, you will learn how Great Lakes differentiates itself from peers. This company really is moving at lightning speed and has a fully-developed game plan for success, including a number of near-term catalysts to watch for.
Paul, in researching Great Lakes Graphite, you get consistently strong reviews for your background. Can you tell readers about your history in the graphite space?
Gorman: Yes Peter, I have spent the last 8 years in the carbon space understanding what makes a successful graphite producer and the steps required to build a company and get it into production. My background in junior mining and finance has helped me build Great Lakes to mitigate risks associated with building a company in an industry that is known to suffer through difficult cycles caused by investment risk and external forces. I was fortunate to participate in several graphite company private placements in 2009 and 2010. That helped me understand more deeply what pieces in a business plan are required to move to the next level. The due diligence conducted by investment firms identifies what it is that they need to see.
Can you mention a few other key players at Great Lakes and how they complement each other’s skill sets?
Gorman: Yes, we are lucky enough to have a number of smart people running Great Lakes Graphite and each individual brings years of experience and very specific graphite expertise to the table. For example, John Carter, our Senior VP, has over 30 years’ experience in the metals and mining industries. John has engineered, designed, and built mineral processing equipment for a number of companies, including Timcal. Historically, they were the largest natural graphite mining company in North America. John has worked with a number of companies in the graphite space and served as Vice President of Engineering and VP Operations for two Canadian graphite juniors. The value of the processing expertise that John brings to Great Lakes Graphite cannot be underestimated. We have many of the capabilities of a producing resources company already in place.
We also have Paul Hynek, our Director of Technical Operations, with over 35 years of metallurgical and graphite research experience. People with Paul’s specific experience are extremely rare. Paul helped establish and run a state-of-the-art materials characterization laboratory at Inco. The lab developed and worked with materials primarily based on nickel and graphite for use in various industries, including metal foams. Paul co-authored three patents and developed image software for the analysis of certain aspects of rechargeable batteries. He really, really understands how these materials perform and their applications.
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Paul’s even researched and written on how to crush and grind ore to extract graphite in a way that maintains a high level of purity where possible, while preserving large flake size. He’s studied techniques for the production of exfoliated graphite, which is required to produce graphene. Given his background, Paul is comfortable discussing a customer’s requirements and specifications for graphite products at any level of granularity.
What have you learned from past experiences that allows you to differentiate GLK from other small cap graphite plays?
Gorman: Lots! We are deliberately positioning ourselves differently, and here’s how:
Great Lakes Graphite is not a junior mining company… we are an Industrial Minerals company focussed on supplying customers in North America with a stable, high quality supply of natural graphite from a reputable Canadian source. How do we differentiate ourselves in the junior graphite space? We have set our focus on small deposits with high grade, low tonnage, high quality material, that:
- Is easily recoverable because it is near or at surface and is metallurgically straightforward
- Has excellent particle distribution
- Is easy to upgrade and purify
- Is widely accepted by North American customers
GLK will operate small, quarry style deposits that are easy to put into production, close to infrastructure, have cap-ex of less than $40 million and will not suffer through environmental or First Nation issues. In this way we can expedite the process of going from resource estimate to Feasibility to production in 27-30 months, while it might take our peers 3-5 years just to move through environmental and baseline permitting.
You mentioned extensive interactions with prospective end-users going back years, is security of supply high on their lists? What else do end-users want that they’re not necessarily getting today?
Customers want a stable North American supply of industrial minerals and Rare Earths. There are a number of critical minerals that make up the chemistries of the new technologies and these customers are seeking out access to these supplies. When dealing with end users in North America, we have been asked about graphite, of course, but these companies are also looking to procure access to cobalt, lithium, indium, and molybdenum.
Are you considering acquisitions in cobalt, lithium and other industrial minerals?
Gorman: Thanks Peter, that brings up a good point. While we named the company Great Lakes Graphite, our expertise is industrial minerals. For us, it’s not a question of whether we are able to take them on, but rather an issue of resources, timing and where the best market opportunity exists. We have the skills in place to work with a cobalt deposit today, for example. In fact, there is a prospective cobalt showing on our Summit-Gaber property in the James Bay area of Quebec that we intend to pursue further. There are lithium opportunities becoming available that also look very interesting.
Can you describe the rationale behind the Rock Tech acquisition? Roughly how much capital was already spent developing the Lochaber project?
Gorman: Absolutely. Let me answer your second question first. Rock Tech spent about $2.2 million on the property, which included doing 7,000 meters of drilling, trenching and other exploration work. Using our share price at the time we made the deal with Rock Tech, we acquired the property for what works out to the equivalent of $1.65MM. In terms of what it does for us, Lochaber enables us to accelerate our business plan by at least two years because we are now able to move directly into a resource estimate. But Lochaber did more than allow us to jump ahead, it is the right property for our plan.
By that, I mean that Lochaber fits our plan in seven important ways:
This region historically produced the highest quality natural crystalline flake in North America. The graphite from this area was renowned for its purity and flake size.
There is an excellent ratio of high value Jumbo and Large flake on the property.
Initial testing indicates excellent metallurgy and amenability to an easy flotation process.
Close to customers and infrastructure – port, water, power and labor.
There are two past producing graphite mines on the main claim group, as well as three historical graphite occurrences.
Over 20,000’ of drilling was done in 2012/13, we have a NI 43-101 resource estimate targeted by 2H14.Lochaber is well suited for a mill modularly scaled to grow, as the Company acquires more customers.
The natural graphite on the property will become preferred by customers as a stable, reliable, domestic source of high quality graphite supply.
Valterra & Great Lakes Formed a Strategic Alliance on the Bobcaygeon Graphite Project? Can you describe the benefits to both companies?
Gorman: Sure. We saw an opportunity to work with some great people to work together to bring the Bobcaygeon graphite project forward. The benefits are simple: Valterra gets the use of our people and expertise in moving the property to the next stage which includes drilling, a resource estimate and a sampling program through our extensive database. GLK gets preferential access to an advanced project that features a graphite deposit with really rich grades and excellent flake size distribution. This will be highly beneficial for us in the future as we move forward with our customer groups in North America, because the material at Bobcaygeon can be upgraded to battery grade purity for EV car makers and battery storage corporations.
You’ve demonstrated that Great Lakes intends to partner with and acquire other assets or businesses, can you comment on what types of businesses would be attractive and how they might benefit your existing holdings?
Gorman: Very good question…..GLK is in the business of supplying customers with high purity graphite that comes from a stable source that can be duplicated on every shipment. Our next venture is to partner or buy an upgrading facility that will be able to upgrade some or all of our concentrate as well as the concentrate from the operations of our partners. We want to do this for two simple reasons: the first reason is that we know how to purify graphite to 99.9999%. And the most important reason is that the highest purity material commands a $10,000 per tonne price in the open market. We don’t know exactly what the mix will be yet, but well over half of the graphite produced should be upgradable to the level required for battery use.
Roughly how far do you believe your graphite can travel and still be competitive on a delivered basis?
Gorman: We have learned quickly that the farther an industrial mineral travels, the bigger the chunk of margin you lose from the bottom line. Our focus, which is embedded in our name, is to supply all the the carbon companies in the Great Lakes region and surrounding areas with our concentrate and our upgraded graphite. Currently, we have a database with more than 200 companies that are less than 400 miles from our deposit and relationships with many of them.
Could you possibly acquire a business that generates revenues and profits before your Lochaber mine goes into production in 2016?
Gorman: Yes. We are currently looking very closely at certain businesses that would make excellent acquisition targets. They dovetail nicely into our production plans at the Lochaber in Quebec for production and of course…for upgrading.
Is there enough graphite demand by the end of the decade for say 5-10 new graphite mines?
No question…graphite is not only considered a critical element by many governments but we can see massive expansion by technology companies just here in North America that will require 100’s of thousands of tonnes of material in all shapes and forms of graphite in the next decade. Just look at Tesla and their demand alone for the graphite and lithium chemistry in their EV cars. They will need the equivalent of five to six new graphite mines just for themselves, to meet their production targets. The potential here is truly staggering.
Can you speak to the end uses (besides lithium-ion batteries) that are most likely to move the needle for global demand?
Gorman: The needle will be moved significantly by solar panel companies, stainless steel companies, electronics companies and my personal favourite…battery storage companies like Compaq Power.
Can you speak to the situation in China where two very significant provinces have, or soon will be, temporarily curtailing production due to highly polluting graphite mining?
Gorman: Sure…China has never had any rules in place to curtail pollution caused by excessive mining using bad practices. They are just now realizing over there that these bad practices lead to terrible conditions. With China producing over 80% of global supply, curtailing production over there will have a very beneficial situation in regions that have good mining practices and quality of supply.
Do you have a view on graphite pricing over the next five years?
Gorman: We have started to see the prices of graphite starting to become more stable as inventories globally become a little more transparent. My belief is that pricing for graphite and all qualities of graphite will see a 3-5% rise year over year for the next five years.
Do you have a rough estimate of what your quality and flake size might look like, or is that information only available after your maiden resource is released?
Gorman: Yes, one of the reasons we bought the Lochaber Graphite property was based on the preliminary metallurgical results we received when reviewing the documentation during the due diligence period of the transaction. One thing that differentiates our project from others is that 48% of our material is jumbo flake and 30% of the graphite is large flake. That means that almost 80% of our flake is expandable, upgradeable and that we can purify this material to get the full benefits of battery grade pricing.
Epstein: What would be a good and profitably-sized graphite operation for you? Is bigger better due to economies of scale?
Gorman: Great Lakes will be a quarry style operation and our mill will be scalable and modular. We like small. We like small because we will have an operation that will have a small CAPEX, a small environmental footprint, a small customer base at the start and the ability to grow as more customers come on line. As we require more supply, we will start to bring supplies from our other JV partners like Valterra on stream to increase supply.
After the latest capital raise, please describe your debt, cash and shares outstanding? And maybe a comment on your effective float as it appears a number of shares are locked up and/or in friendly hands?
Sure…GLK currently has 50,569,820 shares outstanding (73,748,123 fully diluted). We have no debt and close to $1 million in the bank after our last financing. Close to 60% of the issued capital is in friendly hands and our float is currently around 20 million shares.
Several large graphite projects are looking at capital budgets of upwards of $100 million or more (even after spending tens of millions already). How much capital will you need to get into production in 2016?
We have spent considerable time working on flow sheet development and scalability of our mill for Lochaber. Our plan is to put in a 500 tonne a day mill that will be able to produce approximately 11,000 tonnes of concentrate each year based on a grade of 5%. The cost of this plant, including working capital and an upgrade facility of 2,500 tonnes per year, will be less than $40 million CDN. It’s really a no brainer when our investment payback is less than 30 months!
Epstein: Are there ways in which local or regional agencies can provide funding support such as loan guarantees, tax holidays or even grants for specific aspects of your projects? Have you spoken with companies about equipment financing?
Gorman: Actually, the Quebec government has been amazing in helping us locate the different agencies that can assist us as we move towards financing production. But the biggest support has come from the carbon customers themselves who have made it clear that they need direct access to our material. It is my belief that all of our funding will come from our off-take partners. But of course we will never turn away the tax holidays we can get from the province and the municipality.
Do you have any non-core assets that you could monetize, spinoff to shareholders or farm-out for a free carried interest?
Gorman: At this point NO. We love everything we have and we have what we need to create tremendous value.
Every new company these days has to be fairly green, in what ways, if any, might you be more environmentally friendly than some of your peers?
Gorman: We are truly thinking green every day. GLK is presently working with an environmental group on a go-forward procedure plan for all aspects of the operations, from mining, to purifying, reclamation, etc. The goal is to have the best run and managed industrial corporation, with every aspect of the environment considered. Laura Mottola, a Director on our Board, is a globally-recognized expert on Lean Mining and a trusted advisor to some of the world’s largest mining companies. That’s just one example of our commitment in this area.
What are your near-term catalysts over the next 6-12 months?
Now that we are fully financed, the near term catalysts will be resource calculation on Lochaber, a feasibility study completion, a joint venture or partnership on an upgrading facility for battery grade graphite and a continued sampling program of our material and Valterra’s material with our customer base.
What are a few vital things about Great Lakes that you think investors may be missing or that you wish they new more about?
Gorman: At the end of the day, for an industrial minerals company, it’s all about what you can produce and deliver to your customers. This isn’t rocket science, but there is an art to it. In our opinion, it’s not about who has the biggest deposit, it’s about getting into production and delivering product. With the funding in place we really have everything we need. We have a great property with great rocks in a fantastic location, the right people to move it forward and the resources to make it all happen. My advice to investors is to try to keep it simple. That’s what we’re doing.
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