In this exclusive column, Paul Ferguson, CMO of Great Lakes Graphite, tells us why he is cautiously optimistic about the end of the so-called “capital drought” in the graphite sector, and explains the business case behind Great Lakes’ entry into the value-added graphite market.
By Paul Ferguson, CMO, Great Lakes Graphite
Benchmark Mineral Intelligence
The “realities of the market” referred to by Simon Moores, one of the world’s top graphite analysts, include a capital drought that is equivalent in length and severity to what California has been undergoing for the past several years.
This has resulted in a situation where companies with advanced projects have stalled on, or near the threshold of production, as they have been unable to raise the capital required to move to the next step. In many cases, CAPEX requirements are near or over $100 million and, in some cases, a multiple of that.
Until Syrah’s announcement just recently, the situation appeared to be a stalemate with no end in sight. It’s too early to tell if the floodgates will open now or perhaps just the spigot, but in either case reasons to be (cautiously) optimistic are beginning to show themselves.
Fundamentally, the situation has continued to improve with more clarity regarding the Tesla Gigafactory and now plans being revealed by several others for similar facilities. The growth in demand for energy minerals to support the growth of these industries is inevitable.
At Great Lakes Graphite, our response to the current environment began several months ago when we found a way to resequence our business plan that would dramatically shorten the timeline to revenue and cash flow. When the Matheson Micronization Facility became available to us, we saw an opportunity to bypass the lengthy, expensive and painstaking process of developing a deposit and to move directly to our goal of manufacturing value-added graphite products.
Focusing on value-added products in the near-term will enable the company to achieve a few critical objectives. Above all, accelerating the timeline to revenue will dramatically change the financial situation of the company and will in time provide enormous strength and flexibility. The leverage that comes from achieving cash flow with only minimal CAPEX has not yet been demonstrated but assuming the train stays on the rails we will see that develop.
But wait, there’s more.
To get the most value out of being in the value-added products business entails selling to end users of the products, not resellers. The downside is that we must go through a qualification process with every single prospect. Each prospect must test our product to determine if it meets their specific requirements.
The flip side, as long as we deliver the goods, is that these relationships tend to be sticky. While it takes time and effort to get through these qualification processes, once through them, you have the potential and opportunity to build a significant long-term customer relationship.
Climbing the graphite value chain one link at a time means that first Great Lakes Graphite will establish itself as a legitimate new entrant in the graphite market by delivering micronized flake graphite products beginning in the Q4 2015.
On parallel tracks we will have some of the micronized material purified and begin the qualification process with a set of prospects whose requirements include high purity. Shortly after that we will have purified material shaped and coated which will position the company to be qualifying prospects that include lithium-ion battery manufacturers.
Because the higher value products have relatively longer qualification times and more stringent requirements, it is important to start the clocks on those as soon as possible. That said, the qualification times also provide the company with space to determine the optimal way to acquire or acquire access to the capabilities that are required to manufacture the full spectrum of value-added micronized graphite products.
There is still much to do and much to prove. But we now have our hands firmly on the graphite value chain and are ready to begin climbing.