The mooted transition to renewable energy and electric vehicles (EVs), and the “Net Zero” plans of many countries, have driven investor fervour on the stock market for the producers of the materials required. On the Australian Securities Exchange (ASX), this has seen lithium (in particular) and rare earths have their time in the spotlight, but graphite is also a very exciting space.
Graphite is considered a critical mineral these days; one that is fundamental to supporting the next wave of new energy technologies. Traditionally, graphite’s main use has been in refractory (or “heat-resistant”) bricks, which line the inside of blast furnaces to protect them from the heat generated in steelmaking. Graphite electrodes are also used in electric arc furnaces (EAF) and ladle furnaces (LFP) for steel production, ferro-alloy production, silicon metal production, and smelting. But the crystalline carbon material is now a major star of the rapidly growing battery market: the anodes in lithium-ion batteries used in EVs are made of graphite, and at this point, graphite is un-substitutable in the EV battery market.
Graphite is also used in renewable energy technologies, such as solar panels, because it is resistant to extreme heat, which makes it perfect for the crucibles and moulds used to cast the silicon in solar panels, and it also works as a heat shield and thermal insulator. It also plays a crucial role in wind turbines. (Now there’s an irony: a naturally occurring form of carbon is heavily involved in— even essential for — “decarbonisation.”)
Graphite can also be turned into graphene — an atom-thin sheet of carbon, noted for its incredible strength and conductivity, which has a wide (and widening) range of high-tech uses.
Because of these applications, graphite is designated as a strategic critical mineral in USA, European Union, Japan and Australia. Until quite recently the global anode supply chain has relied totally on China; many countries are extremely keen for other supply options. Demand for the material poised to soar: the 2021 forecast by the International Energy Agency (IEA) posited that between eight and 25 times more graphite than was used in 2020 will be required by 2040.
That’s where the ASX’s graphite cohort comes in. It is a highly speculative space, and the graphite market is not very transparent: it largely comprises contracted offtake (sales) agreements between buyers and sellers for products that meet the buyer’s specific requirements.
Here’s a look at the biggest ASX-listed player, and four punts that investors who understand the risks might be prepared to make.
Syrah Resources (SYR, $1.79)
Market capitalisation: $1.2 billion
12-month total return: 76.4%
3-year total return: 55.9% a year
Analysts’ consensus price forecast: $1.578 (Stock Doctor/Thomson Reuters, two analysts), $1.55 (FN Arena, two analysts)
The ASX’s premier graphite exposure is Syrah Resources, which owns the Balama graphite operation in Mozambique, considered by analysts to be the world’s largest and most prospective graphite deposit, with an estimated mine life of about 50 years, and a high grade. There is also a significant resource at Balama of vanadium, another metal that has many applications in batteries and renewable energy.
Balama started operations in late 2017 and produced its first un-purified spherical graphite product in December 2018: the company sold 163,000 tonnes of Balama product to the global market in 2019, despite persistent delays affecting the concentrate processing plant. But in March 2020, the project fell victim to COVID-19: travel restrictions that limited the movements of its workers forced Syrah to suspend production.
The operation restarted in the March 2021 quarter, but has not yet been able to get back to its full production profile of about 350,000 tonnes a year; once it started, it ran straight into the disruption in the global container shipping market. In the most recent quarter, for June 2022, Balama produced and shipped 44,000 tonnes of natural graphite.
The world-class Balama resource underpins Syrah’s vision to become a vertically integrated supplier of active anode material (AAM) supplier for global customers, through the development of a large-scale Vidalia AAM plant in Louisiana, USA, which will use natural graphite from Balama to supply battery-grade spherical graphite AAM to EV manufacturers and battery producers in the US.
Vidalia is schedule to kick-off in the third quarter of 2023, in what Syrah calls the Vidalia Initial Expansion, with an annual production capacity of 11,250 tonnes of AAM a year. The company is working on a definitive feasibility study (DFS) for the expansion of Vidalia’s production capacity to at least 45,000 tonnes of AAM a year: this DFS is expected to be completed in 2022.
In January, Syrah signed an offtake agreement with Tesla, which will take AAM from Vidalia at a fixed price for four years, starting with the first commercial production at the site. The deal is significant for Syrah as it earmarks the majority of the projected output from the expansion of Vidalia operation, and Tesla has the option to buy additional volumes.
In July, Syrah announced that it had entered a non-binding memorandum of understanding (MoU) with Ford Motor Company and Korean battery manufacturer SK On for the offtake of AAM. The three companies have entered the MoU to “evaluate a strategic arrangement,” including the supply of natural graphite to BlueOval — Ford’s joint venture with SK On — through the Vidalia plant. BlueOval aims to supply lithium-ion batteries for Ford’s EVs. In August, Syrah received a loan of US$102 million ($159 million) from the US Department of Energy (DoE) for the initial expansion of Vidalia.
Syrah says the momentum continues in its main EV end-market – global EV sales more than doubled in 2021, to more than 6.2 million units. Syrah has huge potential to export AAM from the US to markets that want an alternative (even complementary) source of supply to China.
It’s an exciting plan – but unfortunately, Syrah Resources blotted its copybook last month when it announced that “illegal industrial action” had shut Balama down. The shares
fell 21% on that news, to $1.52. SYR has recovered to $1.79, but the problem for investors is that analysts still see it as overvalued at these levels.
Also, as an actual producer, Syrah is susceptible to changes in market sentiment as its actual mining and production volumes fluctuate – whereas other graphite producers can have a bit more blue-sky built into their valuations on the back of factors such as the size, grade, longevity and general potential of their deposits.
It’s tough to recommend a buy on SYR right now – it has done so well in recent years that it is a bit of a victim of its own success. Graphite punters probably have to look elsewhere – and here are four stocks that I think look very promising, with the caveat that they are not yet producers.
Sarytogan Graphite (SGA, 35 cents)
Market capitalisation: $68 million
12-month total return: n/a (listed July 2022, at 20 cents a share)
Analysts’ consensus price forecast: $1.578 (Stock Doctor/Thomson Reuters, two analysts), $1.55 (FN Arena, two analysts)
Floated in July 2022, at 20 cents a share, Sarytogan holds what it claims is the highest-grade graphite deposit of its ASX-listed counterparts, behind only Syrah’s Balama. The eponymous Sarytogan project, in the central Asian country of Kazakhstan, has an inferred mineral resource of 209 million tonnes at 28.5% total graphite content (TGC).
In September, Sarytogan reported thick high-grade (as high as 38.3% TGC) graphite intercepts from four drill holes to the north-east of the central graphite zone (CGZ) – in other words, outside its already posted resource – as well as some even more juicy results (up to 53.9% TGC) from within the resource. It will finish this drilling program in November, with the work going into an updated mineral resource estimate, scheduled for the first quarter of 2023.
This will lead into further work over the entire deposit area to identify the best locations for future mining studies. The company raised $8.6 million through its IPO, which it expects will support two years of exploration, which one would have to expect would both extend the resource and contribute to upgrading areas of mineralisation from inferred to indicated. It’s fairly clear that Sarytogan has a massive and high-grade deposit, in a country that is located between two of the largest battery markets and graphite consumers in the world, being Europe and China, and in a reasonably favourable mining jurisdiction, Kazakhstan – with the caveat that the near-term political risk situation in central Asia/eastern Europe could change at any time, on the back of the Russia-Ukraine conflict.
Renascor Resources (RNU, 19.5 cents)
Market capitalisation: $423 million
12-month total return: 62.5%
3-year total return: 140.6% a year
Analysts’ consensus price forecast: n/a
Renascor Resources’ share price has been a great performer in recent years, as the market gets its head around the company’s wholly owned Siviour purified spherical graphite (PSG) project in South Australia, which it says will be among the world’s lowest-cost producers of an important value-added graphite product.
At Siviour, located north of Port Lincoln, Renascor has defined what it described – in an August resource upgrade announcement – as the second-largest reported proven graphite reserve in the world, and the largest graphite reserve outside Africa. The total (measured, indicated and inferred) Siviour mineral resource estimate now consists of 93.5 million tonnes at a grade of 7.3% TGC, giving 6.9 million tonnes of contained graphite (with 67% classified as Measured or Indicated). The measured and indicated resource estimate is 62.8 million tonnes grading 7.5% TGC, for 4.7 million tonnes of contained graphite. At present, Renascor says these figures support a 40-year mine life, producing up to 150,000 tonnes a year of graphite concentrates.
Renascor says the Siviour graphite deposit is unique in both its near-surface, flat-lying orientation and its scale as one of the world’s largest graphite reserves; it says the favourable geology and size of the deposit will allow it to produce graphite concentrate at low cost, over the 40-year expected mine-life. These characteristics – the low cost and the longevity of the project – should help the company secure a footing in supplying battery anode raw material to the rapidly growing lithium-ion battery market.
In January 2021, Renascor signed a non-binding memorandum of understanding (MOU) with anode company Jiangxi Zhengtuo New Energy Technology Co. Ltd. (Zeto) for the purchase of up to 10,000 tonnes a year of PSG over a ten-year term. Zeto is a top ten anode producer globally, supplying some of the world’s largest battery makers, such as Hong Kong-listed BYD Co. Ltd, the world’s second largest manufacturer and retailer of EVs.
Renascor plans to integrate the Siviour graphite mine and concentrator with a downstream manufacturing facility to produce purified spherical graphite (PSG) for use in lithium-ion batteries. Last month, the company signed a 40-year option-to-lease agreement with South Australian government for the site of its proposed battery anode material facility. The site, owned by the South Australian government-owned utility SA Water, is located at Bolivar, South Australia, north of Adelaide, about 20 kilometres from Port Adelaide: the 20-hectare site will provide sufficient scale to permit an increase to the originally planned Stage 1 PSG production capacity of 28,000 tonnes a year. Renascor is building an impressive vertically integrated project, in Australia – where political risk is minimal, particularly for a project that will produce a material that is essential to the mooted transformation to clean energy.
So far, Renascor has offtake deals with two Chinese anode companies that cover all of stage one production from Siviour and the PSG plant. But although it is hugely exciting, the project is still in the feasibility study stage.
BlackEarth Minerals (BEM, 10.5 cents)
Market capitalisation: $29 million
12-month total return: –8.7%
3-year total return: 28.1% a year
Analysts’ consensus price forecast: n/a
BlackEarth Minerals owns the Maniry graphite project in Madagascar, where it has a total (indicated and inferred) mineral resource of 40 million tonnes at a grade of 6.5% TGC, giving almost 2.6 million tonnes of graphite. The resource has been upgraded by more than 63% this year, and with a definitive feasibility study (DFS) due to be completed any day, investors are also anticipating a commensurate upgrade in the projected mine-life, which stood at 14 years before the resource upgrade. And BlackEarth is still drilling around Maniry, so that could be extended further.
BlackEarth has also announced a scoping study that will examine the case for becoming a vertically integrated supplier to the lithium battery industry, by building a plant to convert Maniry graphite into battery anode material (BAM). Such a plant, to be sited in Europe, would produce the spheronised and purified graphite that lithium batteries require – and would hit the sweet spot of European demand for BAM that is expected to surge in coming years.
Talga Resources (TLG, $1.185)
Market capitalisation: $361 million
12-month total return: –14.1%
3-year total return: 34.2% a year
Analysts’ consensus price forecast: n/a
Talga owns several of the largest resources of natural graphite in Europe, comprising multiple deposits located in north Sweden. From these deposits, the company plans to become a significant producer of lithium-ion battery anode products and technologies. The company says its main graphite deposit, Nunasvaara, which forms part of Talga’s flagship Vittangi project, is the highest-grade JORC/NI 43-101 resource in the world – that’s the rules and guidelines for Canadian-listed companies for reporting mineral estimates – with 19.5 million tonnes at 24% graphite.
The deposits will back Talga’s plans for a vertically integrated operation, with an electric vehicle anode (EVA) plant being built in Sweden to produce the company’s flagship lithium-ion battery anode material, Talnode-C, for large-scale customer qualification trials. The anode production process will use purified graphite concentrate from Vittangi graphite project: the EVA will be Europe’s first lithium-ion battery anode plant.
Talga has also built a graphite-to-graphene demonstration plant, in Germany, and has produced and distributed samples of a graphene additive for coating applications, which it calls Talphene. But its enhanced graphite anodes for batteries remains Talga’s major focus.
In September, Talga entered into a non-binding offtake deal with French-based battery maker Automotive Cells Company SE (ACC) to supply Talnode-C from Vittangi. Talga will supply ACC with 60,000 tonnes of Talnode-C over a five–year term. The parties have a legally binding obligation to use commercially reasonable efforts to complete due diligence and finalise a binding definitive agreement by 30 November 2022: the definitive agreement is expected to include supply of ramp-up volumes over 2023 to 2025, prior to the 60,000-tonnes offtake supply commencing in 2026
This month, Talga mounted a $22 million institutional share placement at $1.10 a share, to fund progress at Vittangi, expanded operation of the EVA qualification plant, drilling at other deposits and development of next-generation anodes. Because the placement was done at a 17% discount to the Talga share price, the market did not like it. That has opened up potential value in Talga shares.
Elsewhere on the ASX, there are a number of other graphite project developers. Each of these are fascinating stories – I encourage readers to research these projects.
Lithium Energy (LEL, $1.19)
Market Cap: $121 million
12-month return: 119%
Lithium Energy is developing its flagship Solaroz Lithium Brine Project in Argentina and the Burke Graphite Project in Queensland.
Novonix (NVX, $1.795)
Market Cap: $905 million
12-month return: –64.6%
Battery materials and technology company owns the Mt Dromedary high-grade graphite deposit in Northern Queensland.
Triton Minerals (TON, 2.4 cents)
Market Cap: $32 million
12-month return: –30.3%
Triton is advancing its Ancuabe graphite project in Mozambique, near Syrah’s Balama operation. The company has signed a binding offtake agreement with Chinese graphite products manufacturer Yichang Xincheng Graphite.
Walkabout Resources (WKT, 21.5 cents)
12-month return: 8.3%
Walkabout has a mining licence for its Lindi Jumbo graphite project in Tanzania, and is building the mine. Walkabout has had funding issues, but recently raised $33.2 million and, says that Lindi Jumbo is on track for first production in the first half of 2023.
Black Rock Mining (BKT, 18 cents)
Market Cap: $191 million
12-month return: 7.5%
Black Rock Mining owns the Mahenge graphite project in Tanzania. In September, Black Rock struck a deal with US-based graphite processing company Urbix that could potentially accelerate the development of Mahenge. It has a separate offtake agreement with Korean giant POSCO.
Metals Australia (MLS, 4.3 cents)
Market Cap: $30 million
12-month return: 12.5%
Metals Australia’s high-grade Lac Rainy Graphite Project in Quebec, Canada, is perfectly situated to take advantage of the accelerating sales of EVs in the US and the growth of lithium-ion battery manufacturing in North America.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
