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SMALL CAP SHARE IDEAS: Blencowe Resources

How long will it be before graphite catches up to those other electric vehicle metals, nickel and lithium?

This week, nickel hit an 11 year high, and this year lithium’s been one of the strongest performing commodities on any market.

But graphite’s just as essential to electric vehicle batteries, and it might be only a matter of time before it starts to motor too.

If it does, then Blencowe Resources is likely to be significant beneficiary.

Graphite is as essential to electric vehicle batteries as nickel and lithium

Not that Blencowe needs a higher graphite price to make its Orom-Cross project in Uganda work.

Rather, if the graphite price does go higher, what’s already looking like a chunky margin will balloon out into a really sizeable stream of cashflow.

But whatever the graphite price, Orom-Cross has several things to recommend it.

First, and perhaps most importantly, it won’t cost much to mine. ‘It’s a shallow deposit,’ says chief executive Mike Ralston.

‘It outcrops. We’re drilling down to thirty metres, and we’ve not touched the oxide layer below that. It’s free dig. There’s no drill and blast.’

To put it even more simply, Blencowe just has to dig the stuff out of the ground and send it through a plant for processing – and there’s no need for expensive ore crushers or explosives.

To be sure, this project has a disadvantage too – relatively speaking, it’s a long way from a port through which the resulting product can be exported.

But the plan is simple enough – truck a concentrate down through Uganda and across the border into Kenya, where it will get loaded onto a ship on the coast.

‘In our preliminary economic assessment we anticipated that it would cost $500 per tonne to get the material out of the ground, concentrate it, and deliver it to port,’ explains Ralston.

So there’s a hard number right there. But what will Blencowe be likely to sell that material for? That’s the key question, which brings us back to the graphite market.

As things stand, the company is anticipating an overall weighted selling price of between $1,100 and $1,300 per tonne, with the rarer jumbo flake material going for as much as $2,500.

There won’t be a great deal of that top-end rare stuff, but when you’re mining and processing for $500, that’s not something to gripe about.

A future uplift in the graphite price would obviously create additional upside.

The plan is to complete a pre-feasibility study by the middle of this year, and then raise enough money to build a pilot plant and undertake a definitive feasibility study that should be completed by the second half of next year.

That study will go some way towards answering a significant question: how much graphite does Blencowe actually plan to produce? The resource is actually pretty big, so there is flexibility available.

Initially, as the company gets its pilot plant up and running, production is likely to run to somewhere between 1,000 and 1,500 tonnes per year.

This relatively small output will allow customers to assess the quality of the product over a reasonably period of time, before committing to bigger orders.

Then, with a full-scale plant likely to be up and running some time around 2025, the production number ought to go significantly higher.

For the time being, Ralston is comfortable taking a cautious approach. His thinking is that the full-scale plant ought to be built on a modular basis, with each module accounting for, say 25,000 tonnes of production per year at the outset.

That’s less than was envisaged in the preliminary assessment, but has the great merit, hypothetically at least, of halving the capex whilst still delivering a fat margin.

‘We can just build this up in a slow, logical way,’ says Ralston.

‘If demand really starts taking off, we’re well positioned to start piggy-backing off it.’

During the last round of fundraising he opened lines of communication with a few institutions, and with formal pre-feasibility numbers due within the next few months it may be that some serious players will start agitating to come onto the share register.

If graphite heats up anything like nickel and lithium, that time might come round more quickly than we expect.

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