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SRG Mining: graphite boom will reward first mover advantage

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Lithium has been a little bit like Bitcoin over the last few years. Even those investors who are normally not interested in metals have taken note, just because prices have risen so much that it has been difficult to ignore. The long-predicted boom in electric cars and the demand for car battery materials has lifted lithium prices over 350% and other battery materials like manganese and cobalt have also seen significant upticks in demand.

But now the conversation about battery materials is changing, not only because of the sheer volume of demand (car batteries now use about twice as much metal per car as they did a few years ago) but also because Europe and the US have a made a point of wanting to start sourcing all metals for the green transition closer to home.

Graphite: why it could pop

Into this picture, then, comes graphite. While lithium, nickel and cobalt are used in cathodes, the positive part of the car battery, the anode, the negative side of the battery, is typically made of graphite, a material related to carbon. Tesla cars have gone from using around 24 pounds per car to 45 pounds per car over the last few years and yet graphite’s price trajectory has not followed that of lithium and other battery metals. The material is relatively abundant, over 80% of it is mined in China, and an even higher percentage of it is processed there too.

Recent changes in US and European legislation such as the US Inflation Reduction Act are creating pressure on battery materials to be sourced much closer to the end users and are laying the ground for a boom in demand for graphite produced outside of China which is expected to become very visible by about 2025.

This is the premise behind the development of the Lola Graphite project, one of the world’s biggest surface graphite deposits located in the Republic of Guinea and operated by Canadian mining firm SRG Mining [TSXV:SRG].

“If you are serious about delivering into this first wave of graphite demand (by 2025) you need to be at a certain stage of development today, with at least inferred resources and a PEA in place. Explorers who don’t have this in place are another ten years away from delivering the graphite into the market,” Matthieu Bos, president and chief executive of SRG Mining told the Armchair Trader.

SRG has laid the necessary groundwork already. It plans to build an open pit mine at the Lola site and a simple plant producing graphite flakes, expected to cost around $175 million. An updated version of its 2019 Feasibility Study is due to be released over the coming weeks and will account for the increases in capex and opex. The company is also doing some early work on the ground on roads and on community engagement.

SRG Mining is looking to raise over $100m in debt

For the first phase of developing Lola Graphite SRG is looking to raise between $100-$125 million in debt and the balance in the form of equity, predominantly backstopped by La Mancha Capital Advisory, the company’s cornerstone investor and specialist in investing in gold and battery materials.

Apart from Bos, the highly experienced SRG team includes Benoit La Salle (Semafco founder) and Patrick Moryoussef (previously of Endeavour Mining) who have between them built six mines in different African countries over the years including Congo and Burkina Faso.

“We have several good indications for the debt so far – because we have built several mines in Africa over our respective careers; when we call up the banks we tend to get quick and favourable responses. If you have a good name, it helps a lot. It is a very simple open pit mine with expected production by the end of 2024, going into 2025,” says Bos.

The company’s top objective for 2023 is to put together the financing package for the mine. In parallel, it is also looking to build a refining facility, mostly likely in Europe or potentially the US.

Plans further in the future include offtake agreements, probably done through joint ventures or licensing deals, explains Bos. In any case, the next few years are likely to be fairly busy for SRG Mining and for the whole graphite sector.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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