China dominates global graphite production, accounting for about 60% of the market and it’s hungry for more as the electric vehicle and energy storage industries soak up supply.
That’s a big opportunity for Gratomic Inc. (TSX-V:GRAT, OTCQX:CBULF), a Toronto-based company that is developing the high-quality vein graphite Aukam Graphite Project in Namibia. Together with the anticipated production of the recently acquired high-grade Capim Grosso graphite project in Brazil, the company expects to capture about 10% of the market outside of China when both mines come on stream.
Proactive sat down with Gratomic president and CEO Arno Brand to find out what sets the company’s projects apart.
Proactive: You have two high-quality graphite assets in Namibia and Brazil. How advanced are the projects?
Arno Brand: The project in Brazil is not a conventional vein graphite asset. It's just an incredibly high-grade regular flake graphite asset. Although it has the inclusion of veins in the system, it cannot yet be identified as a vein graphite asset, although it's very similar in nature to what we have at Aukam, it is not entirely the same.
The Aukam vein graphite asset in Namibia is truly one of the highest-grade assets in the world. It's one of the first commercial vein graphite projects outside of Sri Lanka. We're currently at a stage where we're heading into the final commissioning of the 20,000 tonnes per year processing plant.
We're bringing in four additional polishing mills into the circuit to increase recovery and increase the grade of the graphite being produced on the processing plant. So, Aukam is fairly advanced and pretty much getting ready to go into production.
Capim Grosso is not yet classified as a vein system. Although we see a lot of similarities with Aukam [GU2], it is currently classified as an incredibly high-grade flake graphite system and is probably sitting as one of the highest-grade assets in Brazil at this point, which makes it an incredibly attractive asset on its own. We went after it after looking at almost 120 projects around the world and Capim Grosso was the only one that substantially stuck out as a good investment for the company to pursue because it fit the criteria of one of the company's main objectives which is that it has the potential to become a lower quartile cost curve producer.
There are many graphite producers out there. What makes Gratomic stand out from the pack?
When you have high-grade assets coming into the market, sitting on the lower quartile cost curve, you can really keep your hand on the dial, in terms of how you are setting prices going forward. You have got to look at it from the perspective that demand is currently stepping up dramatically.
When you become a major producer that's looking at producing 20,000 tonnes a year at Aukam and, at this point we could probably set our sights on Capim Grosso producing about 40,000 tonnes a year. Coming into the market with 60,000 tonnes of production a year in a market that is essentially producing about 1.2 to 1.5 million tonnes, out of which there are very few producers outside of China. Given the classification of these two assets, we'll have a very good opportunity to really drive impact in the market in terms of our pricing because of the nature of the assets.
How soon do you expect to bring production to the market?
A lot of people think starting a mine is like opening a small business; it definitely isn't. Although we're in the commissioning phase of the processing plant at Aukam, you have to make sure your plant is properly built and calibrated to operate for a decade or more. We can't take any shortcuts during the commissioning phase. We have to go through full commissioning, meaning we have to test every single piece of equipment, making sure every single component of that piece of equipment is functioning properly. There are generally about 100,000 checkpoints across the circuit that need to be properly calibrated. We need to make sure the soft starters are working and that there is no overload on the system. You don't want any hindrance as you go into production. At the moment, the commissioning is doing incredibly well and is ongoing every day. Probably by the end of this quarter or the beginning of the next quarter, we should start turning out some product at Aukam.
Which industries are driving most of the demand for high-quality graphite?
No surprise, it's probably the electric vehicle battery market. Graphite comprises probably 60-70% of the anode of the battery. The battery industry is definitely the key driver behind an industry that was already expanding at 6% per annum in terms of demand and almost the majority of the demand right now was driven by a world that is very, very quickly transitioning to the electric vehicle market.
What makes your material more suited for the electric vehicle and energy storage markets?
It all starts from the basics. We used to have an analogy in mining: garbage in, garbage out. If you have a very good quality product going into the circuit, you have extremely good quality material coming out. One thing that really sets us apart, is that we don't have to rely on any heat or acid treatment to beneficiate and upgrade our graphite to battery grade. We make use of a patented technology that uses the aerodynamics of the highest-grade flakes in the circuit and captures that through their classification process. We're able to maintain the extremely high order of graphite, the energy density of the graphite, and the flake in a pristine way that allows it to optimally function in a battery.
For Gratomic, how important are environmental factors in producing graphite?
As a company, we've taken a green approach. I'm a local Namibian; I like to keep my backyard clean. The company has made it one of its key focuses to design and engineer a processing facility that essentially has a negative carbon footprint on its environment. The fact that we don't use any acid treatments on-site means that naturally there is much less of an environmental footprint than most conventional mines. I would say that it probably ranks as the top priority in the company to maintain a minimal impact on the environment in all our projects. One of our values as leadership is making sure we are going out there and building mines that are stainable over long periods of time and leaving the areas that are mining in a pristine condition.
You aim to develop Gratomic into a multinational organization with projects around the world. Are you targeting any other acquisitions at this stage?
We have our sights set currently on putting our two key assets into production and there's no doubt in my mind that that will happen very quickly, over the next two years. But as a growing company, you're always on the lookout for assets around the world that fit your set criteria. You need to keep bringing in those high-grade, lower quartile cost curve assets as you find them. They're not easy to find but we've got a very distinguished team with boots on the ground in every corner of the planet looking every single day for that miracle project and as far as I'm concerned that is definitely a key strategy of the company.
What do you see as the investment case for Gratomic?
Gratomic has done a phenomenal job as a company and the leadership team has done a phenomenal job in driving value continuously. We have seen returns over the last two years of 600% year-on-year in 2020 and 306% year-on-year in 2021 because of our very aggressive growth profiles, bringing additional assets online and developing the assets we do have with a very calculated approach.
In a market as big as graphite there are always other companies doing the same thing. What we found is that the value and the principles of management are what drive investors into companies like Gratomic. We have a lot of like-minded investors out there that believe in building really good sustainable assets around the world and doing it in a way that preserves the environment as best as possible. And we support our communities in Namibia.
We are a simple graphite company that is setting out to become one of the largest graphite producers outside of China. We're not doing this by piggybacking off historical mining operations or picking up just any old asset. We bring true value to shareholders by entering early-stage assets and putting out minimal equity to acquire those assets.
We can take a company like Capim Grosso, pay $5 million for it, and turn it into a company that produces 40,000 tonnes of graphite a year. We have a distinguished team that can build those mines. With our experience in graphite mine building around the world, we can take an asset from start to finish quicker than most other companies can. We don't say we're going to do it, we do it. We have a keen appreciation for our shareholders, we preserve value for them and don't buy dilute our company at the wrong periods of time. We always make sure that whatever we do is in the favour of the shareholder.
Contact the author at stephen.gunnion@proactiveinvestors.com