Graphite is the most common non-metal substance that can conduct electricity with significant heat resistance. It is no surprise that strong demand for graphite is fueled by the new economy: green energy initiatives, including lithium-ion batteries (electric vehicles and energy storage), renewable energy, superconductors, innovative new building materials and nuclear energy.
Large-flake graphite is mostly used in the steel industry as refractory material for its heat resistant properties. Demand for graphite flakes is increasing rapidly as infrastructure development, EV and large-scale energy storage sectors become more prominent in global focus. Graphite can be mined (natural flake graphite) or produced by heating and altering petroleum coke (synthetic graphite).
Jumbo and large-flake graphite is used in electronics, graphite foils and new building materials such as flame-retardant insulation. Small-flake graphite is a major component in the construction of anodes for lithium-ion batteries. As a result, the world consumption of flake graphite is expected to increase by over 300% from 710 ktpa to 2.4 Mtpa by 2025. Flake graphite accounts for approximately 40% of global natural graphite supply.
SRG Graphite Inc. (SRG:TSX.V) is a Canadian resource company that works in the exploration, development and production of high-quality, low-cost natural graphite flakes. The company is also working on its nickel-cobalt-scandium laterite project located 5km away from its graphite project.
SRG operates in the southeast region of the Republic of Guinea, in West Africa, and recently announced results for its latest round of assay testing with 162 new boreholes, bringing total tests to 557 boreholes and over 18,037 meters drilled. Cost efficiencies encouraged SRG management to expand the drilling program, according to a recent press release.
Mineralized material from the deposit is being used to produce graphite concentrate so the company can ship samples to prospective clients. Intermediate graphite concentrate will also be shipped to prospective customers to assist in evaluation of the equipment selected for the feasibility study.
Committed to sustainable and traceable mining, SRG also signed on to the United Nations Global Compact, which commits it to universal sustainability principles. The company further reports sustainability progress through the Global Reporting Initiative, an independent international standardization organization.
SRG recently engaged the expertise of EEM Sustainable Management (EEM), a Canada-based independent environment consultancy company from Montreal with significant experience in Guinea, to revise and update the Lola graphite project environmental and social impact assessment to ensure compliance with local and international standards.
SRG is catching the eyes and ears of the market; Beacon Securities released a report on September 24, 2018, stating the reasons the firm likes the company:
- Multi-asset exposure to battery metals/materials
- Low capex of $100 million for Lola graphite project
- Fully financed through feasibility at Lola
The same report explained that SRG is working with SGS Canada for metallurgical test work, flowsheet validation, piloting test work and bulk concentrate production for the Lola Graphite Project in Guinea. The test work is conducted on a 1.5-tonne representative sample of mineralized material from the deposit. Once produced, several tonnes of graphite concentrate will be available to the company, ready for shipment to prospective clients as part of its sales strategy. Intermediate concentrate will also be produced and sent to suppliers as part of the vendor tests to further increase confidence in the equipment selected in the feasibility study. Recall SRG's valuation: 0.3x NAVPS, which reflects current market pricing for LOM at Lola.
What is in the future for SRG Graphite and its Lola Graphite Project?
Analysts at the National Bank of Canada are reporting that SRG could have metallurgical test results for its graphite and cobalt reserves before the end of the year. It should also provide updates on its permitting, BFS and plans to start construction on its Lola graphite project by the end of Q2 2019. It should also make progress on its cobalt assets (Gogota) and could look for partners in the projects and offtakers for supply.
Rupert M. Merer, an analyst with National Bank of Canada, wrote in a September 25, 2018, report that he's forecasting a doubling in natural graphite demand to 1.6 mtpa by the end of 2025, largely to meet the demands of EV markets. SRG's PEA for the Lola Graphite Project assumes graphite concentrate production capacity of 50 ktpa by the end of 2021, at a relatively low capex of US $105 million and operating cost of US $372/t, which should make it attractive relative to peers. National Bank of Canada has an Outperform rating on SRG and a target price of CA$2.35 per share.
Ahmad Shaath, an analyst with Beacon Securities, noted on November 5 that he regards SRG Graphite regards as a "preferred low-risk, high quality asset and management team graphite developer." Beacon has a Buy rating on SRG and a target price of CA$2.35.
SRG has 69.4 million outstanding shares. Market cap is approximately CA$45.3 million. Shares are currently trading at around CA$0.68.
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Disclosures from National Bank of Canada Financial Markets, SRG Graphite Inc., Company Update, September 25, 2018
Research Analysts Ė The Research Analyst(s) who prepare these reports certify that their respective report accurately reflects his or her personal opinion and that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views as to the securities or companies.
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Additional Company related disclosures:
2. National Bank Financial Inc. has acted as an underwriter with respect to this issuer within the past 12 months.
3. National Bank Financial Inc. has provided investment banking services for this issuer within the past 12 months.
4. National Bank Financial Inc. or an affiliate has managed or co-managed a public offering of securities with respect to this issuer within the past 12 months.
5. National Bank Financial Inc. or an affiliate has received compensation for investment banking services from this issuer within the past 12 months.
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Disclosures from Beacon Securities, SRG Graphite, Sept. 24, 2018
Analyst Certification: The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst's compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.