First Graphene Ltd (ASX:FGR, OTCQB:FGPHF, FRA:M11) earlier this week said it had signed a Memorandum of Understanding with The Sixth Element (Changzhou) Material Technology Co Ltd to distribute its PureGRAPH® CEM additive into China, a move that could open a route into the world’s largest cement and concrete market.
Managing Director and CEO Michael Bell told Proactive the opportunity was significant because of the scale of China’s cement industry. He said the UK market, where First Graphene has worked with Breedon Group, represented more than 16 million tonnes of cement per year, while the United States produced about 100 million tonnes.
By comparison, Bell said China produced up to 2.3 billion tonnes of cement, adding that “essentially, 50% of the cement used in the world today is out of China”. Even in a weaker market cycle, he said Chinese cement production could still be around 1.8 billion tonnes, making it “a very vast opportunity” for First Graphene.
The MOU appoints The Sixth Element as a key distributor for PureGRAPH® CEM in China, with exclusivity available subject to achieving annual purchase targets. Bell said the partner had been selected because it understood nanomaterials and had the market connections, presence and manufacturing capability needed in China.
Bell said First Graphene, as an Australian microcap, would face a complex task entering China alone. He said the scale of Chinese demand would also far exceed what the company could make from Australia or its other target markets, making domestic manufacturing an important potential catalyst.
The company’s PureGRAPH® CEM additive is designed to be added during the cement manufacturing process. Bell said the product did not require any change to the process, as it could be added on the conveyor belt before the final milling stage.
He said industrial-scale work with Breedon had shown the resulting cement was “somewhere between 15% and 20% stronger in both compressive and flexural strength”. He also said the additive offered improved protection against water absorption, sulfate erosion and chloride erosion.
Key catalysts now include validation of First Graphene’s results by The Sixth Element in China, negotiation of a distribution agreement and progress toward purchase milestones. Bell said the initial focus would be on getting product into the market, before moving toward a JV licensing arrangement at the 500-tonne mark, including plans to manufacture in China.
Interview highlights
- First Graphene has signed an MOU with The Sixth Element to distribute PureGRAPH® CEM into China.
- The agreement opens a potential route into the world’s largest cement and concrete market.
- Bell said China produces up to 2.3 billion tonnes of cement, representing around 50% of cement used globally.
- The MOU appoints The Sixth Element as a key distributor for PureGRAPH® CEM in China, with exclusivity available subject to annual purchase targets.
- Bell said The Sixth Element brings nanomaterials expertise, Chinese market connections, local presence and manufacturing capability.
- PureGRAPH® CEM is added during the cement manufacturing process without requiring any change to existing processes.
- Bell said industrial-scale validation showed cement can become around 15% to 20% stronger in compressive and flexural strength.
- The product also improves resistance to water absorption, sulfate erosion and chloride erosion, according to Bell.
- The next step is for The Sixth Element to validate or replicate First Graphene’s results in China.
- The pathway includes a potential distribution agreement, followed by a JV licensing arrangement and in-country manufacturing once milestones are reached.
Proactive: First Graphene Ltd (ASX:FGR, OTCQB:FGPHF) has signed a Memorandum of Understanding with The Sixth Element (Changzhou) Material Technology Co Ltd to distribute its PureGRAPH® CEM additive into China, opening a pathway into the world’s largest cement and concrete market. Here to discuss the opportunity is Managing Director and CEO Michael Bell. Michael, good to have you on again.
Michael Bell: Good morning. Great to speak.
Proactive: Let’s talk through this opportunity. How big is the opportunity in China and can you talk us through this MOU?
Michael Bell: We have an additive using graphene, and we have developed it based on what is happening in the United Kingdom. We have a great partner there, Breedon Group, which controls about 50% of the cement manufacturing within the United Kingdom.
To us, that market is big. It is somewhere upwards of 16 million tonnes of cement per year, and that is what we could sell our graphene into. If we penetrated that market 100%, it might be worth US$250 million to US$300 million to us, so we measure the opportunity in terms of percentage penetration of that number.
That is a big market. When you compare that to the likes of the United States, it produces about 100 million tonnes of cement. Then, when you look at China, it is up to 2.3 billion tonnes of cement. Essentially, 50% of the cement used in the world today is out of China.
Even if the market is depressed and it is not towards that 2.3 billion tonnes, and it might only be 1.8 billion tonnes, it does not really matter about those market cycles. It is still a very vast opportunity for us.
Proactive: I want to talk about PureGRAPH® CEM in a moment, but let’s talk about The Sixth Element. What attracted you to it and why is it the right partner for you in China?
Michael Bell: We have been looking for quite a while for partners in China. One of the complexities is something we have learned ourselves through commercial managers and trying to educate them in nanomaterials. Not having an understanding of a nanomaterial is definitely an impediment, both to the sales cycle and to how you put your product into the market.
With The Sixth Element, it is probably the most significant nanomaterials manufacturer in China and is very focused on the Chinese market. It comes with knowledge of the material, but also the market connections, the presence and the manufacturing capability that is quite well suited to us.
Proactive: I want to talk about that manufacturing capability. How does local manufacturing in China help the company grow?
Michael Bell: For us, as an Australian company and a small microcap, penetrating the Chinese market is only something we would dream of. It is a very complicated process to do so.
Secondly, the scale of what China demands far outstrips whatever we could even dream of making out of Australia or any other targeted market. It needs domestic manufacturing within China to feed that, and even then, it is a vast opportunity.
So, it is about baby steps. We need to get some product into the market first, and the MOU then triggers us at certain points to say, right, let’s manufacture in-country.
Proactive: Michael, let’s talk about the product itself, PureGRAPH® CEM. Can you talk us through what it is, what it does and why it is useful for cement and concrete?
Michael Bell: When you put very small amounts of graphene into a cementitious product, into concrete, you get a strength increase. In a laboratory setting, it can be anywhere between 20% and 40%, or even higher, in terms of compressive and flexural strength.
It is a known fact that it is very easy to do in a laboratory setting. We have done all of our validation and development of the product at industrial scale with our partner Breedon in the UK. We are not distracted by laboratory results that can sometimes hurt your implementation into industrial scale, so we have only done it at industrial scale.
When you put it in, it is part of the cement manufacturing process. It does not require any change to the process. It is simply an additive that is added on the conveyor belt that goes into the final milling stage of cement manufacture, so it does not have any impact process-wise.
You put small amounts of it in and, in practice, when you get the resultant cement, it is somewhere between 15% and 20% stronger in both compressive and flexural strength.
It also offers a much higher level of protection against water erosion after it is cured, so it resists water being absorbed by the concrete after cure. It also offers protection against sulfate and chloride erosion, which is common in precast water pipes and things like that.
This is an industrial, commercial-scale validated product ready to go.
Proactive: What happens with the MOU now? How does it become a formal agreement and what is next for the company?
Michael Bell: With respect to the MOU, the first step is to get The Sixth Element validating our results or replicating our results. Once it does that in-country, that ticks the box and says, yes, it is those sorts of results.
During that process, we will also negotiate a distribution agreement that says these are the milestones. This is in reference to the initial 200 tonnes. Then, at the 500-tonne mark, that distribution agreement becomes a JV licensing arrangement, in which we will put a factory in China, leverage what The Sixth Element has and make our product up there.
It is a phased approach. It is logical for us to do that and it helps the adoption of it in the market be a bit more commercially sensible.
Proactive: Plenty to look forward to, Michael. Thanks for your time this morning and we will speak again as it all unfolds.
Michael Bell: My pleasure. Thank you so much.