Graphite is by no means a new player in the industrial world, but over the last decade it has flown under most investors’ radar due to reduced production and several mine shutdowns — the result of low prices and waning demand. That changed in 2011, when the price of graphite cycled back up, peaking at as much as $2,700 per tonne. Although prices have since fallen, mostly because of macroeconomic developments, mining companies have resumed exploration for the critical mineral, whose industrial applications have much potential.
Flinders Resources (TSXV:FDR) is looking to bring its Woxna graphite mine, a formerly producing graphite mine located in Sweden, back into production. Recently, Graphite Investing News sat down with Flinders’ president and CEO, Martin McFarlane, to discuss the company’s project.
Graphite Investing News (GIN): Let’s start off by getting some background information about your project. Can you tell our readers what sets Flinders apart from other graphite companies?
Martin McFarlane (MMcF): Flinders is unique from an investment perspective because it’s the only listed graphite story that is fully funded into production. We will probably be one of the first graphite projects in production; which we anticipate for the third or fourth quarter of next year. Woxna (in Sweden) is a brownfields operation. The mine was shut down 10 years ago, so it’s fully constructed, fully permitted, fully funded and currently undergoing refurbishment — we expect to be producing graphite there within the next 12 months.
Historically, Woxna produced 40 percent large flake, 30 percent in the medium category and 30 percent in the fine. Our goal is to be at full capacity, which is 10,000 to 13,000 tons of flake graphite within six months of starting the operation.
GIN: What is the reason behind the mine’s closure?
MMcF: Prices. In 2001, low graphite prices, caused mainly by a flood of low-cost Chinese material, made it unprofitable to operate a mine. With graphite prices down around the $300 level, once you got to your operating cost, the sensible thing to do was shut down rather than burn money. So it shut down in 2001. Today, large-flake graphite prices are typically in the $1,400 range rather than in the $300 range. At three or four times the price it made sense to start it up again.
GIN: Now that you are looking to bring the mine into production, are there any significant challenges that could hinder the achievement of this next phase?
MMcF: No, in fact, we’re in good shape. We’ve just started work on the interior of the plant. During the summer, we used the warm weather to get as many outdoor things done as we possibly could. Now the focus has moved indoors because it’s obviously easier to operate inside the heated building.
But sometimes things go wrong. For example, we’re pumping out the pit at the moment. The mine that we had is filled with 10 years of rainwater and snowfall. So we’ve been pumping that out over the summer. But we’ve had the wettest summer in Sweden in 250 years, so that means getting a lot more rainfall than we expected. The pumping is going ahead, but it’s been slower than we expected. Those are the sort of challenges that happen.
GIN: So nothing major in terms of potential setbacks. What do the processing costs look like?
MMcF: It’s not a huge amount of cost in terms of processing because it is relatively straightforward, but obviously the trick is making sure you don’t damage the flake. So that’s where the specialized skills come in terms of how you recover the flake without destroying it.
GIN: How is graphite mined so as to not damage the flake?
MMcF: Graphite mining is, for the most part, no different than other hard-rock mining. You blast your rock and then take the ore down to the crusher, which will get it down to around 10 mils, maybe a little bit less.
From there the process changes a little because you don’t want to grind the ore too hard — otherwise you’ll destroy your flake. And the flake is the fabled part. So you need to grind it gently so as to recover as much flake as possible. And then you float, so you put it in liquid, blow air through it and add a flotation agent.
GIN: Interesting. I didn’t realize that the process was so close to, say, copper mining. So when you finally do get to production, who are you eyeing as your target market?
MMcF: We’re focusing on Europe. Europe’s about a 100,000-ton-per-annum flake-graphite market. At full production we’ll be about 10 to 13 percent of the market in Europe.
GIN: What can you offer the European market that graphite sources like China, Mexico and Africa cannot?
MMcF: We offer the benefit of short times to deliver. We’re a day’s delivery from Germany — where most of the customers are — and the northern part of Europe. As well, we’re about product quality and consistency. For example, mines in China are typically very, very small, so to get a 20-ton delivery in one container, they may need to consolidate from three of four different mines — that means the buyer is getting three of four different qualities of graphite. So one of the things we will offer is that each ton of our product will be the same as the last ton.
GIN: Are there any other graphite companies that might be competing for your target market?
MMcF: Well, in Europe there’s only one other small graphite mine that’s actually in production in Norway. It’s called Skaland and has a capacity of about 3,000 tons a year. It’s not really a competitor in that sense. There is another project in Northern Sweden that’s owned by an ASX-listed firm called Talga Resources (ASX:TLG), but it’s probably five years, give or take, away from production.
In Canada, there’s the Ontario Graphite project that has been constructed and there’s Mega Graphite’s Uley graphite project in Australia. They have a fully constructed plant which could be restarted relatively quickly. And then you’ve got Big North Graphite (TSXV:NRT), Focus Graphite (TSXV:FMS,OTCQX:FCSMF) and Northern Graphite (TSXV:NGC), which are still a couple years away from production because they’ve got to build and finance a plant. That’s what we’re looking at in terms of up and comers in the graphite world.
But the North American companies are going to likely be targeting North American or possibly Asian markets. In Europe, most of our competitors are probably Chinese.
GIN: So being in Sweden is a good thing for Flinders?
MMcF: Yes. That’s definitely going to be a marketing strength for us; we are in the backyard of the European market. Manufacturers won’t have to wait for shipments, they don’t have to get export permits.
GIN: What is your mine-life expectancy?
MMcF: At the moment, based on our current plant capacity, we’ve got enough at that one deposit for more than 20 years of life. The deposit is open at depth and along strike, so we expect that with further exploration we’ll extend its life. We’ve also got three other deposits in total, and I believe that if we drill them to the same level of certainty it would give us another 40 years of life. Plus, there is another 60 kilometers of exploration area that gives the same geophysical signatures as our existing graphite deposits, so there’s almost certainly going to be more graphite in that area.
We’re not going to be running out of graphite anytime soon.
GIN: Now that prices are looking better than they were a few years ago, quite a few companies have started to explore for graphite deposits. Is graphite a fad investment or do you think it is here to stay?
MMcF: Well, graphite has been around for a long, long time. I think the first graphite mine was in the UK back in the 1600s, but it’s been in production since then. Whereas rare earths are more of a recent thing. Some of the uses for rare earths, some of the very specialized electronics are a much more recent market for rare earths. In contrast, with graphite, steelmaking is the biggest use for graphite and that’s been going on for hundreds of years. That market is not going to go away from an investor point of view.
GIN: So what has brought graphite back into investors’ line of sight?
MMcF: The reason graphite hasn’t been on investors’ radar is because the Chinese dominate production and you can’t invest in those companies. So most people haven’t been aware of graphite and it’s only now that Chinese production hasn’t been able to keep up with demand and people are looking for new graphite projects that are outside China.
GIN: That’s a good feeling. Just wrapping up here, if there were five words that you would like investors to associate with your company, what would they be?
MMcF: Fully funded, first to production.
GIN: Good choice. Thank you very much for taking the time to chat with me about your project.
MMcF: Thank you.
Securities Disclosure: I, Vivien Diniz, have no investment interest in Flinders Graphite.
Editorial Disclosure: Flinders Resources is not a client of The Investing News Network.
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