The article below is by Mickey Fulp, the "Mercenary Geologist". I am having trouble (what else is new), in this case getting images from the article put into my blog piece, please excuse any low quality...
Also, please feel free to read his disclaimer at the end of the article. He is a shareholder Flinders Resources Ltd. (the first company he discusses).
I have decided to be a syndicator of Mr. Fulp's work (with their permission) as I majored in Geology when I was in college. His work is unique, a true "Field Geologist" who is also looking to make an honest buck!
GRAPHITE is now getting some attention as a high tech material that MAY change things (in certain forms it is very strong yet light weight). There is a lot of active research underway on graphite.
Without further ado, here is his article:
Mercenary Musing: Three Sharp Pencils
in the Graphite Game
A Monday Morning Musing from Mickey
the Mercenary Geologist
November 26, 2012
I always try to get in early on
a new area or commodity play. If I’m not in early, then I will simply choose not
to play. Obviously I miss some
opportunities with this conservative philosophy but, as a contrarian, I refuse
to follow the sheeple.
Let’s look at the seven junior
resource bubbles that have blown up and burst since 2008. Two attracted my
speculative dollars: REEs and the pre-Fukushima uranium boom. I ignored the
following: Saskatchewan coal, potash, lithium, Colombia, and the Yukon.
It appears that graphite is next
in line for a commodity boom. The market is driven by increasing demand from
traditional applications, new technology uses, and China’s 75% control of supply,
its depleting reserves, and efforts to consolidate operations and restrict
exports to the industrialized world. These factors led to graphite prices going
parabolic from 2010-2012. Despite 2012’s price fall as the world’s economy
slowed, graphite is still selling at more than double its early 2007 price and
has stabilized recently. In fact, I don’t think this play is over:
Chart Courtesy of
Northern Graphite Corp
I was first introduced to the
supply and demand fundamentals of graphite and a potentially looming shortage over
two years ago by one of my dedicated subscribers in the Chicago area. Tom
Hartel is a lay investor who quickly learned to do his own due diligence and
has become a savvy speculator in the junior resource sector.
So when Tom has an idea, I listen.
In the fall of 2010, he asked me about the commodity and soon thereafter
introduced me to an opportunity in what is now Northern Graphite Corp (NGC.V). Knowing little about graphite at the time, I
researched the commodity and the company, and declined the offer. My rejection
had little to do with the company’s share structure, its people, or its Bissett
Creek, Ontario project.
It was mainly because its
predecessor had an OTCBB listing and the corporate presentation I received did
not indicate a future listing on the Toronto Venture Exchange. Folks, I don’t
do the bulletin board. In hindsight, I missed a great opportunity.
Also around that time, I came
across another graphite play, Focus Graphite Inc’s (FMS.V)
Lac Knife project in northern Quebec. I reviewed the company, met with the CEO,
and ultimately passed on the opportunity because its main focus at the time was
as a graphene R&D company. Again, this was another one missed; FMS stock went
up over 1000% from the time of my first evaluation to a spike five months
later.
In early Q2 2011, these two
companies remained the only Toronto-listed junior resource companies dedicated
to graphite space.
Meanwhile, my search for a graphite
developer continued. In the early spring of last year I was approached by a
couple of geologists and alerted to a capital pool company that was acquiring
their option on a mothballed graphite mine in Sweden. Finally I had found the
early-on deal that met my investment criteria (Mercenary Musing, December 15, 2008) and speculative dollars were committed in August
2011. In early 2012 this company morphed into Flinders
Resources Ltd (FDR.V); it has
been a very good speculation for me.
By late 2011, there was a
buzz on Howe and Bay Streets about the graphite game and speculators were
starting to stir. For a brief while it seemed every snake, shark, charlatan,
and shyster occupying an office within sailing distance of Coal Harbor was
floating a graphite play. From just two companies in mid-2011, there were over
40 listed on the Toronto Exchanges a year later. Then came the downside of the price
parabola and the numerous Johnny-come-latelies are now left holding the bag for
tax-loss season.
That said, the three public companies
discussed above remain sharp pencils in graphite space. There are a handful of
others with recent geological discoveries but at this stage, only a couple can be
classified as potentially advanced explorers or developers.
Over the course of the late
summer and early fall, I toured the flagship properties of Flinders Resources,
Focus Graphite, and Northern Graphite and report on these visits herein.
My first stop was in central
Sweden at Flinders’ 100% owned Woxna graphite project. This fully permitted and
financed mining project is located in central Sweden about 300 km northwest of
Stockholm. It encompasses four graphite deposits including the Kringel mine,
which produced graphite from 1997-2001. In addition, the company owns
concessions covering 60 km of strike length of a favorable geological horizon
with many known graphite occurrences and geophysical targets awaiting
exploration.
I toured the project in August
in the company of CEO Martin McFarlane, process engineer Don Pettersson,
consulting geologist Lars Dahlenborg, general manager Folke Soderstrom. Office manager
Astrid Soderstrom provided logistical support.
Woxna Graphite Project, Sweden
Here’s a photo of geologist Lars Dahlenborg and yours truly at the Kringel pit, which is expected to be completely dewatered by the end of Q1 2013 and available for development and exploitation:
Kringel Open-Pit Graphite Mine
Flinders drilled delineation
and exploration core holes throughout the spring and summer to successfully
qualify and expand a previous historic resource. Currently Kringel has a 43-101
measured and indicated resource of 2.6 million tonnes grading 10.5% graphitic
carbon at 7.0% cutoff grade that is open to expansion along strike and at depth.
The photo below shows a high-grade zone of graphitic schist:
Graphite-bearing
Core from the Kringel Deposit
As part of project
remediation, Flinders has cleaned up, re-bagged, and sold low-grade ore
stockpiles to its previous European customers. This effort generated minor cash
flow to the coffers but more importantly, re-established relationships with
past buyers of Woxna Graphite.
One Tonne Bags of Graphite Ready for Shipment to Customers
In recent news, Flinders appointed
London-based GBM Engineering to complete a process flow sheet, design, and
refurbishment of the existing mill and concentration plant. It is progressing
with mine
de-watering, tailings dam
remediation, and procurement of mining and processing equipment.
CEO McFarlane recently
provided guidance that the company is within its budget and timeline to achieve
commercial production at an annualized 13,000 tonnes of graphite in Q1 of 2014.
I expect the Kringel deposit to be a robustly economic graphite mine. Plans for
expansion are expected after the first phase of production is achieved.
My second tour was at Focus
Graphite’s 100% owned Lac Knife deposit in northern Quebec. It is located about
30 km southwest of Labrador City and is accessible via highway and 32 km of
unimproved dirt road. The main provincial power line is located five km from
the site, and a public railway is 30 km away.
Lac Knife Project, Quebec
I was accompanied on the
visit by CEO Gary Economo and two company geologists, Director Marc-Andre
Bernier and Benoit LaFrance. Here’s a photo of our tour group, including four Quebec-based
analysts and the aforementioned company personnel:
Lac Knife Tour, September 2012
We first examined an outcrop that was stripped to
obtain surface samples for metallurgical testing:
Lac Knife High-Grade Graphite Outcrop
Other stops included the core
shed for examination of recently drilled core, a current exploration drill
site, and large diameter core to be used for additional metallurgical and
process tests:
Graphite-bearing Core for Metallurgical
Testing
Graphite was discovered at
Lac Knife in 1959 and the project was explored and developed by various
entities with a feasibility study in 1990 by Graftech International. Focus
acquired the project in 2010 from Iamgold. Lac Knife hosts a qualified indicated
resource of 4.9 million tonnes grading 15.8% graphitic carbon and an inferred
resource of 3.0 million tonnes at 15.6% graphite, both at a cutoff grade of
5.0%.
A recent preliminary economic
analysis studied a 20-year open-pit mining operation with a strip ratio of
1.1:1, 15.6% head grade, and 91 % recovery. Production of 46,600 tonnes of
graphite per annum had a total capital cost of $154 million (including working
capital and contingency) and $435 per tonne milled operating cost. These
estimates gave a pre-tax NPV of $246 million and 32% IRR at a 10% discount
rate. Focus Graphite currently projects initial production in Q2 2014. FMS has
$20 million in cash and will require project financing in the near future to
meet its timeline.
My third project tour was Northern
Graphite Corp’s Bissett Creek project located 100 km east of North Bay, Ontario
and 17 km from the Trans-Canada highway and a natural gas pipeline.
Bissett Creek Graphite Project, Ontario
Northern Graphite’s President
Don Baxter was my tour guide for the day. Consulting geologist Mehmet Tanner
was present at the project site to show me outcrops, current drilling, and
core.
Don Baxter and Mehmet Tanner at Old Test Mining Pit
Bissett Creek is a shallowly-dipping, tabular ore body that crops out or is covered by a thin till over a broad area, and thus is amenable to reserve expansion with little increase in strip ratio:
It is entirely composed of
flake graphite with a significant portion in the large to jumbo category:
Very Large Flake Bissett Creek Graphite
Northern Graphite tabled a
bankable feasibility study in July. It is based on a 23-year mine life, an
open-pit probable reserve of 18.9 million tonnes of 1.89% graphitic carbon at a
cutoff of 1.2%, strip ratio of 0.5:1, processing of 2500 tonnes per day, 94.7% recovery,
and annual production of 19,000 tonnes of graphite for the first five years.
Capital costs are $103 million, and life-of-mine operating costs are $968 per
tonne of concentrate. Using an $1800/t graphite price and 8% discount rate resulted
in an after-tax NPV of $65 million and IRR of 14.8%.
Management sees room for
improvement in this financial model with recent drilling to move higher grade inferred
resources into the indicated category, resolution of higher pilot plant graphite
recoveries than head grade calculations, using company versus contract mining, permitting
of lower cost tailings disposal options, and economic analysis of value-added
spherical graphite. The company is confident operating costs can be reduced to
$800 per tonne and result in better project economics.
The company’s current
timeline to commercial production is Q2 2014. It has $10 million in cash and
will require project financing in the near term to achieve this schedule.
Discussions with potential strategic partners are ongoing. Company guidance
indicates significant news flow is forthcoming within the next two months.
I consider myself fortunate
to have visited the three current Toronto-listed graphite developers. I thank
Marty McFarlane of Flinders Resources Ltd, Gary Economo of Focus Graphite Inc,
and Greg Bowes and Don Baxter of Northern Graphite Corp for their graciousness
and hospitality in arranging these tours and for reimbursement of my expenses.
Please note my opinion of Flinders is skewed by financial involvement with the
company.
Finally, I wish these
gentlemen my best and hope their projects are developed into profitable
graphite mines and loyal shareholders are justly rewarded.
Ciao for now,
Mickey Fulp
Mercenary Geologist
The Mercenary
Geologist Michael S. “Mickey” Fulp
is a Certified Professional Geologist with a
B.Sc. Earth Sciences with honor from the University
of Tulsa , and M.Sc. Geology from the University of New Mexico
Mickey worked for junior explorers, major
mining companies, private companies, and investors as a consulting economic
geologist for over 20 years, specializing in geological mapping, property
evaluation, and business development. In
addition to Mickey’s professional credentials and experience, he is high-altitude
proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made
four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia.
Mickey is well-known and highly respected throughout
the mining and exploration community due to his ongoing work as an analyst, writer,
and speaker.
Disclaimer: I am a shareholder of Flinders Resources
Ltd and it pays a fee of $4000 per month as a sponsor of this website. I am not
a certified financial analyst, broker, or professional qualified to offer
investment advice. Nothing in a report, commentary, this website, interview,
and other content constitutes or can be construed as investment advice or an
offer or solicitation to buy or sell stock. Information is obtained from
research of public documents and content available on the company’s website,
regulatory filings, various stock exchange websites, and stock information
services, through discussions with company representatives, agents, other
professionals and investors, and field visits. While the information is
believed to be accurate and reliable, it is not guaranteed or implied to be so.
The information may not be complete or correct; it is provided in good faith
but without any legal responsibility or obligation to provide future updates. I
accept no responsibility, or assume any liability, whatsoever, for any direct,
indirect or consequential loss arising from the use of the information. The information
contained in a report, commentary, this website, interview, and other content
is subject to change without notice, may become outdated, and will not be
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