Analyst : Warwick Grigor, Far East Capital
After opening the week up on a positive note the market hit a speed bump on Wednesday, as a number of stocks started to hit resistance levels. Recent falls in the copper price started to get some publicity, having fallen from US$3.16/lb to US$2.96/lb over two weeks. Money started to move away from gold as that commodity continued to fall away with nothing to stimulate it. The oil price was a little more subdued after having risen strongly since July. It adds up to a loss of momentum, for the time being.
In the more specialist areas of uranium and cobalt it has all been positive news and higher prices. Additional production cuts in uranium have led to uptrends forming with uranium company share prices, and cobalt has hit a nine year high with no pullback in sight. A year ago cobalt was US$14/lb. It has just touched US$31.75/lb. Brokers continue to pump out placements in an end of year rush, which might explain the profit taking in a number of companies as punters free up capital for the new raisings. Notwithstanding the above, there is nothing obvious that threatens to spoil Christmas this year, and every reason to believe that the favourable market will flow over into the January/February period.
Uranium pendulum is swinging the right way
First we had the temporary closure of mines in Canada, by Cameco, and now we have the Kazakhs curbing production. There is a good case for saying that the uranium price will fall no further. So, the uranium company share prices are spiking higher. The price has risen from US$20/lb to US$26.50/lb, but the question is whether this will lead to a new uptrend or not. The reason why there is so much uranium around is due to Kazakhstan cranking up production levels over the last 10 years, to a point where that country accounts for about 40% of world production. Each time the uranium price fell, Kazakhstan would allow its currency to depreciate to preserve its profit margins in its domestic currency. But, enough is enough; Kazakhstan has announced that it will cut production levels by 20% over three years. Add this to the cuts by Cameco and you get a 15% cut in world supply.
It sounds good but that is too simple a figure. Cameco is talking of a temporary closure of about 10 months. Kazatomprom’s cuts will be a scale down over thee years, so the 15% figure is technically not accurate. The traders will have a field day with the increased volatility that the news brings. Nuclear power is still the cleanest and cheapest form of base-load energy, and we should all be in favour of it, but uranium companies will continue to do it tough for a while yet. The corner has been turned but there is no suggestion that a boom is about to ensue. Still, the future now looks better.
Cobalt high flyers – what is the next one?
With the cobalt price hitting a nine year high the search is on for the next runner in the market. We have seen the strong performance of Northern Cobalt (N27) on the announcement of high grade intercepts up in the Northern Territory, and more recently we have seen Cobalt Blue (COB) (for which FEC was Lead Manager in the IPO a year ago) go for a run following a tight, $2.5m placement managed by Sydney-based broker, Blue Ocean. Both of these companies have JORC resources and represent more advanced opportunities than many of the other juniors that have been trying to promote laterite nickel or porphyry copper plays as cobalt projects. Both of them are in Australia, which tends to make them more accessible in the eye of the investor.
Just as lithium stocks have had a number of waves of buying in the current bull market, cobalt stocks will follow a similar pattern. So far there is no lead being given from existing cobalt producers for cobalt comes as a co-product. Maybe we could view Highlands Pacific as a proxy, as that company is producing a nickel-cobalt intermediate product at Ramu, in PNG. There are many juniors with sniffs of cobalt, but these are not going to have widespread appeal after the initial flurry. What other companies are coming though the system? The most interesting one we have seen in recent weeks is Blackstone Minerals (BSX), a company that has only just come to light, though it first traded in January 2017, following an a $4m IPO at 20¢. The shares hovered around the issue price the first six months, then it started the upwards climb in July, when it announced a deal to acquire 100% of Little Gem, a very high grade cobalt and gold project in British Columbia. The consideration was 25 mill. shares and another 8 mill. performance shares, and the paying of C$700,000 in option payments to a third party vendor. Royalties payable include a 20% net profit interest on the first 10,000 tonnes of ore mined, and a 2.5% NSR royalty on additional tonnes. A second, 1% NSR royalty is also payable.
The deal was executed on 25/8/17. In theory, the purchase price was $6.6m in paper (at the share price of 20¢) plus the royalties, but the rising share price makes it look much richer. The upfront cost to the company is negligible, with the issue of shares making it a performance-based deal. Is it worth the $18m+ price tag implied by the current share price? A quick look at four historic drill results, with grades of
1.4-2.4% cobalt and 11-112 gpt gold, over widths of 1.8m to 4.1m, shows that there is some really high grade here. Adit channel samples of massive sulphides in the range of 1-2m have given cobalt grades of 3.1%-6.6% cobalt, and 26-76 gpt gold. These are vey impressive. Samples in the disseminated sulphide are understandably lower but still good at 0.8%-3.5% cobalt and 4-34 gpt gold.
BSX is drawing analogies with the Bou-Azzer district of Morocco, which has produced over 100,000 tonnes of cobalt and tens of tons of gold, from more than 50 deposits over 75 years. Current production is 2,000 tpa of cobalt at a 1.3% head grade, with up to 3-4 gpt gold. There isn’t space in this column to go into great detail, so readers should go to the ASX releases to obtain more information, but there are some important observations that need to be made in determining whether the shares offer value or not.
Cobalt is hot in the market just now. We have seen both Cobalt Blue and Northern Cobalt pushed to much higher levels than their IPO prices. The market is hungry for high grade cobalt plays. The grades at Little Gem are about as good as you can get, and dramatically higher than almost any other prospect. The high-grade gold is a fantastic coproduct. The shares are tightly held. There won’t be much news flow until the field season next year, but I believe we are waiting on results from a single hole. In any event, there is enough historical information to whet the appetite.
At the risk of being blunt, this stock is a prime candidate for a big move. All the elements are in place. The only thing missing so far has been the buyers, though there hasn’t been much incentive to pay up when there is so little on the offer. It will only take one broker to get excited, like we saw with Blue Ocean and Cobalt Blue, to get the ball rolling. I have already taken a punt.
STOP PRESS: After writing the above comment on Thursday, I see the shares have gone into a Trading Halt on the Friday, regarding a capital raising. This may solve the shortage of scrip available in the market.
Plenty of work being done on graphene in lithium based batteries.
There is no shortage of companies working to enhance lithium-ion batteries through the addition of graphene. Just which innovation will be the best remains to be seen, but the message is that graphene is where the future lies. An article last week went so far as to describe lithium-ion as “archaic battery tech”. Samsung has just published a study that says graphene balls can boost battery capacity by 45% and charging speed by 500%. Significantly, it says it can incorporate the innovation into its existing manufacturing facilities without having to retool, but it still has to optimise the application process.
Samsung says that it can use silica to process graphene in a 3D form, and these ball are used as a protective layer on the anode and cathode. However, this is not the first time that we have seen graphene applied as a protective coating. We have read how cathodes for lithium-sulphur batteries are being enhanced by a protective layer of graphene that prevents degradation of the sulphur. This would clear the way to commercialisation of lithic-sulphur batteries and a four times increase in efficiency as measured by the specific energy of 500 W h/kg with up to 1,500 cycle lives.
Elsewhere, Rice University in Texas has said that graphene coated ribbons of vanadium oxide could be the best cathode for lithium-ion batteries, significantly increasing both energy and power densities. Interestingly, they describe the product as something in between batteries and supercapacitors. It is graphene’s high conductivity that appeal here overcoming the low conductivity of vanadium oxides. Every week there are additional news items about improvements that graphene is adding. Battery technology is just one small area though it is big in the minds of investors.
First Graphene commences shipments from Henderson facility …
FGR has reported that it has despatched its first graphene shipment from the Henderson facility, officially opened in late November. This has gone to a cement additive company in the USA, following on from enquires at the IDTechEx conference in Santa Clara, USA. Further trial samples have also been despatched to Italy and the UK for testing and optimisation. The release should be pleasing to shareholders who were looking for news flow from Santa Clara, and who were showing impatience on web chat sites. The fact that social media commentary is instantaneous doesn’t mean that companies are in the position to respond in the same manner. We have seen how irresponsible some of the Twittering has been from President Trump. Woe be tide the day when shareholders anxiety causes companies to go down a similar path. Company releases should at all times be accurate and informative first and foremost, in priority to being spontaneous.
While the Henderson production facility is one of the largest in the world, it is still just the starting point. In due course FGR will need to double and quadruple, and expand its capacity again and again as the graphene becomes more widely used in industry. This growth curve will go on for decades. Graphene is starting from a small base of 1,000-2,000 tpa of global demand, but with the expected growth rate of 60% p.a., growth will quickly compound. Ability to supply demand will be a key parameter for stimulation of growth.
The Henderson facility has design capacity of 25 to 100 tpa of graphene, depending upon how many shifts are operating. It hopes to build up actual production rates throughout 2018, as companies who have received trial samples work first to optimise the product for their purposes and as they commence commercial application. Once the process starts we should expect it to snowball with no ceiling in sight.
… and receives $1.5m research grant
First Graphene has announced a successful application for a $1.5m CRC-P funding grant for the advancement of the BEST Battery and the development of a process for making graphene oxide, from the Federal Government. It is in keeping with the redefinition of FGR as an advanced materials company, accessing the best research brains in the country, to achieve commercial outcomes for graphene. This is a great outcome for FGR, confirming that it is a serious technology company in the eyes of the Federal Government, on an exciting growth curve.
Graphene will cut into the demand for zinc
Zinc has been the traditional material for anti-corrosion applications, but graphene is shaping up as a serious substitute. The Chinese are using graphene on the surface of bridges and steel wind turbine towers, saying that the addition of graphene in anti-corrosion coatings can reduce the amount of zinc needed by 25-80%. The corrosion protection time doubles, thereby providing significant labour saving costs and of course, the graphene is less polluting than zinc. It will take time for the full effect to flow though, but zinc is yesterday’s hero.