Flake Graphite: Supply, Demand, Prices - GMP Securities

Simon Moores, [email protected] (Twitter: @sdmoores)/ Andy Miller [email protected] (Twitter: amiller_indmin)

Flake Graphite Basics – Supply, Demand Prices GMP Securities Workshop, London, 10 June 2014

Natural Graphite Snapshot – Supply

• Global Production 2011: 1.01m • Global Production 2012: 850,00 tonnes • Global Production 2013: 700,000 tonnes

• Flake Graphite Production 2013: 375,000 tonnes

Supply

53%46%

1%

% Global Output

Flake Amorphous Vein

#1 Producer: • Heilongjiang Aoyu Energy, China• 70‐80,000 tpa capacity

#1 Producer (non‐Chinese): • Nacional de Grafite, Brazil• 72,000 tpa capacity

Note: There are no pure play graphite companies that are public


• Purest form in nature • Large single crystals• Purity: 95 – 98% C• Occurs in large lumps• <1% of world output

• Sri Lanka – world’s only mine

Natural Graphite Snapshot – Supply

Vein Graphite


Natural Graphite Snapshot – SupplyFlake Graphite

• High quality, quite common• Occurs as small flakes, specs• Purity: 85‐95% C•49% of world graphite output

Top flake producers 1. China 2. Brazil3. India4. Canada5. Norway6. Madasgacar7. Zimbabwe8. Ukraine9. Czech Republic10. Russia


Natural Graphite Snapshot – SupplyAmorphous Graphite • Low quality• Associated with coal mines (meta‐coal)• Purity: 70‐85% C• Biggest producers: China, Mexico• Around half of world graphite output

Amorphous producers 1. China2. Mexico 3. Austria 4. Turkey


Natural Graphite Snapshot – Demand

Demand for flake graphite

52%

23%

22%

3%

Flake graphite demand in 2013 (tonnes)

Refractories, Foundries, Crucibles Batteries Industrials Other

2 Markets that dominate discussion: • Refractories (volume market) vs Batteries (growth market)


Natural Graphite Snapshot – Prices

$2,200‐2,500

$1,300‐1,500

$900‐1,200

Natural Graphite Snapshot – Prices

• Prices are set in private contracts between buyer and seller• Traded in tonnes as a concentrated powder • Shipped in bags in containers, CIF & FOB • Price volatility for the last 5 years since 2009 global recession


Flake Graphite – Supply

0%

10%

20%

30%

40%

50%

60%

China Brazil India Canada Other

% of Global Production (375,000 tpa in 2013)

Production

Other: Norway, Madagascar, Russia, Ukraine, Zimbabwe


Flake Graphite – New Supply

• Exploration boom in 2010 • Led by Canada (TSX‐V listed) • A later surge by Australia companies (ASX listed)

• Hotspots of activity • Canada – Quebec • Canada – Ontario • Madagascar • Mozambique • Australia


2010: 7 Exploration Projects / Companies (Canada only)


2012: 80 Exploration Projects (Canada only)


Flake Graphite – New Supply Key factors in evaluating a flake graphite project:

1. Grade • Not necessarily King, but key to economics• Anything above 6% is better than most mines today • Anything above 10% is better than majority of mines in

China

2. Flake Distribution / Footprint • Higher proportions of medium and large flake = critical • Fines (<150 mesh) notoriously difficult to sell

3. Volume • A small market• Average mine size today is 20‐30,000 tpa• Not always about volume, large volume mines will need

big buyers

4. Offtakes / Partnerships / Industry Contacts • Close contact with key buyers can make or break a mine• Those companies that develop personal relationships =

stronger


Flake Graphite – Demand

Impurities

• Particles attached to the outside of the flake

• Taken from the surrounding rock

• Removed by flotation

In between stacks (intercalated)

Removed by chemical or thermal purification


Mechanical

Impurities include: • Ash • Sulphur • Iron

Barriers to new mining projects (BP)



Refractories• #1 market for flake graphite

• 38% of demand

• No substitutes

• Steel only

Graphite grades used:

• Large & Medium Flake

• ~ 94% C



Batteries• #2 market for flake graphite

• 23% of demand

• Substitutes: Synthetic graphite• Cost issues

• Strongest growth

Graphite grades used:

• Spherical graphite • 5‐15 micron • 99.95% C

• Derived from flake graphite


Flake Graphite – Demand shocks

Tesla Motors Gigafactory


Trends – China consolidation

December 2013: Shandong, China ordered to halt flake graphite production

April 2014: Heilongjiang, China announces plans to clean up graphite industry

May 2014: 40% of Shandong’s graphite producers remain offline


Trends ‐ China consolidation

Shandong = 10% global output, 20% China output

Heilongjiang = 29% global output, 45% China output

Supply at risk:

Total minimum cuts in China: 40,000 tpa (18%)Total maximum cuts in China: 90,000 tpa (41%)


Trends – Demand shocks

Tesla Motors’ Plan

• World’s battery production in one plant

• To drive cost of lithium‐ion batteries down by 30%

• To drive cost of EVs down

• To spark mass uptake of EVs

Tesla Motors Gigafactory


Trends – Demand shocks

Tesla Motors Gigafactory – critical mineral demand

Gigafactory at capacity (2020)

• Flake graphite demand• 80‐126,000 tonnes/year• 33‐50,000 tonnes/year

spherical graphite • 6 new mines

• Lithium demand • 20‐30,000 tonnes/year

• Cobalt demand • 5‐7,000 tonnes/year


Trends – Graphene

• Graphene = the first isolated one‐dimensional material• One layer of graphite • Graphene is a technology play, not a graphite one• Will not consume major volumes of flake graphite • Value in extensive research to commercialise & find markets


New mines will be needed regardless of growth

Supply Demand > Shutdowns in China > Batteries emerging

> Old, small mines elsewhere > Global recovery in industrial markets expected

> Brazil internally focused / not expanding (yet)

> Major Projects / New Demand: Tesla Motors


Supply / demand deficit


5%

‐5%

‐15%‐20%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

2013 2014 2015 2016

> Assuming no new supply

Flake Graphite: Supply, Demand, Prices - GMP Securities

Data & Analytics

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