Great Lakes Graphite: A New
Player In The Graphite Space-Talking With Management
About:GLKIF Includes:BRUZF
Summary
• Recently I spoke with some of the directors/managers at Great Lakes Graphite.
•
The company is a new player in the graphite space with a former producing asset-Lochaber--in Quebec.
•
While this is a small company it has many of the qualities that investors look for in a
graphite project, making it a compelling stock in the space.
Recently I had the privilege of speaking with some of the executives at Great Lakes
Graphite, including Paul Gorman--the company's CEO--Paul Hynek--Director of
Technical Services--and Paul Ferguson--Chief Marketing Officer. The following
summarizes the information that I've gathered from them from a couple of phone
conversations and some e-mails. I have constructed this in the form of an interview, and
while I have formatted the article, the information has been approved of by Paul Gorman,
Paul Hynek, and/or Paul Ferguson.
About Great Lakes Graphite
Great Lakes Graphite (OTCPK:GLKIF) is an Industrial Minerals Company focused on
developing the Lochaber Graphite Project in Quebec. The company acquired the project
earlier this year, and management is working quickly to bring it into commercial
production by 2017. In addition to developing the resource, management is working
towards identifying customers for its products.
As graphite investors know, graphite production involves more than just mining and
milling graphite. Virtually all graphite produced is sold to customers under prenegotiated, long-term offtake agreements and there are at least several dozen labeled
graphite products. Each of these products satisfies a different end market (e.g. spherical
graphite for Li-ion batteries, flake graphite for refractory brick), and as a result graphite
companies are faced with several barriers to profitability that your typical metals mining
company can avoid. But the opportunity is that much more compelling, as graphite
companies can generate value-added products whose selling prices dwarf the cost of
mining and processing.
Questions Regarding The Lochaber Project
Q: Can you give an overview of the Lochaber Project? What makes it unique with respect
to some of the more commonly known projects out there?
I believe that there are three critical differentiators for Lochaber. The first is location. The
second is location. And the third is...also location. That sounds flip, but I think our
location in southern Quebec conveys an enormous advantage that will become
increasingly apparent over time.
The Lochaber Project is located about 100 miles west of Montreal and just 30 miles east
of Ottawa. It is on the Quebec side of the Ottawa River, very close to the Ottawa River
and the Trans-Canada Highway.
(click to enlarge)
(Source: Lochaber NI 43-101 Technical Report)
Quebec has historically been a very mining friendly region and ranks as one of the top
place for mining as per the latest Fraser Institute rankings. In particular it ranks 22nd out
of 112 in terms of "policy perception" (p. 6) and 18th in terms of "investment
attractiveness" (p. 16)
Besides location, the Lochaber Project has characteristics that make it a particularly good
fit with our business plan. A scalable, modular, small footprint approach works with
properties that have a high grade resource at surface that is easily accessible. This
approach will not work on every graphite deposit out there, but we think it will work
extremely well at Lochaber.
In short, I think our project fits the "large flake, small resource" criteria put forth by Kiril
Mugerman earlier this year. While we haven't released a resource estimate or a feasibility
study yet, we claim in our investor presentation that we expect our project to produce
approximately 10,000 to 12,000 tonnes of graphite per year with an initial capital
expenditure of just $30 to $35 million. This means that we will be able to produce half of
what our competitors intend to produce with only a fraction of the capital expense.
What's more, preliminary analysis shows that at least half of our graphite qualifies as
large/jumbo flake.
(Source: Ibid)
This is beneficial for three reasons. First, larger flakes command a market premium.
(Source: Ibid)
Second, larger flakes are essential for producing many of the products that have
generated enthusiasm for the sector, notably lithium-ion batteries. Third, larger flakes
give us versatility seeing that larger flakes can be broken down into smaller flakes should
this be the product that our customers want, but small flakes cannot be built up into large
flakes.
Q: In reading through your technical report I noticed that the Lochaber Project has been
explored in the past. Is there an historic resource estimate? With all disclaimers and
qualifying statements aside how big is the resource?
Thanks for mentioning that. The whole area figured prominently in the graphite industry
over one hundred years ago, and this area is renowned for the quality of the graphite--its
purity and flake size--and that's why we were attracted to the Lochaber area.
Right now we are focused on the southern section of the main claim group. That's where
Rock Tech did their drilling and trenching work two years ago, which is forming the
basis for the resource estimate.
(click to enlarge)
(Source: Great Lakes Graphite)
But there was quite a resource estimate done in the northern part of the main claim group
back in the mid 1980's. The tonnage is small but the grade is fantastic. We think it's
encouraging in that it is indicative of the potential on this property.
Regarding the amount of graphite that is on the property it may take a long time to find
out, but our objective is to define enough material to give us an 18 year mine life. There
is enough upside potential indicated here that we are confident we can operate here for a
long, long time.
Q: When do you expect to put out a resource estimate? What about a mine plan? How do
you arrive at the production, opex, and capex estimates you provide in your corporate
presentation without having released a formal PEA or FS or even a resource estimate?
We announced in early August that a resource estimate had been initiated. The work is on
schedule and we are still targeting completion before year end. The reason why we have
confidence in our estimates is that we bring considerable experience to the table. John
Carter has built and worked on mills in 26 different countries over the span of his career.
We still have to do the work, but in his mind he can see exactly how the mill will look,
how it will operate, exactly how the flowsheet will work in practice.
Q: What is your timeline from now until you announce commercial production?
Our plan (see below) calls for a Feasibility Study to commence immediately after we
have completed our resource estimate. Keep in mind that our approach is scalable,
modular and lean.
(click to enlarge)
(Source: Great Lakes Graphite Investor Presentation)
We can initiate a quarry style operation with relatively little capital and a relatively short
permitting process. We'll go into production at a modest rate and scale up to meet
demand as we grow our customer base. Every aspect of our plan is shaped by our goal of
identifying the fastest path to production.
Q: How much money do you think you'll need to get from today until you decide to go
ahead with construction? How do you plan to raise it?
We estimate that it will take about $2 million to get the Lochaber Project all the way to a
production decision. What we are finding lately is that the quality and quantity of
financing options are both growing as we demonstrate traction executing our business
plan. We think that much of the capital we need will be raised through warrants and
options being exercised (there are about 30 million of these). Publishing a resource
estimate will provide a fundamental basis for revaluing the company and we anticipate
that will encourage a lot of shareholders to exercise their warrants. They have told us
that, anyway.
We also have some really solid new partners that came in with the last financing. There is
a core group of strongly supportive shareholders now that really understand what we are
doing. They understand what is required in terms of timelines and resources. They
understand that we have the capabilities in place to do what we say. Best of all, they have
the patience to work with us and the legitimacy to make it all happen. It's great to have
the wind at our backs for a change! And we're very grateful to have found investors that
share our vision.
Q: Many of my readers are familiar with mining, but the graphite business is different
than, say, gold mining, because there are so many different graphite end-products and no
universal price. As a company you need to focus just as much on marketing and endproduct development as you do on developing your mine plan and your resource
estimate. What have you done on this front and what are your plans to move forward with
marketing and product development?
Before joining Great Lakes, John Carter and I (Paul Gorman) had already done a great
deal of work in the graphite space. John is a recognized expert in mineral processing; I
focus more on customers, marketing and applications. We spent considerable time going
out on the road, visiting with customers, listening to them and understanding their
requirements. What we heard consistently is that customers are enthusiastic about the
prospect of a new source of stable, reliable North American graphite production.
Our entry into the market will be through our Customer Sampling Program. Building a
customer base certainly has a lot to do with the product you are bringing to market, but it
also involves a lot of relationship building. And that takes time. There's no way to get
around that. Given the length of time required to test materials for the high value
products, it is important that we begin cultivating those relationships as soon as possible.
In fact, we are putting the pieces for it in place currently. We will leverage all of the
strengths and depth in this company when we enter the market.
Great Lakes has a database of more than 600 customers to whom we are sending the
material, so that we can determine their needs and how we can reengineer the product to
their satisfaction. So while we are working on the economics of the mine on one side we
are also looking at our customers and seeing how exactly we can reengineer the product
to their satisfaction.
Q: Some of your larger peers have teamed up with engineering companies working on
producing spherical graphite or even graphene. What have you done on this front, or
what do you plan on doing with respect to producing value-added products?
You are asking about value added products. We are a stage or two before this, but we do
know some of the requirements to get to the spherical battery grade graphite and
graphene space. We are also connected to a research facility that did most of the
Canadian natural graphite development work a couple of decades ago, and their expertise
is invaluable. With their metallurgists and chemists on staff, we are preparing to explore
these products as we work to establish the parameters required with our resource.
Q: Is there anything else that you think prospective investors should know about the
Lochaber Project before making an investment decision?
Yes. Our friend Bruce Duncan has been rightfully getting a lot of attention for Canada
Carbon's (OTC:BRUZF) Miller Property, and investors should know that Miller is just 25
miles to the east of our Lochaber property. And that the graphite in our latest bulk sample
appears to be a combination of flake and lump.
Then they should forget everything I just said. Investors should forget that Lochaber is an
advanced, high quality natural graphite project 30 minutes from Ottawa. They should
forget the Mayo and the Plumbago, two historical mines and the Kelly, Burke and
McLaren, three named graphite occurrences. Forget the 3,000+ meters that were drilled
in the mid-80's that supported an historical resource estimate of 80,000 tonnes of 8%
graphite. Forget about the resource estimate underway on an area to the south and along
strike of that based on 7,000+ meters of drilling done in 2012.
I know, that's a lot to forget, but people need to put all of that aside and remember that no
matter how good any property is - even if it is only thirty kilometers from Ottawa, even if
it has a great history, even if it sports fantastic grades and excellent particle distribution a property is only as good as the team that is developing it. And we have a great team.
Laura Mottola, one of our Directors, is onsite at Sierra Gorda right now helping to
oversee the two thousand people that are onsite commissioning that mine. Laura is a
globally recognized expert in lean mining and mining automation. Having an industry
veteran like Laura Mottola guiding our mine planning and preparation is absolutely
invaluable. A small company like ours could never afford to retain her, so we offered her
a Board seat instead.
After the ore comes out of the ground there are few people in the world more
knowledgeable about what to do next than John Carter and Paul Hynek. John has built
dozens of mills for industrial minerals including graphite. Paul Hynek knows graphite at
the molecular level from his decades of work at Inco where he helped develop metal
foams and even co-authored a few patents related to battery technology. Paul knows how
to make spherical graphite.
Finally, we have deep expertise on industrial minerals markets in marketing and
marketing technology. We will leverage our accumulated experience and understanding
of these markets, the customers, their applications and product requirements and couple it
with best practices and modern technology. We believe it is a strategy the best mitigates
risk and maximizes our probability of success.
Although Great Lakes Graphite has only existed as such for a few months as such, the
core team has many years of working together and many years in the industrial minerals
space.
Ben's Final Thoughts
Great Lakes Graphite's team undoubtedly tells a very compelling story, and I am
appreciative that management has taken the time to answer my questions both via e-mail
and over the phone.
However, as investors we need to be wary of companies with such tiny valuations--just
$5 million in this case, and we also need to be very careful investing in companies that
don't have resource estimates or mine plans, despite the fact that management has given
us good reason to believe that these will be robust from an investment standpoint. And to
counter this wariness I should point out that as investors in mining companies we often
rely too much on the numbers provided in formal NI 43-101 compliant resource
statements and feasibility studies, and that reliance upon these documents without
properly understanding their genesis can lead to trouble. So in a way investing in a
company before we have these figures forces us to assume an additional level of healthy
skepticism that will better position us to make an investment decision.
Investors should be aware of the risks of investing in a company that doesn't have any
revenues and that won't have any for the foreseeable future. We are likely to see
shareholder dilution and the added supply of shares on the market could put pressure on
the stock price.
Finally note that this is an extremely illiquid stock. Investors who have access are
encouraged to purchase the shares in Canada (TSX.V: GLK), although there is very little
liquidity here as well. Make sure to use limit orders and be prepared to buy over time.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate
any positions within the next 72 hours. The author wrote this article themselves, and it
expresses their own opinions. The author is not receiving compensation for it. The author
has no business relationship with any company whose stock is mentioned in this article.
This article is tagged with: Commodities