Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The Toronto-quoted equity of Sir Mick Davis-backed graphite mine developer NextSource Materials (TSX: NEXT; US-OTC: NSRCF) continues to climb after the company announced successful factory acceptance testing this week of the Phase 1 plant for the Madagascar-based Molo graphite mine plant.
The company said that the final verification of the modular plant’s equipment design and end-to-end functions has now been verified in a media release. The plant will be disassembled and transported to the mine site for installation.
“2021 was a transformative year for the company, and we are very pleased to begin the New Year with the successful completion of the factory acceptance testing of our Molo processing plant,” CEO Craig Scherba said in the release. “We can now shift our focus to achieving our next major milestones for this year, which include completing site works, and the delivery, installation and commissioning of the processing plant.”
The processing plant is capable of processing 240,000 tonnes per annum of ore to produce on average 17,000 tonnes of the company’s patented SuperFlake graphite concentrate targeted at the battery sector.
According to the company, factory acceptance testing was the final validation step after the fabrication and assembly of the processing plant equipment. It was completed by an engineering, procurement and construction contractor in their off-shore assembly facility under the supervision of SGS, a leader in process plant testing, inspection, and process certification.
Phase 1 of the Molo graphite mine is fully funded and, when commissioned, will become one of the few operating graphite mines outside of China.
NextSource has been ticking off major progress milestones in setting up the independent Molo graphite mine in Madagascar through 2021.
In November, it announced a contract to independent power producer CrossBoundary Energy for the long-term supply of solar and thermal generation to power the operations. The contract is for a 20-year term and has been designed to scale with the production output of the Molo mine, where delivery of power will increase in lockstep with all future expansion capacity requirements.
In November, the company also announced it had signed a binding collaboration agreement with essential processors of anode material within the Tesla supply chain to incorporate a proprietary and established graphite coating process to its battery anode facility.
The facility entails a three-way collaboration between NextSource’s Japanese offtake partner and the Japanese partner’s Chinese spheronized and purified graphite processing partner.
The Japanese Partner is a prominent Japanese trading company that is a significant SPG supplier for anode material in lithium-ion batteries for EV and HEV applications. It currently supplies graphite anode material to most Japanese automotive OEMs and the Tesla supply chain.
This collaboration is part of NextSource’s downstream growth plan. It partners the company with prominent and established processors and suppliers of graphite anode material to the Tesla supply chain and other global automotive OEMs.
NextSource is positioning to be a strategic supplier of high-quality flake graphite to major battery anode customers globally while simultaneously gaining a foothold into the high-growth markets for EVs and the burgeoning energy storage market that will be reliant on graphite anode material.
In May of 2021, NextSource announced it had secured an offtake agreement with Germany-based thyssenkrupp Materials Trading to supply up to 35,000 tonnes per year of its branded SuperFlake graphite products.
The agreement provides a minimum of 7,300 tonnes per year to be shipped when the first construction phase is completed in 2022.
Perhaps most importantly, NextSource was in 2021 able to attract world-class talent to the board. NextSource hit global headlines after former Xstrata boss Sir Mick Davis threw his weight behind the battery metals sector. His investment vehicle, Blue Vision Resources, endorsed the Molo project with a $29.5 million investment, fully funding the project’s construction.
The company said at the time the funds would be sufficient to put the large flake graphite deposit into production as early as the second quarter of 2022. Sir Davis also became the company’s chairman.
In July, the company attracted another former Xstrata Nickel executive with the appointment of Ian Pierce to the board of directors. Before leading Xstrata Nickel, Pierce was the former COO of Falconbridge Limited, which Xstrata Plc acquired in 2006. Xstrata Plc’s acquisition of Falconbridge was one of the largest mining takeovers globally and one of the largest takeover bids in Canadian history.
An updated feasibility study released in September 2019 outlined a phased development approach. The first phase will produce 17,000 tonnes of graphite a year over the first two years and a second phase beginning in year three of 45,000 tonnes per year. The study outlined a mine life of 30 years and initial capex for phase one of $21 million and phase two of $39.1 million. (Capex and working capital combined to bring the first phase estimate to about $25 million.)
The deposit contains 100.4 million measured and indicated tonnes grading 6.3% carbon (graphite) for 6.3 million tonnes of graphite and inferred resources of 40.9 million tonnes grading 5.8% carbon for 2.4 million tonnes of graphite. The resource estimate used a cut-off grade of 2%.
NextSource shareholders have been on a white-knuckle ride over the past year, seeing the equity trade between C90c and C$5.30 apiece. Despite the volatility, at C$4.49 on Thursday, the equity is still up 400% over the 12-month frame, capitalizing it at C$294.68 million ($236 million).
