Great Lakes Graphite Inc (GLKIF)

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What You Need To Know As An Investor in Graphite

Although many graphite explorers seem to think 'bigger is better' and although tonnes and graphitic grade are key metrics when evaluating projects, a number of factors actually need to be considered from an investor's perspective.

I suggest that you reflect on these six key factors when evaluating a graphite opportunity:

1. Deposit size and quality

2. Location and infrastructure

3. Flake size and distribution

4. Product purity

5. Product off-take agreements

6. Timeframe to production

The first two considerations are very important. When it comes to deposit size, bigger doesn't mean better. It's about how feasible the project is, which is based much more on grade. It's not that it's necessarily bad if a company has a low in-situ grade for their project, most grades can be upgraded significantly through processing, however, the mining costs can be daunting. For example, it would take the movement of six times the volume of material to mine a 4% Cg deposit, as it would take a 24% Cg deposit. So as an investor you need to consider what the project wholly entails. Significant capex requirements can dilute your investment, low grades necessitate much higher opex, and the geology of the deposit affects the metallurgy and what final applications that material can be used for. My ideal project would be a graphite mine that would produce in excess of 94% purity, with as much large (+80 mesh) and jumbo (+48 mesh) flake as possible. Graphite meeting that criteria would generally meet the standards for a wide variety of applications and would fetch a premium after upgrading and purification. The location and infrastructure of the deposit are very important facts to consider because they directly relate to expenses and final product value. The location needs to meet all environmental standards, and needs to have adequate facilities either onsite or nearby to process the material. Also, when the product is finished, it has to be transported, and since graphite is a bulk material that sells by the tonne, shipping costs factor significantly into a company's feasibility to profitably mine and sell graphite.

When it comes to the third factor, flake size and distribution, a number of facts hold true. First, the larger the flake size, the higher the purity of graphite. Second, the larger the flake size, the higher the prices (all other things considered equal). Last, market applications drive demand, so deposits with relatively high proportions of ultrafine graphite may not ever go into production as the segment is most at risk of over-supply.

The fourth factor, purity after simple processing (i.e., before acid or thermal upgrading) is particularly important because it is a key determinant in saleability of the product. It's also a very important factor in relation to operating expenses, because the more upgrading the graphite material needs to undergo, the higher the production cost potentially will be.

The fifth factor, product offtake agreements and MOUs are significant in determining the long-term success of a graphite company, as the graphite market is largely based on contracted sales agreements between buyers and sellers based off of the buyer's custom specs. So companies that already have these agreements in place are heavily de-risked compared to their peers.

The last factor, timeframe to production is for the most part self-explanatory. While companies that get their product to market first will certainly set the pace in the space, growth metrics suggest that there will be a significant amount of demand in the future and leaves the door open for any company with high-quality graphite and a feasible mine the opportunity to succeed.

*Special note, when it comes to evaluating graphite juniors that are in an earlier stage of the development cycle and don't have their resource, metallurgy, processing and milling upgrading flow sheet, etc. you need to do your due diligence on the geology of the deposit, historical mining operations in the area or on the property and any metrics associated from them, proximity to more advanced projects that have already have demonstrated successful results, and most importantly in my mind, a good management team with experience in the industry. The graphite community is relatively small, and knowing what you're doing and having the proper relationships to advance the project are critical to success.

Source:http://seekingalpha.com/article/2504085-why-the-graphite-sector-is-heating-up-how-to-evaluate-opportunities-and-what-i-own