Expanding Graphite !

Blencoe Resources (BRES) is the latest edition to my portfolio offering further exposure to graphite singled out by the US as a critical mineral.

On the 30th September 2020 the US Government published an Executive Order on Addressing the Threat to the Domestic Supply Chain from Reliance on Critical Minerals from Foreign Adversaries, no prizes for guessing this was targeted at China!

You can see the order here

Graphite was one of the four materials directly referenced and singled out in the order.

This was no surprise to me given that China control c.60% of global graphite supply and most importantly high purity graphite, the kind needed for batteries whether that be EV’s cellphones, laptops, you get the picture!

But get this, graphite is also on the EU critical raw materials list and look at China, they are gradually becoming a net importer of graphite, Roskill report here

However, for raw material flake, China has rapidly increased its imports, with significant quantities of material now being sourced from Africa.

No coincidence then that Armadale Capital have struck 3 MOU’s for graphite supply to Chinese companies!

So where could the US source graphite from to perhaps reduce their reliance on China?

Well if you have followed my blogs you’ll have noted I am invested in Armadale Capital (ACP). They have a large high grade, high purity graphite project in Tanzania which is now at an advanced stage. You can read more about Armadale in my research note here

Basically, given the US have limited resources themselves, at least in development they will have to look towards Africa. There are a few mining companies developing projects in East Africa already including Armadale. Armadale’s project is particularly attractive given the economics and it remains a firm player in my portfolio.

Going back to the title of this blog, I’m not going to discuss ‘expandable graphite’ but rather how I am expanding my portfolio exposure to graphite! The forward demand outlook and the dependencies economies such as the US and EU clearly have on the material have lead me to look for more opportunities and there is a company I have been watching for a while which I think offers an earlier stage opportunity that complements my Armadale holding which is further advanced. (You can read my thoughts on the graphite market in the Armadale note)

Blencowe Resources (BRES)

So one may ask, if you have a graphite play in the portfolio why add another? Well there are a few driving factors.

The graphite market spans a multitude of end applications depending on flake sizes and purity levels commonly known as ‘TGC’ (Total Graphite Content)

Armadale are clearly targeting the EV battery market with small/medium flakes of very high purity 97%+, that said they’ll have a decent portion of other flake sizes, again high purity that can be used for other applications.

The same applies to Blencowe, however they will be focusing on 50% large/jumbo flakes which in fact also commands premium pricing largely drive by the growing ‘Expandable’ graphite market. That said they’ll have a portion that can be targeted towards the EV sector as well.

Premium pricing is essentially driven by high purity and the right flake size distribution for the target market and when I say target market I mean the guy paying for it for their own purposes. So there is no right or wrong answer, contracts are struck in a ‘off-market’ fashion, there is no spot price so if you are targeting EV you want high purity small/medium flakes if you are targeting the fast growing expandable market you want large/jumbo flakes, again high purity is the key.

So Blencowe have the latter and seemingly lots of it so I personally look at Blencowe as a complimentary position to Armadale. A little graphite diversification if you like.

The nuts and bolts then…

So Blencowe have a large deposit c.3bn tonnes of graphite at its Orom Cross project in Uganda, a stable African country with a strong mining code. The project has a low strip ratio (meaning move less earth to recover mineral) – this implies the project will be lower cost.

The company in 2019 secured a 21 year mining lease which will cover the initial planned mining operation of around 10 years and offers scope to expand the operation. Sensibly and much like Armadale, Blencowe will be looking to reduce up-front Capex and scale out the operation as the market dictates.

The company recently completed a 69 hole Diamond drilling programme with the intention to define an initial JORC resource c.10MT which again would cover the initial planned mining operation, Formal JORC is pending and due for delivery Q4 2020 which starts the de-risking and development of the project.

Notably the diamond drilling programme revealed a high-grade zone close to where the proposed plant would be located where grades could be double the 6-8% average expected across Orom Cross – that would be c.12-16% grade (very high)

74% of the resource falls into the Jumbo/X-Large/Large flake categories with the company expecting 96-97% TGC. This would imply a premium pricing opportunity for a large portion of the resource. Metallurgical test work is underway and again is expected Q4 2020 where the company hope to see purity levels confirmed and detail on what the end concentrate product would look like, in turn pathing the way to initial off-take discussions.

The valuation pathway…

As an early stage investor I like to see a clear pathway to realising value and ultimately to a re-rating. To that end positioning early is key. Blencowe in my opinion offers such opportunity with a near-term value-driving roadmap ahead that should encompass, results of metallurgical testing, initial JORC definition and a Preliminary Economic Assessment.

Looking at some peer graphite developers with similar product we can see how they have embarked upon the same journey, the likes of Sovereign Metals and Walkabout Resources both having achieved £30-50m market capitalisations. At a sub £5m market cap the potential upside is clear for Blencowe investors taking an early position.

Armadale Capital retains a firm place in my portfolio (particularly targeting the EV battery market) and has enjoyed a similar re-rating journey, it’s further ahead and de-risked and should see a hefty re-rate on closure of financing given its extraordinarily low $39M Capex.

Blencowe in contrast offers exposure to earlier stage upside, targeting a different but important and growing end market. Both together could offer investors a nice mix of graphite exposure.

There is place for both in ‘my’ portfolio, ultimately the world needs Graphite!


Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.


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