RNU 2.44% 8.4¢ renascor resources limited

The Graphite Messaging Problem

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    Regardless of the differing strategies and pathways to production, to date nobody has produced graphite in Australia for nearly 30 years. Despite relatively low capital expenditure costs to start-up Valence, Lincoln and Archer have all tried but either failed or gone for a more low key approach.

    Clearly the current global economic landscape will never be the same again – however, that can’t disguise the underlying issues remaining. Australian graphite players are fundamentally fragmented, self-centred and beholden to external forces. Regarding the latter, the problem for investors is to understand the intrinsic differences of each project’s strategy and to ask the question – is it robust enough in the boom and weak times? This is especially true if you believe we are likely to enter another boom market cycle. It’s easy to ignore this point and just look short-term, i.e., right now East African projects can’t downstream in-country to create a higher value product because these countries are considered too risky – unlike the long-established industrial zones of Australia.

    Post COVID-19 should be positive for the development of many Australian raw materials as ‘security of supply’ will be paramount. However, this may not apply to graphite. There’s plenty of ‘graphite’ in the world, and many countries have capacity to build and integrate graphite supply chains if they were more concerned with supply rather than cost. Therefore, the conventional mine-development wisdom is to rely North-East Asia’s low labour and infrastructure costs, and the additional costs of rigorous permitting procedures that secure jurisdictions demand.

    In Australia, Renascor’s Siviour project appears to be only one able to fulfil this criteria – globally competitive and located in a safe, secure jurisdiction. So why hasn’t it been able turn its conceptual competitive advantage into an operating mine?

    Unfortunately, projects (with broker support) confuse the main message by endorsing alternative but humble strategies. For instance, if your deposit can’t compete competitively on a global scale - you then frame the debate about building a ‘vertical integration business’. Sounds good in theory but like the projects I’ve mentioned above, this is no guarantee of success. While to downstream in-country seems a superior strategy.

    The closure of Australia’s Uley operation in 1993 was a significant event. Decades of critical industry knowledge and networks disappeared overnight. Now all attempts to rebuild networks from scratch is hard work. However, Australia does have the advantage of being able to tap into a big customer base, like Korea and Japan. So the potential for finance and off-take agreements remain high.

    Now is not the time to be hoodwinked by self-interest groups or brokers and their hidden agendas. That only serves to obscure the positive potential of a stock’s prospects. The eyes of the world are on Australia. With its strong governance, environmental and community protections, it is ripe for investment opportunities to meet the future demand for a sustainable world. What it doesn’t need is for ‘us’ to cloud this assessment. Alas, this includes brokers (and ultimately governments) taking an unbiased and multilateral viewpoint for a greater chance of kickstarting this new industry.

    The investing community at large, should be treated with respect. Brokers should play a more receptive role in whether a successful industry develops then it has done so far – by being more transparent and honest. Some junior graphite wannabes will not welcome this but Renascor’s Siviour project seems to be the only option capable of maintaining competitiveness on a global scale in the boom and weak times. However, the harsh reality is that as long as there is contradictory messaging, there remains the strong possibility that no major Australian graphite industry will eventuate. We’ll simply be overlooked yet again and left to ponder the possibilities.

    Investors in the graphite space should feel confident that brokers can provide impartial analysis. Otherwise, we will remain hesitant to invest in this stock when it clearly seems very promising.
    Last edited by Mallyrock: 13/04/20
 
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