Analysts at Hallgarten & Company initiated coverage on Ceylon Graphite Corp (CVE:CYL) with a positive outlook on the company’s up-and-running K1 producing mine in Sri Lanka supported by firming graphite prices due to tight supply.
In a note, Christopher Ecclestone described the graphite producer as a “hare among the tortoises” for its quick execution in Sri Lanka. Ceylon Graphite received mining (IMLA) and environmental licenses for its K1 mine in late 2019 and achieved its first production in early 2020.
READ: Ceylon Graphite resumes production at K1 mine in Sri Lanka as coronavirus restrictions are eased
“The mining license was a notable triumph as it was only the fourth one issued since the country's independence in the 1960,” wrote Ecclestone.
“The company’s K1 mine is now on the fast track and then Malsiripura (M1) should be following on with production rising incrementally in a non-market-disruptive manner.”
Ceylon Graphite holds exploration rights over a land package of 121 kilometers. The rights cover areas of historic graphite production from the early twentieth century and represent a majority of the known graphite occurrences in Sri Lanka.
The analyst has a 12-month price target of C$0.76 on Ceylon Graphite stock, which represents a 210% upside from its current price of C$0.28.
According to Ecclestone, battery metals have gone off the boil since 2017's frenzy, but graphite has “held up well,” largely because it is not yet dominated by the potential for electric vehicle (EV) usage.
“With a plethora of other usages in a wide range of industries, its dynamic is not driven solely by EV sentiments but rather by supply considerations,” said Ecclestone.
“Chinese cutbacks in production (for environmental reasons) and limitations on needle-coke supply (for artificial graphite) have underpinned prices when otherwise they might have trended lower with lithium and cobalt.”
Powering on with production
Ceylon Graphite achieved its first production in the first quarter of this year. The analyst noted that the K1 mine was in “commercial production mode” and had sold its first container of Sri Lankan vein graphite.
Production was stopped due to global lockdowns linked to the coronavirus pandemic at the end of the first quarter of 2020.
“As productions resumes in December 2020, production will start with 20 tons per month (tpm) by the end of 2021 and it is expected that production would be running at 200 tpm and then up to 400 tpm by the end of 2022 at a grade of 95% Cg (Graphitic Carbon),” wrote Ecclestone. “The exceptional grade is because of the highly focused nature of graphite vein mining.”
The analyst pointed out that compared to other graphite mines the company’s K1 and M1 mines have been inexpensive to develop, with “some of the lowest production cost globally.”
On the other hand, Sri Lankan natural graphite sells at US$2,000 to US$2,300 per ton, a significant premium to all grades of flake graphite. It is estimated that high grades of Sri Lankan graphite can go for US$4,500-US$5,000 when upgraded as battery marketable graphite.
Samples from both K1 and M1 have been tested by Dorfner ANZAPLAN and American Energy Technologies and certified upgradeable to battery 99.99% purity, added the analyst.
Separately, Ceylon Graphite has raised $4.5 million through equity financing in October this year and is well capitalized with no debt.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive
