The Democratic Socialist Republic of Sri Lanka ranks 45th in health and primary education, 32nd in business sophistication and 8th in the World Giving Index. Its diverse culture is home to various ethnicities including Tamils, Moors and Sinhalese practicing a multitude of beliefs such as Hinduism, Buddhism and Christianity.
Sri Lanka also has a long history of mineral exploration, dating back at least 200 years. During both the first and second world wars, it experienced a boom, but it wasn’t until 2009 when government forces finally routed the Liberation Tigers of Tamil Eelam, that the mining sector really began to bloom.
Graphite is the cornerstone on which Elon Musk’s vision of the future will be built. It is a major component in lithium-ion batteries and in its graphene form, shows potential for revolutionizing both energy and manufacturing sectors. Sri Lanka has some of the highest-grade graphite on the planet.
We often hear about flake graphite, specifically large flake graphite, when it comes to lithium-ion battery manufacture, but it is both vein and chippy dust graphite that inherently possess the purity that EV batteries require. Sri Lankan is the only commercial-scale source in the world for both.
As such, the government of Sri Lanka is modernizing its resource sector and providing incentives for companies like Ceylon Graphite (CYL.V) to come into the country and realize their graphite dreams.
Ceylon Graphite currently holds a land package of 100 1-km2 grids in Sri Lanka and the company has exclusive exploration licenses for 49 of the most productive areas.
Back at the beginning of May, Ceylon announced its wholly-owned subsidiary, Sarcon Development, conducted a “pre-drilling” grab sample of historic dump material including rock fragments of graphite from its K1 site in Karasnagala.
The 1.1kg graphite material had already been subjected to 50 years of weathering, but when the sample was examined by SGS Lanka, the fixed carbon results came out to 86.63%.
Company CEO, Bharat Parashar, commented on the importance of the test results, “Having 86% Fixed Carbon is a fabulous result from weathered surface dump material. These results have validated our hypothesis that the K1 site has high purity graphite.”
He went on, “The ongoing drill program is designed to explore for subsurface extensions of graphite vein mineralization exposed at surface. Drilling will produce non-weathered graphite that is likely to be higher quality graphite than weathered graphite from surface.”
At the time, the company stated it would be sending the next round of surface samples and split drill core for analysis including upgrading/concentration and crystallinity tests to determine its suitability for battery-grade material.
Results are still pending.
Ceylon is executing an aggressive exploration program and expects to have at least three grids in full production by the end of the year. It also intends to finish off the year with a non-exclusive agreement with a battery manufacturer as well as an offtake agreement with an end-user.
With mining costs averaging about $100/tonne and Sri Lankan-grade graphite garnering approximately US$1,500/tonne, Ceylon is going to come away with a tidy 90%+ gross margin. That’s a lot of gravy.
If Parashar is proven correct and the non-weathered samples come back in the 90% to 99% purity range, investors may want to double up for the ride. Do your homework and see if Ceylon makes a lucrative fit in your portfolio.
Our own Chris Parry talked with Ceylon Graphite advisor, Sasha Jacob, just recently on our Twitch channel, you can watch the interview here.
FULL DISCLOSURE: Ceylon Graphite is an EQUITY.GURU client.