Hi Rolly
have a look at this post from Paitentman when the share price was $3.10.Since then problems with dryers which are outside the scope of this post...A very good post IMO but the reality of supply demand are very real. @oznt put up a great video from Simon Moores and well worth a listen. Mega factories are coming while profits are about more sales into increasing markets...
Increased sales to Chinese Battery Anode manufacturers now look likely.
I base this on the following chronological statements from management against the backdrop of Chinese EV sales
past and
expected.
Dot 1: October 2016:
Jim Askew [36:10]: "
Strategically we certainly believe that by engaging with anode producers in China that provides a further risk reduction to the business, so we're not exclusively operating in the downstream production area ourselves. How that works out is certainly a work in progress ..."
Dot 2: November 2016: Downstream Strategy Update
Tolga Kumova: "... we believe that there will be at least 100,000 tons of natural spherical anode material demand by 2019. These forecasts are re-enforced by
significant demand requests from our customers, who we've been working with for quite some time who are planning out their two to three year demand requirements... First we'll discuss China where the government has recently proposed that 8% of all car sales in 2018 be electric, and 12% of car sales by 2020. China is projected to have 700,000 EV sales this year ... Energy storage which is also increasing with the Chinese domestic demand for new storage units increasing 30% year on year. EV anode materials are typically a blend of natural and synthetic currently, however
the major EV anode producers are looking to increase the natural component as consistent high quality supply of natural graphite emerges. In the case of storage batteries, this is predominantly natural graphite in the anode material.
[8:22] We've had this flake material evaluated by
multiple Chinese natural and synthetic anode producers and have exceeded their expectations. It is our intention to supply our
fine flake to multiple anode producers in China
to be processed into spherical graphite. With regards to uncoated spherical, some EV producers have specifically requested that we work in collaborative agreement with their existing anode producers to provide them consistent highly specified uncoated spherical graphite. In this case the existing anode producer will coat and blend our spherical uncoated material into their existing recipe. Our clear advantage here is that our material exceeds the high expectations consistently with exceptional uniform shaping characteristics ...
Other end customers have specifically requested coated material which we've produced working with one of our Chinese partners Morgan Hairong. This material has been approved by some of the world's largest and highest quality battery producers. There is clearly significant margins to be made in this additional stage and we'll work with the customers and our partners to participate in these returns."
Dot 3: December 2016
Jim Askew [4:00]: "A very major piece of work has been going on this quarter, has been the establishment by Shaun Verner of his Sales & Marketing team which continues to build out and
has made enormous progress and strides in that area ..."
Jim Askew [8:14] "... Consolidation of our sales and marketing efforts and real granularity in what we're achieving there and some real detail on the
enormous amount of initiative going on with our discussions in China in the traditional markets and in the EV and downstream markets"
Michael Slifirski - Analyst at Credit Suisse [22:44] "How confident are you that the 60,000 ton scale for Louisiana is the right scale? Is there the chance that that might be changed ...
Jim Askew: "... An incoming chief executive would have the scope to challenge that number ... The biggest influence that is likely to occur to that number is increasing understanding we're having on what is happening with the
Chinese markets and the major manufacturers in that space and I'll leave that for Shaun in March to give you some more detail about it."
Jim Askew [31:08]: [On sales to Chinese battery anode manufacturers during ramp up]: "...Great strides are being made in that area but there's still not enough finality around it. We're modestly confident we'll get real engagement in that area and I think it's reasonable for you to expect that
we'll have some real detail of that available late this quarter in our sales and marketing update. But we've been on the ground extensively in China and we'll continue to be there. We've got people on the ground in China virtually full time in this area. And we're getting the right sort of response. There's been extensive testing by those entities and the results have been good ... Chinese New Year has slowed it down a little bit."
Matthew Hocking - Analyst at Deutsche Bank [32:18]: "Is the scope of these types of offtakes specifically around the short term to allow you to place material into the battery grade markets while you're ramping up and don't have your own downstream facility? So is it something that from a company perspective, there's certainly a focus to get this in place as soon as possible?
Jim Askew [32:35]: Yes and yes. The near term short term objective is very real and we've identified that ... there's a short termism to it but
not to preclude the fact that there might be long term engagements with some of the major players on the global sphere of spherical graphite as well without that impinging on our own commercial strategy to be developing Lousiana.
Connecting the dots:
If you listen to the respective calls chronologically in one sitting, it becomes palpable that things in China are accelerating; this makes sense when you look at:
1. The past (2014)
2014-16:
2. And the future of the S-Curve:
(a)
700,000 electric vehicle sales forecast for 2017
(b)
China to quadruple new energy vehicle production by 2020: minister
We'll have to wait till the Sales & Marketing Agreement for hard numbers and prices but I'm excited because this development
could increase the basket price of our graphite and the tonnage sold which increases the intrinsic value
.
Profit from Balama (not including spherical or vanadium) is highly sensitive to the graphite basket price:
$670 Basket Price = $4.69
$817 Basket Price = $6.70
$953 Basket Price = $8.54
It's important to note that this doesn't include the super economic profits possible from Louisiana or profits from vanadium processing in the future.
Finally, I'll get told off for this, but quoting an
unverifiable source, it was noted at the 2016 AGM that Tolga Kumova: "
Thinks the projections of analysts for SG demand are all too conservative. Has an email from one Chinese customer saying 80K tonnes could be taken." I can't verify this but what if it's true?
My apologies for the
inaccurate thread previously, I was so excited by these China findings that the emotions overwhelmed my thinking.END
A lot about battery markets and capacity to soak up additional supply already in play... A low cost producer showing strain and others want to underpin their business plan with out experience competing against both SRY and China whom have years of experience.
Good luck getting a bank or finance with this in play...I like Walkabout projects because it has mitigated against this...where plenty of battery feed grade graphite is already available expandable markets are currently limited by a reliable supply.
Croc
(20min delay)
