The Critical Metals Report: In a May 31 press release, your firm said, "If China's approach to rare earths was applied to graphite, the impact on global demand, supply and prices would be significant." Do you believe China will establish export quotas on different types of graphite?
Glen Jones: If the demand for the different products in which graphite can be used—for example, lithium-ion batteries—actually comes to fruition, then yes, I believe China will establish export quotas, because it will need graphite for its own internal production.
"Rare earths and graphite are not as cut-and-dry as gold or copper. Thus, my advice is always, 'Research.'"
TCMR: Is the growth in graphite demand from current applications like refractory and lithium-ion batteries enough to support the 40 companies now seeking economic graphite deposits?
GJ: If this growth comes about, there could be a shortage of graphite. Not all of these companies will find deposits, but it is necessary to have 40 companies exploring—it increases the chance of discoveries.
TCMR: Graphite demand is growing at a rate of about 5% per annum right now. That's reasonably healthy, but not extraordinary. What catalysts are going to get investors excited?
GJ: Green energy initiatives: fuel cells, solar electricity, new-generation nuclear power and pebble-bed nuclear reactors. When some of those technologies will be perfected and when greater graphite demand will come still remains to be seen.
TCMR: You've said the graphite mining business is misunderstood. What is the source of confusion?
GJ: Investors are overwhelmed about the various types of graphite, flake or vein. The variations in grade, prices and the sources for each type make graphite a very confusing market, and a lot of investors are just jumping on the graphite bandwagon because they don't want to be left out. I compare it to the early days of rare earth elements (REEs). REEs, like graphite, are not as cut-and-dry as gold or copper. Also, graphite just kind of popped up, and investors wonder why it's suddenly in such demand. All of the numbers about the future use of graphite and how much supply will be required are still just estimates. Even if the numbers were more certain, they still depend on the fluctuating economy.
That's what's misunderstood in the business. Thus, my advice is always, "Research." With the Internet, there's such a huge amount of research available. Most companies have PowerPoint presentations you can access. There are also many government sites, such as the U.S. Geological Survey, that you can consult to boost your technical knowledge.
TCMR: Canada is home to 71% of the graphite projects currently being developed. Graphite is relatively abundant throughout the world, so why are so many projects located in Canada? Does it hurt the sector to have so much of the work happening in one country?
GJ: For investors, it's not bad to have so much supply concentrated in Canada. The country is blessed with great geology for resources, not only for graphite but many other commodities, including gold, copper, nickel and lead zinc. About 45% of the world's listed mining companies, over 1,600, are listed on the TSX and TSX-Venture exchanges. Most of these companies are experienced. They know how to raise money. They know how to explore. Plus, Canada has great infrastructure and is mining friendly.
TCMR: Within the last year, roughly 40 companies specifically seeking graphite were listed on various Canadian exchanges. Does this almost-overnight increase trigger any alarm bells?
GJ: I'm not concerned with the number of companies jumping in. It happens in the exploration business. Of the 140 projects in the world that these companies own or have acquired, about 80 are grassroots projects, which Intierra classifies as having no previous drilling. This leaves about 40 properties that are at various advanced stages. Of that group, maybe half a dozen will get to the feasibility stage. I think it's good to have so many companies in there right now.
TCMR: Within those 140 graphite projects, only one graphite mine is being built. Should that concern investors?
"Canada is blessed with great geology for resources. Most of these companies are experienced. They know how to raise money. They know how to explore. Plus, Canada has great infrastructure and is mining friendly."
GJ: I don't think so. Within the next couple of years, two or three other mines will likely come into production. One is the Kearney mine in Ontario, currently privately owned by Ontario Graphite, which I think will go public. It's a past producer of graphite, and it should open in Q312 or Q412. It will produce about 20,000 tons per year (t/a), which is a decent size. Total world production in 2010 was about 925,000 metric tons graphite. The Lac Des Iles mine is in Québec and owned by Timcal, which is a division of Imerys (NK:PA), produces about 25,000 t.
Another upcoming mine is the Kringel mine, owned by Flinders Resources Ltd. (FDR:TSX.V) in Sweden. It was a past-producing mine and is currently under care and maintenance. It's permitted with a mine and a mill just sitting there. The company should produce up to about 13,000 t/a graphite and hopes to be producing by 2014.
The Lac Knife deposit, which is owned by Focus Graphite Inc. (FMS:TSX.V), is in Québec. Construction there should begin in 2013, and it will probably produce about 25,000 t/a. It's supposed to be one of the largest high-quality and high-grade deposits in the world. Focus raised $20 million ($20M) as of April 11 to continue exploration and development of Lac Knife and various facilities there. That's impressive, given the current economic climate.
TCMR: It's not all that far from the Lac Des Iles mine you referenced earlier. Will that be useful to the new project?
GJ: The closeness means there's good infrastructure in place already, so a new project doesn't necessitate a new railway or more roads.
TCMR: Another company that's done a couple of financings in the last year and raised over $12M is Northern Graphite Corporation (NGC:TSX.V; NGPHF:OTCQX).
GJ: Northern owns the advanced-stage, flake-graphite Bissett Creek deposit in Ontario. It's completed a preliminary economic assessment and started its bankable feasibility study and environmental and mine-permitting process. It hopes to fast-track it and begin construction late this year.
TCMR: Could you see an offtake partner coming into that equation?
GJ: Probably. That's certainly something that's happened with many companies in the REE sector, which is similar to the graphite space in a lot of ways.
TCMR: You have said that only four graphite companies, Focus Graphite, Northern Graphite, Archer Exploration Ltd. (AXE:ASX) and Flinders Resources, have raised more than $2M since January 2011. Did you think there would be more companies reaching that level?
GJ: Yes, I was surprised. I thought that there would have been a lot more companies in there, and I thought there would have been a lot more raised. At Intierra, we only track anything over $2M. That's our bottom line.
TCMR: What are some commonalities among those companies that did raise over $2M?
GJ: They all had advanced projects. A lot of the juniors with early-stage projects are having trouble raising capital now.
TCMR: If you were investing in a graphite play, would you be more likely to invest in an advanced-stage play or in one of the early stages of exploration, where you can see those quick run-ups?
GJ: You have to know your investment appetite. Do you want less risk or more risk? With more risk come better gains. I invest in both.
TCMR: What are some of the early-stage plays that have some potential?
GJ: I like Energizer Resources Inc. (EGZ:TSX.V; ENZR:OTCBB). It has the Green Giant project in Madagascar. Its vanadium property is already at the prefeasibility stage, and the company has found 17 graphitic zones on the property. Investors get vanadium and graphite in one.
TCMR: That's a sizeable resource in a country that has seen very little exploration. How much of an advantage is that?
GJ: There are advantages and disadvantages. Virgin territory is more open for discoveries. But because the country has not had significant exploration, companies could possibly run into permitting, infrastructure and labor issues.
TCMR: What other early-stage plays do you like?
GJ: Strike Graphite (SRK:TSX.V) has two interesting projects in Saskatchewan. The Deep Bay East project is a historic property with significant exploration in past years. It's very close to the Deep Bay West graphite mine, which is also being ramped up. The Wagon graphite property is near the Lac Des Iles mine, and it's had numerous amounts of historical exploration on it as well.
TCMR: It's going to have an NI 43-101-compliant resource estimate by Q412. Will that be a catalyst for the share price?
GJ: Definitely. A lot of investing is about anticipation.
TCMR: Tell us about IntierraLive and how it could help investors in graphite.
"You have to know your investment appetite. Do you want less risk or more risk? With more risk come better gains. I invest in both."
GJ: IntierraLive is the largest global mining database, but unfortunately we do not have a package for retail investors. However we are also famous for our maps. They show where a company is exploring, that region's infrastructure, its mines and deposits, et cetera. We hope to have a graphite map out in a month or two. It's going to be a Canadian graphite map, focused on Ontario and Québec. Investors will be able to pick one up at a conference or call the company they're interested in to request one. A number of companies put portions of our maps on their websites.
TCMR: Do you have any thoughts you'd like to leave our readers with on the graphite space?
GJ: Do your research. Look at a company's cash position. These days, that's really important, and if a company doesn't have cash, it's really hard to raise it. Look at the company's management. Have the members been involved in other commodity plays? Have they been around the business for a while? Does the company have the technical expertise to move their company's projects forward? Sure, you could just put your money in a company and hope that the stock will double or triple, but if you're a serious investor and you do not want to lose your money, then you do have to do the research.
TCMR: Thank you.
Glen Jones started his career in the mineral exploration industry over 35 years ago, mapping underground stopes and logging drill core. He founded Mineral Information Maps in 1980, and in 1992, he developed the "Hot Play" map concept and began publishing maps that showed rapidly developing area plays around the world. He merged his company with Intierra Resource Intelligence in 2003, which developed a web-based application for bringing together all levels of technical, financial and spatial data. Jones is the executive director for the Western Hemisphere at Intierra, where he oversees all aspects of the business for the Americas.
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1) Brian Sylvester of The Critical Metals Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Critical Metals Report: Northern Graphite Corp., Focus Graphite Inc., Energizer Resources Inc. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Glen Jones: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this story.