EDITOR: | December 3rd, 2012

The Pulse: Sri Lanka’s graphite push, Gold as money update, EU’s green energy winner

| December 03, 2012 | No Comments
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Sri Lanka seems to be making a come back in the world of graphite. Mines are starting up, exploration is gathering pace.

The latest news includes a $78 million investment to start new mines, increasing profitability for a German-owned miner, and a new Australian player is arriving to explore.

The island – formerly called Ceylon – has a long association with graphite.

Decoration of clay pots with graphite has been dated back to 1675 and the island reached peak production of graphite in 1899 (although the record for tonnage exported had to wait until 1918 – and still stands).

Here’s the Christian Science Monitor in July 1914: “The island of Ceylon, off the coast of India, is the world’s greatest graphite-producing centre and the United States absorbs about one-half of its product”. In those days, the other main sources for the U.S. were Korea, Madagascar and Mexico.

Ceylon’s graphite was – along with its tea and rubber – vital in World War II. Once Japan entered the war, the only source other than Ceylon was Madagascar – and that was cut off until British and South African forces invaded the island to overthrow the pro-Vichy government there. Graphite was vital for armaments, crucibles, lubricants and dry batteries.

Before the war, the island produced about 16,000 tons a year, although one commentator bemoaned the fact that this could be doubled if only machinery was to replace hand-working by local miners. After the war, and after Ceylon gained independence from Britain in 1948, the Soviet bloc became very interested in Ceylon’s graphite. Bulgaria was only one of the communist states that did trade deals to import graphite (along with tea and rubber).

Fast forward to the present day.

The attraction is the quality of the material. According to the Sri Lankans, their crystalline vein graphite has high quality with purity levels ranging from 80% – 99% of carbon.

Sri Lanka’s Board of Investment (BOI) has signed an agreement with local company Plumbago Lanka for a venture that will invest $78 million over the next four years to mine and export value-added graphite. Plumbago Lanka, part of the local conglomerate Esna Group (which has telecom and energy interests along with close relations with the government) will be getting strong government support in this move, BOI has said. In October, the BOI signed a $15.2 million agreement with Sarcon Development to export value added graphite.

Germany’s Graphitwerk Kropfmuhl controls the long-established miner Bogala Graphite. Bogala has just reported that profits rose 11 percent to 16.8 million rupees (US$130,000) in the September 2012 quarter.

Now Australia’s Bora Bora Resources (ASX:BBR) is acquiring 75% of a group of tenements surrounding what it calls “one of the world’s oldest producing and highest grade” vein graphite mines near Kandy, Sri Lanka. It has done the deal with the aforementioned Plumbago Lanka which holds the ground surrounding the Kahatagaha Kolongaha mine which has been in production since 1872 and from which has so far been extracted more than 300,000 tons of graphite at 90% or greater carbon.

Gold: Back on October 11, I posted an item talking about the change in Basel international banking rules which would see gold on equal footing with cash as a Tier 1 asset. London-based Capital Economics have issued an update citing the widespread confusion and uncertainty over the new Basel III regulations. Analysts Julian Jessop, Capital’s head of commodities research, and commodities economist Thomas Pugh believe European regulators appear increasingly likely to accept gold as a high-quality liquid asset. While they don’t think Basel III will be quite the game-changer for gold that some have suggested, they nevertheless believe the development should still be a net positive. “At the very least, official recognition of gold as a relatively liquid asset for regulatory purposes would provide another important psychological lift to the market and for its use as collateral generally,” they conclude.

Green Energy: In the 27 countries of the European Union, on average almost half the renewable energy comes from wood and wood waste; in Estonia, Lithuania, Poland and Finland the ratio is above 80% (Estonia was on top with 96%). Statistics from the European Commission show 429 million cubic metres of roundwood were produced in the EU under sustainable management policies during 2011. Indeed, the expansion of growing this wood now surpasses the use as fuel, which indicates the EU could expand further the use of wood and wood waste in renewable energy. While the average was 49%, there are still some laggards in the move to use wood for renewable energy. At the back of the queue is Cyprus (13%), with next lowest being Ireland (31%). Outside the EU, Norway registers at only 11% and Switzerland at 19%.

Disclaimer: The above is an opinion written by Robin Bromby, and he is not a licensed investment advisor.

 


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