EDITOR: | April 2nd, 2013

The Pulse: One theory on graphite prices; New phosphate technology deal

| April 02, 2013 | No Comments
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Pulse_Proof-04-300x229One company causing the graphite price to remain subdued? And not by any overt means, but due to the implications of the size and quality of its discovery?

Well, that’s the thought flagged by London metals analyst, Roger Bade of Whitman Howard. He notes that, despite some recovery in the steel markets, graphite prices remain subdued, “possibly contemplating the implications of (the) Syrah Resources (ASX:SYR) Balama graphite discovery in Mozambique”. He notes the company’s most recent statement on the potential showing 55.27 million tonnes of apparently high quality graphite, enough to supply the current world market for 100 years; in the company’s words, the Balama deposit has the potential to produce enough graphite to meet any projected shortage in global flake graphite. Bade says preliminary metallurgical tests have shown good results, with 94% graphite recoveries with 5% coming as jumbo flake, 42% as large flake and 45% as medium flake.

In its most recent statement on resource, Syrah said it “believes that Balama could demand requirements across all natural graphite flake ranges (jumbo to amorphous) for several generations”.

By way of background, Syrah describes the Balama West deposit as comprising two very high grade zones surrounded by an extensive zone of medium grade graphite. “Balama is the largest known graphite deposit in the world and will grow significantly once a resource is calculated for Balama East (exploration target of 300 million-400 millions tonnes at 11% TGC). Mineralisation remains open in all directions,” the company stated. Then it added this: “The contained graphite of the Balama deposit is expected to exceed the rest of the world’s reserves of graphite as recorded by the U.S.G.S. (77 million tonnes as at 2012)”.

(We should not forget that Balama also contains a global-ranked resource of vanadium — in fact, three times larger than the world’s largest operating deposit, Xstrata’s Rhovan mine in South Africa.)

But here’s another thing to keep in mind. Think rare earths, antimony, niobium and other critical elements: the world’s graphite users are not going to allow one company and one country to dominate the graphite market. The lesson of depending on one dominant source has been well and truly learned. Also, customers will calculate the political risk element of Mozambique itself.

That said, if Syrah’s claims are justified then it means that Balama is heading to being a world-class graphite deposit. And Bade might be right: investors may be keeping their powder dry until they see which companies are likely to survive while potential customers will watch to see which suppliers are likely to emerge.

There may be another factor in all this, too, that has absolutely nothing to do with Balama — the general malaise in the metals markets. London Metal Exchange trading on Tuesday saw all the base metals take another pounding (lead down 2.9% in that one session) and we also see LME warehouses starting to groan under the weight of stockpiled metals, in copper’s case 571,000 tonnes (and then you have to add the stockpiles monitored by the Shanghai Futures Exchange and unofficial Chinese inventories as well). Even with Chinese production restraint and export curbs, rare earths are still languishing.

So why would graphite be an exception in this market mood? Bade may be right that Syrah’s deposit could be weighing on sentiment, but so is the rest of the global financial system. Nevertheless, Balama will be one to watch.

PHOSPHATE: And talking of subdued markets, just look at the Australian phosphate sector. Share prices have slumped in most cases and several projects remain stalled.

However, two developments have added a little joy to the story.

Rum Jungle Resources (ASX:RUM) has made a takeover bid for Central Australian Phosphate (ASX:CEN). The two companies have adjacent projects in the Northern Territory and RUM’s plan is to amalgamate the two operations, prove up a 1 billion tonne resource and attract some big finance. The deposits lie just 80km from the transcontinental railway that runs north to the port of Darwin and the shipping lanes across the Timor Sea to Asian markets. Rum Jungle is mulling the alternatives of a branch rail line, a road or a slurry pipeline to get the phosphate to the main rail route.

Meanwhile, it was the distance from that railway line — 300km in its case — that made it impossible for Minemakers (ASX:MAK) to develop phosphate rock production at its huge Wonarah resource, also in the Northern Territory.

Instead, it has been looking at concentrating a product worth five times more: superphosphoric acid (SPA). On that front, progress is being made. A branch of the Rotterdam, Holland, based Solvochem will invest A$2.52 million in Minemakers. That arm, Vulcan Phosphates, is a substantial investor in Florida-based JDCPhosphate Inc, which Minemakers says is a private developer of a thermal technology that improves the production of SPA. A 12,000 tonnes a year demonstration plant is due to open in the first half of this year.

Minemakers is also an investor in JDC and holds the exclusive Australian rights for the process

One of the key players in Solvochem is Farouk Chaouni who has been involved in the acquisition of the fertilizer assets of W.R. Grace and the recommissioning of a fertilizer plant in Mississippi. He was formerly employed by the Moroccan state-owned phosphate company, Office Cherifien des Phosphates.


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