Mineral Commodities leverages mineral sands cash flow to build lucrative battery anode business
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Special Report: Mineral Commodities is a significant minerals sands miner which is also developing an exciting — and potentially very lucrative — battery anode business in Europe.
Mineral Commodities (ASX:MRC) is a leading producer of zircon, rutile, garnet and ilmenite concentrates through its Tormin mineral sands operation in South Africa.
A diversification strategy means this miner can leverage off existing profits from Tormin to build a potentially lucrative battery anode business.
In October 2019, the company completed the acquisition of Skaland Graphite AS, the owner of the world’s highest-grade operating flake graphite mine in Norway and one of the only producers in Europe, the world’s fastest growing EV market.
This is part of a diversification strategy which should culminate in development of a lucrative battery anode business over the next few years.
In 2014, Mineral Commodities commenced production at the Tormin asset in South Africa.
Over the past six years this operation has generated a substantial amount of economic benefits for the company and its shareholders, Mineral Commodities corporate developer manager Peter Fox says.
“We have paid over $22m in dividends back to our shareholders,” he says.
“That is something like 41c per share — it has been a wonderful asset.”
But jurisdictional issues culminated in the company facing some (recently resolved) permitting hurdles as it looked to expand Tormin’s production profile.
Quite wisely, Mineral Commodities decided to take some of the proceeds from mining at Tormin to invest in a dedicated battery metals diversification strategy.
In 2017, the company acquired the Munglinup graphite project in the South West of WA.
“At the time, it was one of the highest-grade undeveloped graphite projects globally,” Fox says.
The company also formed a joint venture with Doral Fused Material, assessing the use of Doral’s Alumina Plant in Kwinana as a possible site to process Munglinup graphite into battery anode material.
Out of that, it successfully applied for a government-led a research grant with CSIRO to develop a cutting-edge ‘non-hydrofluoric’ process to purify the Munglinup graphite to battery grade anode.
Mineral Commodities continued to move quickly, booking a prefeasibility study (PFS) in under 12 months before completing a more detailed definitive feasibility study (DFS) on a robust graphite ‘concentrate-only’ operation in early 2020.
But the key problem for any ‘concentrate-only’ graphite development is that traditionally markets — which are all aligned with the steel industry — are well supplied right now.
“A lot of the projects in the development pipeline require large production profiles to make them economic,” Fox says.
“They are talking about 50,000 to 150,000 tonnes per annum to [recoup the cost of] building the plant and producing the material.
“There’s no way the market can take those volumes as the market sits today.”
This also presents hurdles for companies who are looking to move up the value chain and produce an anode product.
“To become an anode producer, you have to be able to show to the OEMs [original equipment manufacturers] and the battery manufacturers your material, your mining operation, and your downstream production process,” Fox says.
“Then they will start testing that anode material”.
“They will continually and systematically go back and test that material in greater volumes, because they want to see consistency in your ability to meet their specifications.
“But you can’t get into the anode market until you build your mine — and right now, you can’t build your mine because the market can’t support it.”
Mineral Commodities solved this problem by acquiring the Skaland graphite mine in Norway, the highest-grade operation in the world.
Some of the Chinese graphite mines are producing as low as 3 or 4 per cent total graphitic carbon (TGC), Fox says.
The 10,000 tonnes per annum Skaland operation consistently delivers between 25 and 30 per cent TGC.
“Skaland has been producing since the 1930s, selling its material into the traditional markets very comfortably,” Fox says.
“It is a very well accepted, high-quality product.”
It is the perfect asset to launch Mineral Commodities’ downstream anode strategy, Fox says.
“We have taken our existing downstream processing technology developed at Munglinup straight up to Skaland, where we plan to create a vertically integrated battery anode facility,” he says.
The place to be as an aspiring battery metals play is Europe, which is spending a huge amount of money – backed by favourable policies – to build a self-contained battery supply chain.
“China is always going to be the biggest EV market, but the fastest growing — and the most aggressive adopters — will be in Europe,” Fox says.
“They will do that on the back of policy driven adoption.
“Over the next 10 years the EU will mobilise public investment and help to unlock a trillion euros on the Sustainable Europe Investment Plan. That is going to drive this energy transition – and we want to be complete beneficiaries of that.
“The European Commission launched the European Battery Alliance in October 2017 whose remit is to develop a battery ecosystem in Europe.
“They are supported by the European Investment Bank, and they are already pouring billions into this sector.”
By 2025 there is an expectation that this industry will be worth $250bn annually.
Right now, announced plans for battery manufacturing capacity in Europe totals 557 gigawatts (GW) of capacity.
That’s about 450,000 tonnes of graphite anode material per year.
Right now, no spherical graphite used in anode material is produced in Europe at all.
“So we have quasi government funding groups coming into the sector with swathes of capital saying, ‘how quickly can we help you achieve this aim?’,” Fox says.
But importantly, the EU wants the industry to develop sustainably, with the EU battery cell manufacturing industry targeting the lowest environmental footprint possible, for example by using renewable energy in the production process.
“With our planned facility, we plan to be using Norway’s 100% renewable energy at our anode facility which is exactly the sort of thing they are looking to fund.
“We are in a great position. Not only will we be using low cost green energy, but we will be using an environmentally friendly method to purify our material.
The other advantage is that we already have an operation selling high quality material into traditional markets, that means we can sustain cashflows and align our anode production with demand as it comes online over the next few years.”
The company will be releasing a PFS on its downstream strategy at Skaland as early as this month, Fox says.
“That’s the near-term catalyst, as well as upgrading the plant to produce a higher value concentrate as early as Q1 next year.”
The high-grade Tormin operation is still Mineral Commodities cornerstone asset.
“When we started mining this deposit six years ago, we were mining as high as 55 per cent total heavy mineral (THM),” Fox says.
“Go look at all of our peers – most are lucky to be mining higher than 7 per cent THM.”
This is a very unique, so-called ‘active placer’ deposit, whereby the mineralisation is constantly replenished by the tidal action.
Mineral Commodities has been mining the same 12km-long beach every year. It’s like an open pit that keeps filling up, Fox says.
“Every year we go back and book a new ~2.5 million tonne resource, and then we mine it again,” he says.
“We have mined over 13 million tonnes of ore from that ~2.5-million-tonne resource.”
Cumulative net profit from the operation between 2014 to the end of FY19 was $US49.3m ($68.6m).
The only issue is that the grade falls away and needs time to replenish over time. It is currently at around 8 per cent THM — which is why the company is now moving into the unmined Northern Beaches and Inland Strand resource areas.
“We have been working toward access to these areas for nearly three years,” Fox says. “We finally got the permits through last month.”
“We are now going to move our mining operation up to the Northern Beaches (2.5mt at 23.5 per cent THM).
“In the next three weeks we will also release our first maiden resource on the high-grade Inland Strand and then start scheduling that for production.”
Mineral Commodities expects to increase the life of mine on the back of the new resources and also plans to increased production — from 2.4mt to 4mt — from these new high-grade mining areas, which remain just a slither of the project’s overall resource potential.
The company is also looking to invest in a mineral separation plant, which will allow it to produce a finished ilmenite and garnet product and capture more value.
“Ultimately, we expect to see increased earnings and revenue growth that comes with expanding production and the mineral separation plant,” Fox says.
“If you look at the structural deficits that are emerging in mineral sands markets in the medium to longer term, our view is that this is still a very exciting market to be exposed to.”
And when Mineral Commodities’ earnings level out from its expansion activity at Tormin, the company will get another ‘kick’ as the anode investment really starts to mature around 2022/2023, Fox says.
“We will be well placed to respond when anode demand really starts to accelerate,” Fox says.
This story was developed in collaboration with Mineral Commodities, a Stockhead advertiser at the time of publishing.
This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.