Offtake agreements are often a marker of success in the graphite industry. Companies able to set up such strategic, long-term partnerships generally have a crucial advantage over those unable to do so as they know that there is a market for the product they plan to produce.
A close relative of offtake agreements is vertical integration, which Investopedia defines as what happens when a company expands its business into areas that are at different points on the same production path. In mining terms, that’s the equivalent of a producing company owning its supplier and/or distributor.
Vertical integration can be tough to achieve — for instance, it can be easier for companies to rely on the “expertise and economies of scale of other vendors” rather than go it alone. However, in today’s markets, pluses like reduced turnaround time and lower costs have made it increasingly appealing for graphite juniors.
The latest such company pursuing vertical integration looks to be Elcora Resources (TSXV:ERA), which has been quite busy since the end of last year. Summing up the company’s activities, Jack Lifton, founding principal of Technology Metals Research, said in a recent InvestorIntel article that it “has taken ownership or control of several existing Sri Lankan high grade deposits that were worked in the recent past.” Though the easily accessible, high-grade material has been mined, the company believes that with modern technology it will be able to extract “an even larger amount of high grade graphite than was recovered in the past.”
Of course, what Lifton really seems to find appealing is that Elcora plans to build a graphite processing operation that it will use for the material it mines and for “off-takes from other Sri Lankan deposits and for tolling.” Further, it intends to look at downstream value-added product manufacturing.
Explaining the importance of those factors, Lifton notes that Elcora “is a Integrated Graphite ‘Company’, not just a mine.” Indeed, he goes as far as to say,”[t]he developers of this company are in a real sense the antithesis of junior miners” — essentially, rather than finding a deposit to develop, they “they selected a known deposit group and studied it along with graphite chemistry and technology to see how far downstream, in terms of product, they would need to go to have a profitable venture not dependent on any one deposit.”
Based on Lifton’s assessment, Elcora certainly seems to be a company to watch. As for investors, they seem to agree. Since Lifton’s article on the company was published yesterday, Elcora’s share price has risen from $0.29 to a high of $0.40 today. It ultimately closed at $0.38.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.