Juniors remain hopeful of Tanzania's "openness" even as uncertainty over the country's new mining laws and the likelihood of high-grade, low-cost projects being delayed has put at risk CRU Group's forecast of natural graphite market balance by 2023.
Australia-listed graphite hopefuls were optimistic that the naming of a mining commission to deal with a huge backlog of license applications reflected that Tanzania listened to their concerns, and Kibaran Resources Ltd. Managing Director Andrew Spinks said the commission said over the weekend of May 19-20 that it was issuing more than 1600 licenses.
Kibaran was four weeks away from debt financing with final credit approval with KfW IPEX-Bank, Germany's largest state-owned bank, when the new legislative laws were released in July 2017.
While that led to a delay in the start of production at Kibaran's Epanko to the end of 2019 instead of the end of 2018, as set out in the pre-feasibility study, Spinks told S&P Global Market Intelligence that the "Tanzanian situation" is now "changing and opening up," as indicated by the mining commission's appointment and the statement that it would issue over 1,600 licenses.
CRU senior consultant Toby Green said in an interview that his firm had forecast that the natural graphite market would be in a surplus from 2018 onward and would come into balance by 2023.
"However, the risk to that is a lot of the Tanzanian projects are expected to be up and running by 2020-21, and due to the difficulties with mining regulations at the moment, it's getting less likely that they'll make it by that time frame," Green said. "A lot of high-quality, low-cost production, like Kibaran, will be pushed out, which means we'll either dip into a deficit by around 2020, or higher-cost production will need come in to fill the gap, which would mean a higher longer-run cost curve."
Good news for graphite prices
Just before the Tanzanian commission's most recent announcement, Matthew Keane, an analyst with Perth, Australia-based corporate advisory Argonaut, issued a client note May 14 declaring that his firm had received "unconfirmed reports" that Chinese government authorities have ordered the immediate shutdown of graphite production in the Shandong province's Qingdao region.
Argonaut understands that the order, issued on an environmental-control basis ahead of the Shanghai Cooperation Organisation Summit in Qingdao in June, was issued via a formal letter to a number of local producers, ordering production to cease from May 10 to Oct. 1.
"Qingdao accounts for the majority of Shandong's graphite production, which, in turn, accounts for 15-20% of China's overall natural flake production," Keane said. "As China accounts for 60% to 70% of global natural flake production, these shutdowns could impact 9% to 14% of global supply and therefore have a positive impact on graphite prices."
"When considered in light of China's broader environmental crackdown, this shutdown may foreshadow a sustained period of supply disruption in China. Such a scenario is considered to be highly supportive for flake graphite pricing and international producers and developers," he said.
While confident in Keane's sources, Spinks said the outlook for additional pricing increases was looking up, considering not only the environmental closures of graphite mines but also the ban in some provinces over the use of hydrofluoric acid, which is "putting [a] squeeze on supply."
"The combined events put us in a very favorable position, given we've developed a proprietary eco-friendly purification method that doesn't use hydrofluoric acid, but most importantly is cost-effective with existing supplies," Spinks said.
"Last year, we witnessed a major turn in the demand for graphite, which was [a] reaction to the Chinese government declaring all-electric vehicles by 2030, so the Chinese battery manufacturers have had to react, which created the price spike in other battery minerals," he said. "[We] didn't see a price spike instantly with graphite; however, we've seen prices for some grades double from their 2017 lows, including battery grade graphite — the standard Chinese grade — by 40%. By 2020 in northeast Asia, demand for battery graphite is [expected to be] 300% to 400% higher."
Keane also told S&P Global Market Intelligence that while prices are opaque, the news out of Shangdong, if true, is positive for graphite hopefuls and even existing players.
"Syrah Resources Ltd. is one of the most shorted stocks on the ASX, so this [news] might cause a bit of pain for the guys who are shorting Syrah at the moment," he said.
