ASX Graphite Producers (SYR, BAT and KNL)

  • Oct 23, 2018 AEDT
  • Team Kalkine
ASX Graphite Producers (SYR, BAT and KNL)

When Chinese exporters of the battery metal get exposed with a 25 percent US tariff ASX graphite stocks could get a much-needed boost next year. For an initial 10 percent tax until the end of this year, graphite was among Chinese products targeted by the US, followed by a further 15 percent tax. It means US steel-makers, battery and car manufacturers may look elsewhere for supply which is good news for Australian graphite producers.

According to the US Geological Survey, the US has to import its supplies as it does not produce any graphite. About 95 US companies consumed 24,000 tons of natural graphite worth $US43 million, last year and imports totaled 50,000 tons. Natural graphite usage includes powdered metals, refractory applications, brake linings, lubricants and steel-making.    

China is the biggest supplier to the US, accounting for 35 percent, which produced around 67 percent of the world’s graphite last year, because of declining graphite production resulting from environmental restrictions on polluting and illegal operations US manufacturers will be on the hunt for new supply and so will Chinese manufactures be.

Demand for graphite is primarily driven by the steel market and also each lithium-ion battery requires 60kg of graphite which is more than twice the required amount of Lithium. Each year through to 2028, graphite demand from battery makers will grow by 23-27 percent as per the market forecaster Roskill.

EnterpriseEnterprise Value of SYR, BAT and KNL, Source: Thomson Reuters.

In applications ranging from building materials to consumer electronics and fuel cells the expandable graphite can be pressed into sheets and used for heat and fire protection. China is becoming an importer of graphite in 2019 as seen by the major graphite producer Syrah Resources (ASX: SYR) and there being a shortfall of the commodity by 2020. Syrah is facing problems like a fire at the processing plant at its graphite operation in Mozambique and lower-than-expected production.

This has seen a major slide of around 70 percent since the start of the year to $523,000 company at a 52-week low share price of $1.54 from a $1.7 billion company at $4.95 per share. To trade at around $1.58, over the past six months Syrah has dropped nearly 51 percent.

Battery Minerals (ASX:BAT) another Mozambique-focused graphite explorer says that significant increases in graphite prices in the medium-term is forecasted by Benchmark Mineral Intelligence. Over the first 10 years of operations, from the current ex-China price of $US950 ($1337) per ton, to more than $US1500 per ton, the price of Battery Minerals’ Montepuez graphite has the potential to appreciate as per the forecast.

When Resource Capital Fund had a $US30 million funding facility for the Montepuez project Battery Minerals was knocked down heavily in June, over the past six months the stock is down 60 percent. To lock in the necessary funding at the same time, Battery Minerals is advancing construction of the project.

Kibaran Resources (ASX: KNL) having gained over 39 percent in the last six months, is one of few companies in positive territory at the moment. Including battery graphite and fines from spheronization produced up to 99.98 percent carbon by the treatment of graphite from Kibaran’s Epanko project in Tanzania. Up to 99.98 percent carbon was also produced by graphite from 10 other global sources. On Monday, climbed to an intra-day high of 19.5c was Kibaran’s share price while it closed at 18c as at October 23, 2018.

Serial Number Company Description Ticker Potential increase in EPS as indicated for next FY (market consensus)
1 Syrah Resources Limited (ASX: SYR)                   ?
2 Battery Minerals Limited (ASX: BAT)                    -
3 Kibaran Resources Limited (ASX: KNL)                    ?

Table: EPS Valuation for 3 Stocks


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