Strike Gold: Developing World Class Graphite Deposits
Symbol… SRK-V
Share Price… $0.245
Shares Out… 32.07M
Fully Diluted… 45.90M
Market Cap… $7.8M
Strike Gold Acquires Two World Class Graphite Projects in Saskatchewan
Strike Gold Corp. (SRK-V) is a recently formed mineral exploration and development company whose focus is on acquiring and developing potential world class mineral assets. In early September, SRK announced plans to be a major player in the graphite industry acquiring two ‘world class’ large flake graphite projects in Saskatchewan that they believe have the potential to be fast tracked to production. The Deep Bay East and Simon Lake Graphite Projects are some of the highest grading graphite deposits targeted for development in Canada. Deep Bay East is located 15km east and on strike to Deep Bay West, a high grade graphite mine with grades exceeding 10% C that is currently advancing towards production. Work in the early 70’s on both properties noted abundant large flake graphite mineralization in drill cores across very large conductors giving these pre NI 43-101 properties tons of potential. Large flake graphite is a high value graphite mining product which sells at a premium in the already supply constrained graphite market. It is a vital non-substitutable component of lithium-ion batteries, a market that is projected to expand exponentially over the next decade with the mass production of electric powered automobiles underway.
Graphite… The Next Critical Material
Graphite is an emerging mineral that is a vital component of the alternative energy theme. It was recently named one of fourteen critical metals by the European Union in terms of economic importance and security of supply. Traditionally graphite is used in the steel industry; but as the demand for more powerful electric powered consumer products has increased, the mineral’s qualities of being lightweight and a great conductor of electricity make it ideal for products such as Li-ion batteries, fuel cells, and solar panels. Lithium-ion batteries are the preferred technology for efficient powering of all high tech devices from computers to electric vehicles. Lithium-ion batteries require 10 to 20 times the amount of graphite. It is also a relatively non-substitutable material because of its elemental properties making it a critical material vital for the mass production of Li-ion batteries of all sizes. What puts more pressure on this market is that Li-ion batteries require high purity flake graphite for which there is a serious lack of supply.
The industry is under both demand and supply constraints. It is seeing large incremental growth from several technological driven areas around the globe as well as strong industrial growth from emerging markets in the traditional steel making industries. The graphite market has been dominated by cheap Chinese supply since the early 90’s making it hard for many operations to compete against the low cost open pit graphite projects in China. This led to China controlling a virtual monopoly of the supply of graphite currently making up 70% and 80% of the supply of graphite since. In recent years, critical metals have been increasingly used as leverage in trade wars, as was seen in the dispute between China and Japan over rare earths. With China controlling the majority of supply in this increasingly technological mineral, Graphite is another metal where a serious lack of supply outside of China is a concern for the Western authorities. The Chinese have made no exception to the graphite market applying export duties, taxes and tighter regulations on the industry.
The serious lack of supply of large flake graphite should be seen as an opportunity for investors to develop some of these large high purity flake graphite projects outside of China.
Unprecedented Incremental Demand
Historical demand has seen steady 5% growth in the graphite market year over year to just over 1 million tonnes of annual production. 40% of the current market is for high purity flake graphite which is where the majority of incremental growth is projected to be for graphite demand. Global industrial demand is expected to continue to be strong with new incremental forces potentially doubling the size of the market to 2M tonnes per year by 2020. Most of this demand is expected from lithium-ion batteries with demand for graphite from the EV sector alone projected at 260,000 tonnes by 2020. That is roughly a quarter of all new demand for graphite and equal to 65% of the current size of flake graphite market.
Graphite is a major component of nuclear pebble bed reactors, a technology that China plans to use in its nuclear power generation plans. 50 reactors are planned to be built in China requiring 1000 tonnes of graphite at construction and a minimum 500 tonnes of graphite per year to maintain the nuclear reactions. The fuel cell industry is also an industry that is seeing unprecedented growth. Fuel cells rely on graphite as a major material, with the industry estimated to grow 33% to $1B by 2014 from the current $750M. Solar panels are another industry that relies heavily on graphite as a material.
Incremental demand from Li-Ion batteries, fuel cells, solar panels, and nuclear reactors and strong industrial demand will drive the graphite demand well into the 2020’s. To give you an impression of the need for new supply of graphite to meet upcoming demand; two planned graphite mines in North America at Northern Graphite’s (NGC-T) Bissett Creek and Ontario Graphite’s Kearney Graphite mine will produce less than 40,000 tonnes of graphite per year at a rate of ~1Mt per year each which is less than 4% of total projected new demand. Compounding the investment case and need for graphite mines in North America is the fact that the only major producer of graphite on the continent is expected to close within the next couple of years.
Ever increasing incremental demand from products such as Li-Ion batteries will push graphite prices to new record highs until some of these planned fast-track graphite projects can come online to relieve the supply constraints. The earliest of those projects comes into production in North America next year and into 2013.
Any Good Mining Person Knows That Grade is King
In mining, grade is king. The grade of a project, significantly lowers production costs, it increases a project’s IRR and drastically reduces the payback period. If mines have similar operations, recoveries, and in the case of graphite, similar large flake content; grade will always trump any other deficiency and in most cases more than make up. Higher grades make up for added capital costs, higher strip ratios, poorer recoveries and even a lesser percentage of large flake graphite.
Both of SRK’s graphite projects, Deep Bay East and Simon Lake have the potential to be greater than 10M tonne graphite deposits with a minimum grade of 8% -10% graphite. More than quadruple the grade of NGC’s Bissett Creek. Bissett Creek has a NI 43-101 compliant resource of 19Mt @ 1.99% C indicated and an additional 33Mt inferred at a grade of 1.81% C. SRK’s Deep Bay East will hold just as much contained graphite in 10 - 12Mt of rock as NGC’s Bissett Creek holds in 52Mt. SRK’s Deep Bay East poses exploration value as they will add 4 to 5 times the resource every meter drilled that Northern Graphite can. That is great bang for your exploration buck, especially when SRK is already materially undervalued considering the strategic nature of its acquisitions.
Bissettt Creek at 1.99% hosts 19.9kg with initial
concentrates averaging 70% +80 mesh , 6%+100 mesh and the balance is -100 mesh
50% of NGC’s product is a super high purity that +48 which commands a further
premium. In total assuming 100% recoveries Bissett Creek will average $60 per
tonne valuing 50% of NGC product at $3300, 20% at $3000 and 30% at
$2500. Look at Deep Bay East’s numbers at a theoretical 10% grade. It may only have 40% large flake graphite at +100 mesh and 60% lower purity material at – 100 mesh, but that is still 40 kg of large flake graphite per tonne, double the content at Bissettt Creek. 40 kg’s priced at $2500 - $3000 per tonne ($100 - $120) and 60kg of -100 mesh graphite at conservative $1300 per tonne ($78) gives a rough tonnage value at Deep Bay East of $178 - $198 per tonne.
Even though Bissett Creek has a very high distribution of high purity large flake graphite, the grade at the Saskatchewan deposits will prove much more valuable on a tonnage basis ($198) Deep Bay East vs. Bissett Creek at ($60). The potential mining operations are both open pit low strip ratio mining operations giving a similar mining cost structure to Bissett Creek. When compared on a similar tonnage scale operations at Deep Bay East have the potential of 4 – 5 times the margin Bissett Creek.
Both of SRK’s graphite projects in Saskatchewan are located near the necessary infrastructure needed to fast track and bring a graphite mine into production. It has exceptional grades averaging a minimum 8% graphite and up to 27% C. SRK has projects in Deep Bay East and Simon Lake that compare favourably to any graphite project with the potential for production over the next few years. Any good mining guy knows that grade is king. Future feasibility studies commissioned on Deep Bay East and Simon Lake will prove that high grade translates into low cost production stories commanding a premium to the rest of the industry.
Deep Bay East
Deep Bay East is Strike Gold’s most advanced project. It is located 15km to the east of Deep Bay West which is on track for production. Mineralization, grades and geology between the two deposits are similar making Deep Bay East an ideal second site in Saskatchewan for a graphite mine. Deep Bay West has a historical resource of 1.8Mt @ 10.32% C to a depth of 60 meters. Recent testing of graphite from the Deep Bay West mine indicates excellent recoveries achieving greater than 95% pure carbon content upgradable to 99% upon further treatment. With metallurgical tests successful at Deep Bay West, this bodes well for SRK’s Deep Bay East project and its fast track potential.
Deep Bay East was originally explored in the late 60’s and early 70’s with airborne surveys, trenches and drilling yielding encouraging results. Exploration defined a large conducting body with the potential for a large tonnage graphite deposit. The deposit is near surface, only 6 meters of overburden, extends to depth and is open along 1.6 km strike at both ends giving Deep Bay East significant exploration potential. Drilling intersected consistent widths grading ~9% graphite and trenches yielded significant intervals of graphite grading up to 27.52% C demonstrating the extremely high grade nature of the Deep Bay West Deposit. (Initial testwork in the 70’s indicated excellent recoveries ~85% and abundant large flake graphite ~40%)
Drilling Highlights…
- DB2… 35.05 meters @ 8.58% C
- DB3… 13.11 meters @ 8.97% C and 10.67 meters @ 9.06% C
Trenching Highlights…
- Trench B… 9.45 meters @ 17.34%, 3.35 meters @ 27.52% and 3.05 meters @ 8.75% (17.3m total width)
Simon Lake
The future of graphite production in Saskatchewan
might lie with Strike Gold’s other key graphite acquisition. The Simon Lake
Property lies on the southeastern edges of the Athabasca Basin near Wollaston
Lake and was a massive graphite discovery made back in the 70’s by a
company looking for a different suite of minerals. The project covers over 10km
of continuous strike of high grade metamorphic rocks of a sedimentary origin
setting up an ideal environment for large flake high-purity graphite
deposits.
Assays were never done on 2 holes drilled 5km apart, but visual estimates had
the core ranging from 5% to 70% graphite content containing abundant large flake
graphite mineralization. An intersection in one of the holes was greater than
68 meters in length indicating a very wide orebody with the potential to host a
high grade, large tonnage deposit. Mineralization extends from one end of the
property to the other. Simon Lake is a project that could make all other
graphite projects play second fiddle.
Considering a big factor in mining is scalability with bigger almost always
being better; when you include the potential high grade nature and abundant
visual large flake mineralization, a potential mega project like Simon Lake
could be 5 to 10 times the scale of Bissett Creek which would be a project that
could meeting a large portion of the future demand.
The Simon Lake property is less than 9km from highway 955 giving it an ideal location near the established uranium mines in Saskatchewan. This provides great access to the property and established infrastructure in the area to hook up to in case exploration on the property surpasses everyone’s expectations making Simon Lake priority one. Exploration plans for 2011 and 2012 at Simon Lake include airborne surveys to define the mineralizing structures, ground follow up and reconnaissance drilling twinning the two historic holes.
Strike Gold Trades at a Discount to its Peers
Strike Gold trades at a discount to its peers primarily because the acquisitions are recent and the properties are at pre NI 43-101 status. This creates a low risk value proposition with SRK-V confirming historic discoveries that have early indications of very profitable mining operations. The market is still unaware to the potential of the graphite properties under SRK’s control which add to the investment potential in an emerging theme where its peers are undervalued. SRK is just one of a few publicly traded companies in Canada actively targeting and developing graphite projects and with only 4 mines targeting relatively small scale production, this puts graphite projects at a premium in an industry that is scrambling to develop new sources of supply.
SRK has two projects that are comparable to any of the projects currently under development meaning SRK’s projects once the projects have been confirmed and brought up to NI43-101 standards should command a similar valuation to its peers who are currently valued between $30M - $50M. With only 30M shares outstanding and a very tight float for a new company, SRK should easily gain traction once this high grade graphite discovery is confirmed.
Strike Gold is a company that is flying well under the radar.
Christopher Skidmore
Beat the Market Stock Picks
The Simon Lake property is less than 9km from highway 955 giving it an ideal location near the established uranium mines in Saskatchewan. This provides great access to the property and established infrastructure in the area to hook up to in case exploration on the property surpasses everyone’s expectations making Simon Lake priority one. Exploration plans for 2011 and 2012 at Simon Lake include airborne surveys to define the mineralizing structures, ground follow up and reconnaissance drilling twinning the two historic holes.
Strike Gold Trades at a Discount to its Peers
Strike Gold trades at a discount to its peers primarily because the acquisitions are recent and the properties are at pre NI 43-101 status. This creates a low risk value proposition with SRK-V confirming historic discoveries that have early indications of very profitable mining operations. The market is still unaware to the potential of the graphite properties under SRK’s control which add to the investment potential in an emerging theme where its peers are undervalued. SRK is just one of a few publicly traded companies in Canada actively targeting and developing graphite projects and with only 4 mines targeting relatively small scale production, this puts graphite projects at a premium in an industry that is scrambling to develop new sources of supply.
SRK has two projects that are comparable to any of the projects currently under development meaning SRK’s projects once the projects have been confirmed and brought up to NI43-101 standards should command a similar valuation to its peers who are currently valued between $30M - $50M. With only 30M shares outstanding and a very tight float for a new company, SRK should easily gain traction once this high grade graphite discovery is confirmed.
Strike Gold is a company that is flying well under the radar.
Christopher Skidmore
Beat the Market Stock Picks
