Analyst Commentary: Standard Graphite Acquires Advanced Graphite
Project in Quebec
Monday, April 30, 2012
Standard Graphite (TSXV: SGH) has recently inked a deal to acquire
the Mousseau East graphite deposit, situated just 50 km from Timcal
Canada’s producing Lac-des-Iles graphite mine.
This acquisition provides Standard Graphite with an advanced
flagship project that if proven to be metallurgically attractive
can potentially be fast-tracked to production.
In addition, the company holds 14 highly prospective graphite
properties within known graphite districts in both Quebec and
Ontario and plans to aggressively evaluate and advance the best
ones.
Southwestern Quebec is host to some of the most favourable
geological terrain for graphite exploration in Canada and is known
for hosting quality graphite resources such as the Lac-des-Iles
mine operated by Timcal.
The Lac-des-Iles graphite mine, located 50 km from the Mousseau
East deposit and 150 km northwest of Montréal, Québec (Refer to
figure 1), has been in operation for 20 years producing graphite
products of various sizes and purities. The deposit contains close
to 25 million tonnes, including 5.2 million tonnes to be mined by
open pit at a grade of around 7.42% Cg (Carbon in graphite).
The Mousseau East Deposit was originally discovered in 1983 and
outlined by 62 diamond drill holes (4,996 m). Two historical
resource estimates were calculated but under current reporting
standards they do not comply with NI-43-101 requirements. (Refer to
Figure 2).
The project is blessed with good infrastructure and lies next to a
highway. In addition, the current historical resource was only
calculated to a depth of 40 m. As a result, there is excellent
potential to expand the resource along strike as well as to
depth.
The historical resource calculated by Graphicor weighs in at
598,400 tonnes averaging 8.29% Cg (carbon in graphite) in the
Proven category, 219,450 tonnes averaging 8.13% Cg in the Probable
category and 288,760 tonnes averaging 7.85% Cg in the Possible
category. (This is not NI-43-101 compliant).
Standard Graphite intends to complete the work necessary to verify
the resource estimate at Mousseau East and bring it up to current
NI-43-101 standards. At last report the company planned to spend in
excess of $5 million this year to evaluate and advance its project
portfolio.
Evaluating Graphite Deposits
When looking at graphite deposits one of the most important things
to note is the percentage of flake verses fine graphite. Flake
graphite is high value and high growth while fine graphite has
lower value and is sometimes not even salable. Another key aspect
when evaluating graphite deposits is to determine the carbon
content of the concentrate – the higher the carbon concentrate the
purer the product and the higher price it can fetch. These
questions can only be answered by metallurgical testing and in-situ
valuations based on grade alone should not be relied upon.
Graphite price increases with flake size and concentrate purity.
Currently concentrates are being sought after with in excess of 94%
carbon content and that are medium to large flake in grain size.
Some examples of flake size/purity and price are as follows:
• +32 mesh (0.5 mm) super flake with 98% carbon purity is +$3000
per tonne
• +50 mesh (0.297 mm) jumbo flake with 97% carbon purity is +$3000
per tonne
• +80 mesh (0.177 mm) large flake with 96% carbon purity is +$2750
per tonne
• +150 mesh (0.105 mm) medium to fine flake with 94% carbon purity
is +$2000 per tonne
• -150 mesh is unsuitable for new applications and sometimes not
salable
What does mesh size mean?
Mesh basically refers the number of holes in a sieve. As the number
describing the mesh size increases, the size of the particles
decreases. Higher mesh numbers refer to finer material. Mesh size
is not a precise measurement of particle size.
A minus or plus symbol in front of the mesh size indicates whether
the material is coarser or finer that that mesh size. For example A
–150-mesh would mean that all particles smaller than 150-mesh would
pass through the sieve. A +150 mesh means that all the particles
200-mesh or larger are retained.
Market for flake graphite
Global market consumption of natural graphite has increased from
approximately 600,000 tonnes in 2000 to roughly 1.2 million tonnes
in 2011. Demand for graphite has been increasing by approximately
5% per year since 2000 due to the continuing modernization of
China, India and other emerging economies, resulting in strong
demand from traditional end-users such as the steel and automotive
industries.
Applications, such as lithium-ion batteries, fuel cells, and
nuclear and solar power, have the potential to create significant
incremental demand growth. There is roughly 10 to 20 times more
graphite in a lithium-ion battery than there is lithium. Demand for
graphite is expected to rise as electric vehicles and lithium
battery technology are adopted.
Natural graphite comes in several forms: flake, amorphous and lump.
Of the 1.2 million tonnes of graphite produced annually, about 40%
is of the most desirable flake type. China, which produces about
70% of the world’s graphite, is seeing production and export growth
levelling, and export taxes and a licensing system have been
instituted.
Bottom line
The market for high quality flake graphite is expected to continue
to grow. Standard Graphite has acquired an advanced graphite
project that has good access and infrastructure in a stable region
in Canada known for producing quality graphite.
The next major catalysts that will most likely propel Standard
Graphite will be the verification of the resource at its Mousseau
East Deposit and the determination of the metallurgical quality of
the graphite in the deposit.
The company has a tight share structure with only 24 million shares
outstanding and a market capitalization of about $11 million and
about $1 million in the bank.
Figure 1 Location Map
Figure 2 Property map with drill collar locations
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