Graphite One Resources (GPH.V) reached a major milestone today when the company announced results from its initial Preliminary Economic Assessment (“PEA”) for the development of Graphite One’s wholly-owned manufacturing project.
According to the news release, the project was developed as a vertically integrated manufacturer of high-grade Coated Spherical Graphite (“CSG”) with mining and processing facilities near Nome, Alaska and advanced materials processing done at a dedicated graphite product manufacturing facility.
Since Washington has maritime links it is considered a well-suited potential location for the product manufacturing facility. Washington also has low-cost power, developed industrial sites and proximity to markets.
The PEA, prepared by TRU Group, an independent engineering firm based out Toronto, Ontario, projects a Net Present Value (“NPV”) of US$1.037 billion for the project using a 10% discount with an Internal Return Rate (“IRR”) of 27%.
What does all this mean?
Well, let’s begin with CSG. CSG is the rolled form of natural graphite flake material which has been coated in carbon. The resulting spherical graphite is a superior material for anodes in lithium-ion batteries due to its high rate capacity, high reversible capacity, high coulombic efficiency and low irreversible capacity.
Essentially CSG makes lithium-ion batteries better, cheaper and longer-lasting. A good thing considering we’re in the middle of a green energy revolution.
Graphite One estimates it will produce 55,350 metric tonnes of the stuff and other graphite specialty materials annually when they reach nameplate capacity or full production by Year 6.
So how long will they be able to go at this?
The PEA notes a minimum of 40 years of indicated and inferred resources grading 7% Cg (graphite) have been identified in the target exploration zone to sustain full scale operations.
Pretty good, especially if you consider the possibility of additional potential resources immediately outside the targeted zone or the broader Graphite Creek property.
Another positive is a payback period of 4 years at an operating product cost of US$1,774.00 per tonne and a blended selling price of products of US$5,054.00. That’s a tidy profit margin.
So where does this put the company?
Well, they expect to bring in US$182 million a year on sales of US$280 million at full capacity with a consolidated operating margin (“EBDIT”) of 63% on sales. Again, not bad.
Graphite One figures its CSG will be its flagship product, making up 75% of sales volume and 95% of sales revenue. Purified graphite powders will make up the rest.
Let’s talk NPV. Graphite One has assumed a sale price of its coated spherical graphite at US$6,200 per tonne, but this is just a base case.
Currently coated spherical graphite has been going for between US$7,000 per tonne and US$10,000 per tonne. If the company is able to unload its coated spherical graphite at the top end, it turns this project from an NPV of US$1.037 billion and an IRR of 27%, to an NPV of US$2.32 billion and an IRR of 43%. Not too shabby.
TRU Group had this to say in conclusion of its report, “The robust financials for vertically‐integrated production of CSG at the projected unit pricing of US$6,200 per tonne merits that the Project proceed to a feasibility study to maintain an accelerated project schedule that would coincide with projected market demand in 2021.”
I should think so.
Graphite One CEO, Anthony Huston, added, “This PEA shows the strong potential of our project as America’s emerging producer of lithium ion battery-grade Coated Spherical Graphite. With the prospect of a low‐cost, 40year mine life using half of the identified graphite mineral resources, and given our projected production costs and conservative pricing assumptions, we are confident that Graphite One has the potential to become a reliable provider of graphite materials critical to clean‐tech, high‐tech and national security applications.”
Most of the world’s graphite comes out of China who isn’t necessary known for environmentally friendly mining practices. Also, if you consider supply chain security, it would be in our best interests to have graphite production on domestic soil.
TRU Group further illustrated the benefits of Graphite One’s approach, “Potentially, a significant proportion could be sold domestically, but strategically, Japan and Korea would be considered accessible markets given the advantageous location of the Graphite One Product Manufacturing Plant. …Graphite One could potentially become the dominant, if not the only, American producer, of high grade CSG that is integrated with a domestic graphite resource.”
Huston summed up, “It’s been a long road to the PEA. As we move into the next phase of development, we will continue to work closely with Alaska state authorities and the local communities around the deposit, including the Alaska native corporations, to ensure that our Project meets the highest environmental, safety and sustainability standards.”
Cleaner extraction, quality value-added product and supply chain security – all pushing the very necessary green energy revolution forward. What’s not to like?
Keep your eyes peeled for the feasibility study.
Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.
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