Ceylon Graphite Corp (CYL.V) specializes in lump vein graphite. CYL.V is permitted for exploration and claims to hold one of the largest area (121 sq km or 121 grid) of high purity graphite in Sri Lanka. Many of the grids have existing shafts and adits from previous mining activities. Before WW II, Sri Lanka (Ceylon) accounted for more than 50% of the world's graphite production.
Vein Graphite- (<1% of market). Vein graphite is a very high grade crystalline graphite that contains in-situ grades of over 95% TGC. The only country producing commercial quantities of material is Sri Lanka with only ~2kt of material produced from 2 operations. While the benefits of direct whole ore extraction and superior product pricing (>US$1,500/t) offer attractive project features the difficulties of extraction through shallow shafts (water ingress, ventilation, mining rate) present as likely barriers to any major increase to supply over the short/medium term. - Canaccord|Genuity
Some of the competitive advantages cited by CYL.V include: vein graphite, historical yield, and the relatively low mining cost. In addition, the reported economics are very attractive with a low CapEX ($3.0M) and OpEx ($0.5M). CYL.V is also awaiting a full mining permit (within the next two months).
The case for graphite - Graphite demand is expected to grow due to a forecasted increase in installed lithium batteries capacity. A shift is a from synthetic to natural graphite source is expected (cost saving). It is estimate that annual demand could increase by by +660% to 792ktpa by 2025.
Going back, CYL.V started exploration roughly 9 months ago (March 28, 2017) with the objective to obtain electromagnetic mapping, collect sample and initiate drilling. The original intent was to engage all grids within the next 24 months starting with an emphasis on grid K1 (a past producing mine).
On May 2, a grab sample grab assay (86.63% Carbon) was reported. During the summer (July 27) CYL.V reported delays due to an extended monsoon season. In late November, CYL.V provided a corporate update with detail on K1 grid activities. In early December, CYL.V reported assay results of 78.43% to 98.89%; "samples were taken from the overburden subsurface but not from the bedrock sample from bedrock are usually much better so this can be promising".
The CEO (Bharat Parashar) was recently interviewed (Dec. 7, 2017) on Capital Idea Research and reported to be aiming to be in pre-production by the end of January 2018 on 1 site (Grid K1) and also reported activities on two other sites. However, because of the number of grids CYL.V is not a "standard operations", a formal preliminary economic assessment (PEA) has not been conducted. In addition, the quantities of the high purity sample to date remains unknown. Also, while the CEO reported interest from potential client, to our knowledge, no formalize off-take agreement has been signed. These attributes make CYL.V unconventional, and they need to address these with the market.
Otherwise, we like CYL.V because of the low share count (54M), and potential short horizon to production (2018-2019) but we believe that more work is needed. Looking at the risk-reward ratio, we see a potential upside. As such, we encourage readers to review the investors presentation.
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