Thursday, October 09, 2014 1:53:39 PM
Hykawy’s Focus on Focus: Through a Mining Lens
Posted on October 9, 2014 by Jon Hykawy
- See more at: http://investorintel.com/graphite-graphene-intel/hykawys-focus-focus-mining-lens/#sthash.P68Pvz4d.dp
The natural graphite sector is not really that complicated. Yes, there are different industries using the material, and yes there are different flake sizes at different purities sold at different prices, but every company in the space has to live with those prices. The variation in earning power between companies comes from the richness of the deposit, driven to large degree by simple in situ grade and the distribution of graphite flake size within the deposit. There will be exceptions to this simplified view, since every rule-of-thumb has to take an “all things being equal” approach to some degree and often those other things aren’t equal, but that doesn’t mean that rules-of-thumb aren’t useful.
When I started looking at the graphite sector again, I looked for those simplifying principles. Not because I wanted to use them myself, because at the end of the day analysis has to be based on the cash flows generated by a specific company, but because they are useful in trying to bring some understanding of the space to those who don’t have the same amount of time to devote to looking at each and every company in the market.
One of the most useful metrics I found for the graphite sector is that of contained value of natural flake graphite per tonne of mined ore. This metric encompasses grade and flake deck, of course. To calculate a value, you need to choose a common platform for graphite prices and I chose to use a “torture-tested” deck generated by Stormcrow as part of our analysis on likely winners and survivors in the graphite market. If you want, you can repeat exactly the same calculation using three-year or five-year average flake graphite prices, the results are very similar.
Subscribe here to receive freedaily InvestorIntel updatesSign UpAnyway, this calculation yields the following:
Stormcrow
By this metric, Focus Graphite (FMS-TSXV, FCSMF-OTCQX, FKC-FSE) comes out on top. Focus benefits from high grade, albeit not as high as some, and a good flake distribution, albeit not as good as some. It just happens to have the best combination of the juniors we looked at. No, this metric doesn’t incorporate operating or capital costs, but by any measure Focus’s Lac Knife project is a good one, and it’s why our recommendation on the company is positive.
With the continued downturn in the mining sector, it isn’t likely that pure financial investors alone are going to finance new mines to production. That means that strategic investors or end-users are likely to play a part, at least so far as anointing their chosen future suppliers with off-take agreements. For that to happen, a project has to possess certain attributes. Strategic partners will select projects that don’t possess those attributes if they have to, but there is enough graphite out there that strategic partners aren’t likely to have to lower their standards. I believe that those desirable attributes include:
Near-term potential: By this, I don’t mean production starting today, although that would be good, but it does mean potential production by 2018. Focus easily makes the grade, here, and is trying to advance production to 2016 from the originally envisioned 2017.
Long mine life: Strategic suppliers should be long-term suppliers, so at least 20 years of mine life is required. Focus’s mine plan contemplates at least 25 years of operation.
Production of Required Material: This likely goes without saying, but the supplier has to be able to produce what the strategic partner needs. For graphite, this means larger flake material. Focus has a very amenable flake size distribution.
Geopolitical Stability: If a supplier is being built to provide a critical material for the next 20 or 30 years, then the nation in which the project is located had better be stable over a timeframe of 20 or 30 years. On the basis of history, being in northern Quebec is as good a place to be as any, so Focus ticks this box, too.
Small Remaining Technical and Social Acceptability Risks: All potential suppliers have some risks attached to them. Fortunately, Focus has already demonstrated that their graphite can be purified, is expandable and is amenable to spheroidization for use in batteries. The project is located in northern Quebec, not far from other, much larger mines. There is little remaining risk, and Focus makes the grade.
Along with all the above, has also has a terrific management team, one with real-world operational experience in graphite. Having management that has actually been hands-on in operations at a working graphite producer is a huge and often undervalued bonus, and is something that very few other juniors have ( there is value to having junior company management that has previously been in a senior, non-operational role at a producer, but it isn’t the same sort of value).
The company recently announced the closing of a first tranche of $1.93 million in a proposed $6.5 million financing. This will allow continued development toward production. I do believe that the merits of the Lac Knife Project will allow Focus to raise the balance of funds, and that is also a strong positive for a junior company in this environment.
Ultimately, it is the merits of the project that will likely allow Focus to attract the attention of strategic partners. Those partners will be instrumental in helping to raise the total of $166 million required to put Lac Knife into production, and that will continue to keep the focus on Focus.
This entry was posted in Graphite &Graphene Intel and tagged Focus Graphite, graphene, graphite, rare earth by Jon Hykawy. Bookmark the permalink. About Jon Hykawy
Dr. Hykawy is President of Stormcrow, a Toronto-based business consultancy and independent research firm. He was previously Head of Global Research with Byron Capital Markets, specializing in the economics of critical materials such as lithium, vanadium, fluorspar, graphite and the rare earths. He has extensive experience in the solar, wind, and battery industries, having conducted significant research in the area of rechargeable batteries (including rechargeable alkaline, lithium-ion and flow batteries) and wind power technologies. Jon began his career in the investment industry in 2000 when he began work as a research analyst broadly covering the technology sector. His focus was later refined to clean technologies and alternative energy companies, and his current areas of interest continue to be dominated by the issues of supply of, and demand for, critical materials in a variety of global supply chains.
Copyright © 2014 ProEdge Media Corp. All rights reserved. More &Disclaimer »
Posted on October 9, 2014 by Jon Hykawy
- See more at: http://investorintel.com/graphite-graphene-intel/hykawys-focus-focus-mining-lens/#sthash.P68Pvz4d.dp
The natural graphite sector is not really that complicated. Yes, there are different industries using the material, and yes there are different flake sizes at different purities sold at different prices, but every company in the space has to live with those prices. The variation in earning power between companies comes from the richness of the deposit, driven to large degree by simple in situ grade and the distribution of graphite flake size within the deposit. There will be exceptions to this simplified view, since every rule-of-thumb has to take an “all things being equal” approach to some degree and often those other things aren’t equal, but that doesn’t mean that rules-of-thumb aren’t useful.
When I started looking at the graphite sector again, I looked for those simplifying principles. Not because I wanted to use them myself, because at the end of the day analysis has to be based on the cash flows generated by a specific company, but because they are useful in trying to bring some understanding of the space to those who don’t have the same amount of time to devote to looking at each and every company in the market.
One of the most useful metrics I found for the graphite sector is that of contained value of natural flake graphite per tonne of mined ore. This metric encompasses grade and flake deck, of course. To calculate a value, you need to choose a common platform for graphite prices and I chose to use a “torture-tested” deck generated by Stormcrow as part of our analysis on likely winners and survivors in the graphite market. If you want, you can repeat exactly the same calculation using three-year or five-year average flake graphite prices, the results are very similar.
Subscribe here to receive freedaily InvestorIntel updatesSign UpAnyway, this calculation yields the following:
Stormcrow
By this metric, Focus Graphite (FMS-TSXV, FCSMF-OTCQX, FKC-FSE) comes out on top. Focus benefits from high grade, albeit not as high as some, and a good flake distribution, albeit not as good as some. It just happens to have the best combination of the juniors we looked at. No, this metric doesn’t incorporate operating or capital costs, but by any measure Focus’s Lac Knife project is a good one, and it’s why our recommendation on the company is positive.
With the continued downturn in the mining sector, it isn’t likely that pure financial investors alone are going to finance new mines to production. That means that strategic investors or end-users are likely to play a part, at least so far as anointing their chosen future suppliers with off-take agreements. For that to happen, a project has to possess certain attributes. Strategic partners will select projects that don’t possess those attributes if they have to, but there is enough graphite out there that strategic partners aren’t likely to have to lower their standards. I believe that those desirable attributes include:
Near-term potential: By this, I don’t mean production starting today, although that would be good, but it does mean potential production by 2018. Focus easily makes the grade, here, and is trying to advance production to 2016 from the originally envisioned 2017.
Long mine life: Strategic suppliers should be long-term suppliers, so at least 20 years of mine life is required. Focus’s mine plan contemplates at least 25 years of operation.
Production of Required Material: This likely goes without saying, but the supplier has to be able to produce what the strategic partner needs. For graphite, this means larger flake material. Focus has a very amenable flake size distribution.
Geopolitical Stability: If a supplier is being built to provide a critical material for the next 20 or 30 years, then the nation in which the project is located had better be stable over a timeframe of 20 or 30 years. On the basis of history, being in northern Quebec is as good a place to be as any, so Focus ticks this box, too.
Small Remaining Technical and Social Acceptability Risks: All potential suppliers have some risks attached to them. Fortunately, Focus has already demonstrated that their graphite can be purified, is expandable and is amenable to spheroidization for use in batteries. The project is located in northern Quebec, not far from other, much larger mines. There is little remaining risk, and Focus makes the grade.
Along with all the above, has also has a terrific management team, one with real-world operational experience in graphite. Having management that has actually been hands-on in operations at a working graphite producer is a huge and often undervalued bonus, and is something that very few other juniors have ( there is value to having junior company management that has previously been in a senior, non-operational role at a producer, but it isn’t the same sort of value).
The company recently announced the closing of a first tranche of $1.93 million in a proposed $6.5 million financing. This will allow continued development toward production. I do believe that the merits of the Lac Knife Project will allow Focus to raise the balance of funds, and that is also a strong positive for a junior company in this environment.
Ultimately, it is the merits of the project that will likely allow Focus to attract the attention of strategic partners. Those partners will be instrumental in helping to raise the total of $166 million required to put Lac Knife into production, and that will continue to keep the focus on Focus.
This entry was posted in Graphite &Graphene Intel and tagged Focus Graphite, graphene, graphite, rare earth by Jon Hykawy. Bookmark the permalink. About Jon Hykawy
Dr. Hykawy is President of Stormcrow, a Toronto-based business consultancy and independent research firm. He was previously Head of Global Research with Byron Capital Markets, specializing in the economics of critical materials such as lithium, vanadium, fluorspar, graphite and the rare earths. He has extensive experience in the solar, wind, and battery industries, having conducted significant research in the area of rechargeable batteries (including rechargeable alkaline, lithium-ion and flow batteries) and wind power technologies. Jon began his career in the investment industry in 2000 when he began work as a research analyst broadly covering the technology sector. His focus was later refined to clean technologies and alternative energy companies, and his current areas of interest continue to be dominated by the issues of supply of, and demand for, critical materials in a variety of global supply chains.
Copyright © 2014 ProEdge Media Corp. All rights reserved. More &Disclaimer »
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
