Ceylon Graphite Corp is a public company listed on the TSX Venture Exchange (CYL:TSX-V), that is in the business of exploring and developing lump vein graphite mines in Sri Lanka. The Government of Sri Lanka has granted the company exploration rights in a land package over 120km² of exploration grids.
Their project aroused a lot of interest at Mines and Money Asia show 2018 with Ceylon Graphite walking away with the Exploration Discovery Award.
I caught up with Bharat just after Ceylon Graphite had been awarded its mining license.
Can you tell us a bit about Ceylon Graphite? When were you formed?
Ceylon Graphite in its current form came into existence 20 months ago when Plumbago Refining Corp executed a Reverse Take-Over of NWest Energy on the TSXV. We had started working with the GSMB (Geological Survey and Mines Bureau of the Sri Lankan Government) a few years earlier
What’s the investment thesis for graphite?
We believe that given the interest in renewable and alternative energy, graphite is the “new oil.” While, renewable energy is good and abundant each variety is not available all the time -solar not available at night and wind when the strength dies down. Hence there is a need for energy storage. Renewable energy and storage must be discussed in the same breath. Once industrial storage of energy becomes the norm the renewable energy business will really accelerate. Graphite is a key element in the storage of energy. Batteries of any kind need graphite. For example, most non-technical investors do not realise that graphite is a big part of a battery. A lithium-ion battery is quite a misleading title. 60% of a lithium-ion battery is graphite. It should be called a nickel-graphite battery. Elon Musk has said “Our cells (“batteries”) should be called Nickel Graphite, because primarily the cathode is nickel and the anode side are graphite with silicon oxide. (There’s) A little bit of lithium in there, but it is like salt on a salad.” Under current technology, graphite will play a critical role in energy storage. It’s uses are immense. Additionally, as it is an excellent conductor of heat, it is also used for lubricants, refractories and defence purposes. Hydrocarbon based energy is on the way out.
How is demand for graphite increasing?
In 2015 demand for graphite was 85,000 tonnes. In 2018 it was 160,000 tonnes. By 2028 analysts predict it to have risen 7-fold to 1,800,000 tonnes.
This isn’t just due to the Electric Vehicle market, but also due to demand from lubricants, energy storage and electronics
There are lots of graphite mining projects out there. What makes you stand out from the crowd?
At the height of the Civil War in Sri Lanka the primary shareholders of CYL invested in mini hydro power units. We have a good relationship with the Sri Lankan Government and also have familiarized ourselves with the operating issues in the country. We are very much a “local” mining company.
Whilst developing the mini hydro business we learned about the tremendous potential for mining graphite in Sri Lanka. Most people aren’t aware that at the beginning of the 20th Century Sri Lanka was the world’s largest producer of graphite. Unfortunately though, during and after the World Wars, as usage of the energy mineral was quite limited graphite price steadily dropped and majority of the mines closed. Sri Lanka has vein graphite, which is some of the purest graphite available on the planet. There are however, two remaining mines, one of which is still owned by the Sri Lankan Government (Kahatagaha) and one by a German company (Bogola). Both had thick seams of vein graphite; this is different to flake graphite that you find elsewhere in the world. Kahatagaha was established in 1873 and is still going strong. The mine is currently at a depth of 2000 ft and still producing.
As mentioned earlier, we contacted the Geological Survey and Mines Bureau and our research showed that Sri Lanka was covered with old mines. We hired a geologist to ride drive around on a motorbike and see some of these old locations and confirm that the shafts and adits shown on their various maps actually existed. Our hypothesis was and still is – Given that in the “old days” mining was primarily in the overburden and stopped at the bedrock, most old shafts and adits were prime for “modern” day mining as mining in the rock was an easily available technology. Second the quality of graphite in the rock is much better given that there is no weathering. We now have Concession and Exploration Licenses for 121 of these grids (1 sq. kilometre per grid) land area, majority of which have historical shafts and adits and are currently focusing our efforts on 4 of them.
So, having vein graphite is what sets you apart?
Purity of graphite and cost are some of the key things that set us apart. Sri Lankan graphite is the purest graphite on the planet. Vein graphite is carbon rich and most of our graphite has tested over 90% Cg. You need 99.9% Cg for batteries. Flake /crystalline graphite usually has only around 30-35% carbon.
We also have a very low-cost base. We will only spend a fraction compared to other graphite mining companies developing mines. We estimate having to spend about US$1million to sink a mine. If we simply sell our graphite at US$2500 per tonne (approx. current price for Sri Lankan graphite), our profit margin will be more than US $ 2000 a ton. We do not intend to sell natural graphite bricks but are looking to value add through different forms of processing and this will more than quadruple the selling price whilst only marginally increasing costs. We are in the planning stages for a processing plant to upgrade the mineral to battery grade – 99.9% Cg. Dorfner ANZAPLAN has certified that our graphite is upgradeable to battery grade after testing. They are currently testing for spheroidization and we hope to have very positive results by the time of your London Conference. Once our product is fully processed the economics change quite dramatically, our production costs increase about USD 300 to 500 per ton but the selling price per ton of spheroidized battery grade material is north of USD 6000 per ton and will grow as the price difference between natural and synthetic graphite decreases. We expect to produce about 300 to 500 tons per month on the average at each site, this should give us about 5000 tons per site and theoretically we could have over 100 operating sites. The economics become mind boggling and extremely attractive.
What have your latest drill results been like?
How has the US-China Trade War helped alter the supply demand picture for graphite?
The US Government released a list of 23 critical metals this year. Graphite was one of the 23 critical metals named, partly due to its use in the defence industry. The biggest supplier of graphite, Syrah Resources, currently sells all of its output to China. So, the US is looking for alternative sources. We are looking to make inroad here and sell to the US.
How will winning an industrial mining license transform Ceylon Graphite?
The license we have won is the highest category license in Sri Lanka and grants exclusive rights to mine, process and trade in graphite mined within the area specified in the license. It also allows for underground multi-borehole blasting, commercial production, use of all mining machinery and equipment and export of graphite. “This is a huge development for Ceylon Graphite and is what we have all been working towards for the last two and a half years. Historically the GSMB has granted just four IMLA licenses for graphite mining in Sri Lanka including the Sarcon/Ceylon Graphite license. We have achieved this license in a short period of time thanks to the hard work of all our Sri Lankan colleagues. I must also thank the GSMB for their assistance and guidance.
When can investors expect to see you enter production?
We can now start the process to commence commercial production at our K1site. We are targeting production flow by the end of 2019.
How easy was Sri Lanka as a mining jurisdiction to deal with?
They have been very helpful. What’s great about Sri Lanka is that the concessions are done on a grid basis, each grid being one square kilometre. This allows us to easily see where previous graphite mining had been done. As far as graphite mining is concerned Sri Lanka is one of the best kept secrets. The Government is getting things back to normal post the Civil War.
How supportive is the Sri Lankan government?
They are very keen that private sector takes the lead and develops the mining sector. Like all other jurisdictions they are concerned about environmental issues, but the regulations are realistic. They have also been consistent in their regulations so there are rarely any surprises. We see limited regulatory risk.
Easter 2019 saw the awful events when terrorists killed 259 people. Many investors will have been put off Sri Lanka because of this. How has the Sri Lanka government dealt with the aftermath?
The events of Easter Sunday were very tragic, and it took a few months for people to understand and assimilate what had happened. The tourist industry in particular was hit hard.
However, after 6 months we have returned to normal. There is more security on the ground and there is the growing sense that this was an isolated incident.
Government departments have returned to normal. Islamic Ministers are all now back in government.
What are other challenges?
Our first challenge of course if finding the large graphite veins and we are drilling at several locations – we have had great success and have found large veins at all the sites we are focussing on. Once we find the large veins we need to clear up the old shafts and adits and bring them up to 21 century standards. Then it is setting the basis of the mine. We don’t have fancy automatic drills and other sophisticated equipment, we are pretty basic, and this makes life hard at underground. Bringing in the latest equipment is a challenge both from a technical perspective and a cost basis. Then the issue is keeping the machinery operational under the very trying conditions. Underground miners are available but as the machines become more sophisticated we need to bring in expatriates. We couldn’t do any work for several months this year and last year due to an unexpected very heavy rainy season. We have spent an inordinate amount pumping water out of the mine shafts before starting work again. We also have to move quickly on the processing plants. These take 6 to 9 months to commission and whilst a lot of the fabrication can be done locally delays will slow us down. Being able to get investors to understand our story is also tough. Industry convention has forced us to do a resource estimate at one of our sites in line with the TSX standards – NI 43-101. Whilst this has been finished for one of our site’s and shows our reserves are as large as Kahatagaha and Bogola. And at only one site at that. Lastly, a good challenge with 121 concessions, it has been difficult deciding which grid areas to focus on next but hopefully my geologists will point us in the correct direction.
What one book would you recommend to someone wanted to enter the mining industry?
I’m going to name two.
The first is not so much a book but reading a government’s mining regulations is critical. You will get into a mess unless you read and thoroughly understand the legislation.
The second is Conquest of Copper Mountain is the dramatic story of a geologist's dream come true: the discovery and subsequent development of the largest outcrop of base metal in the world.
In 1960 Freeport Minerals was basically a fertiliser company. However, under Forbes Wilson, Freeport launched a worldwide mineral exploration program and masterminded an overland expedition into the rugged and remote peaks of Irian Jaya (then Western New Guinea), Indonesia. His objective was to locate a unique geologic feature - a huge black knob of ore known as Ertsberg, first sighted by a small group of Dutch geologists some 24 years before.
In touch with the outside world only be primitive jungle radio and the occasional parachutes delivery of supplies, Forbes Wilson and his party trekked for 17 days across almost inaccessible terrain to an altitude of 12,000 feet, a journey that took the gifted geologist to the limits of human endurance and revealed to him an unforgettable country whose extraordinary landscape, exotic vegetation and simple tribal society he records here in vivid detail. The results of his expedition were exhilarating: measured and sampled, the Ertsberg proved to be the world's largest above-ground outcrop of copper ore.
After Ertsberg was discovered, they explored hill right across, and Grasberg was discovered.
Wilson's vision and determination brought Freeport back to Indonesia in 1967. A 63-mile access road was carved through the middle of two mountains; the world's largest tramways were built and longest slurry pipeline assembled-in what the trade press called 'Freeport's Mission Impossible' the company succeeded, in five years, in bringing a sophisticated mining operation to the totally isolated Indonesian highlands, and in drawing together the civilizations of the Far East and West.
Bharat Parashar will be speaking at the upcoming Mines and Money London, taking place 25-27 November at the Business Design Centre.