Flake graphite market in deficit - EV1’s strategy

Our late-stage graphite development Investment, Evolution Energy Minerals (ASX:EV1), has given us some great insights into the current state of the graphite market and the company’s strategy going forward.

EV1 has now stated its intention to become a vertically integrated graphite producer.

This means EV1 won’t just mine graphite, it will also be a part of the downstream graphite industry. This is where raw graphite is processed to make high-end types of graphite that fetch many multiples of the raw product’s price.

We’ve noted previously that EV1’s graphite product meets the most demanding specifications - making it suitable for the nuclear industry, hydrogen fuel cells, graphite foils and electric vehicles (EVs). These are the end uses of graphite that could super-charge EV1s margins on its graphite.

This follows a string of positive announcements outlining the results of EV1s testwork on the company’s Chilalo graphite product, specifically regarding the fines portion of EV1’s future production.

Here our key takeaways from today’s announcement:

• Flake graphite market in supply deficit due to battery demand - A major part of our EV1 Investment thesis, we hope EV1 can move into production at the same time the graphite market enters a long-term structural supply-demand imbalance due to battery demand. EV1 notes that although prices have flattened, this is peak season for graphite mining in China (the world’s largest graphite producer). This supply should shrink heading into the northern hemisphere winter.
• Final Investment Decision and project financing expected March quarter 2023 - We think given the graphite market dynamics, the timing couldn’t be better for a Final Investment Decision. We like to see companies give clear timelines for knocking down milestones and objectives and this was Key Objective #1 in our EV1 Investment Memo.
• Updated DFS and FEED due in Q4 2022 - The precursor for a Final Investment Decision, this will give us a much better look at the financial metrics involved in the proposed Chilalo mine. Meanwhile, Front End Engineering Design (FEED) will help plan the mine construction.
• Downstream site selection commenced - Picking a place to set up a downstream plant is an important first step towards building out a vertically integrated graphite production project. Specialist personnel will be appointed to help advance downstream strategy.
• Coarse flake downstream may require additional production - With an offtake with Chinese graphite giant YXGC already - pending a downstream JV agreement with the company, EV1 will commence a scoping study. EV1 intimated that if this goes ahead the proposed Chilalo mine may have to expand the initially planned production level. We take this as a very promising sign that EV1’s graphite will be in high demand.

What’s next for EV1? EV1 is always very precise with expectations and timelines.This latest announcement reiterated that it anticipates signing a Framework Agreement with the Government of Tanzania, providing its project with regulatory certainty. This promises to be a big tick mark for EV1 and will help it cement its place in the Tanzanian mining industry.