Nice Venturer. I cut and pasted it here in case link disappears.
TMR: On a different subject, you're bullish on graphite. What does projected demand tell us about the future of this sector?
FM: In the graphite space, supply-and-demand fundamentals in the medium to long term are compelling. Graphite is used mostly in industrial applications like refractories, which will continue to grow in line with global GDP. But the big demand shift has been to high-end applications like lithium-ion batteries, which looks set to grow at a 10% compounded annual growth rate. This is what is driving the demand for the larger flake-size graphite.
To satisfy demand growth, we estimate the world needs one new graphite mine every year, assuming an average mine size of 25–30 Ktpa. Looking at the long list of graphite developers that have emerged, it's about choosing the graphite project with the right size fraction, the best in situ rock value that produces a saleable produce. So you want to be in the large to jumbo flake size, but you also want easy processing, cheap mining costs and the graphite concentrate to be of the highest purity without requiring any acid treatment to upgrade it.
TMR: What's your favorite project in that sector?
FM: Energizer Resources Inc. (EGZ:TSX.V; ENZR:OTCQX) in Madagascar. This country has always produced a very high-quality graphite concentrate.
TMR: A few years ago, Energizer touted its Madagascar vanadium deposit. Why the shift in focus to graphite?
FM: Junior explorers must spend wisely, and vanadium is a much smaller market than graphite with more complex metallurgy to crack. The company has taken the right approach in shifting its attention to Molo. Energizer's share price ascribes zero for its vanadium project, which we view as an option investors get for free.
TMR: When can we expect production at Molo?
FM: Being conservative, I'm saying 2017. This gives Energizer the opportunity to deliver bulk samples to end-users to secure a definitive offtake. In my experience, memorandums of understanding (MOUs) rarely translate into anything binding. Ultimately, it will be the end-users who will decide which graphite development project sees production.
We think Energizer stands the best chance of securing a definite offtake from end-users and can thus best attract the debt financing Molo will require. It's simple to mine and simple in terms of metallurgy. It has a low strip ratio and doesn't require acid treatment to improve its purity. It has a good flake size distribution and has already produced 13 tons of graphite concentrate. We expect a definite offtake by H1/15.
TMR: Filipe, thank you for your time and your insights.
Filipe Martins is a gold and precious metals analyst for GMP Securities in London. He was previously an engineer for Mota-Engil and AECOM. He holds a bachelor's degree in engineering from University College London, a master of science degree in soil mechanics from Imperial College London and is completing a master of business administration at Imperial College Business School.
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