Gratomic: Real Graphite in Namibia
A lot of my investing is about finding compelling stories, opening a position at an attractive entry point and then “averaging up” as the story unfolds. Which is exactly what has happened with Gratomic (GRAT.V) over the last couple of years.
The Gratomic story is about the world’s need for non-Chinese sourced graphite to power the electric vehicle revolution. With two press releases on September 20, one detailing the “benching” work GRAT is doing and the other announcing the exposure of 150 tons of graphite, GRAT’s Aukam project in Namibia is a giant step closer to producing that graphite.
I’ve been following graphite since I helped put together Canada’s first graphite junior exploration conference in Vancouver in 2011. Back then, the various CEOs of graphite companies sounded more than a little crazy as they talked about electric cars. Tesla had produced a few roadsters. Most of the companies at the conference had graphite deposits which were deep underground or which required substantial upgrading to reach the purity needed for batteries. But the one thing which stuck with me from that conference was the fact that the so-called Lithium Ion battery had a significant graphite requirement.
Roll forward a decade and Teslas are everywhere. So are EVs made by virtually every major car manufacturer in the world. Volkswagen plans to sell nothing but electric vehicles in its European market by 2035 and expects 70% of its sales to be electric by 2030.
There is just one problem, the world is not producing nearly enough of the raw materials to make the batteries to power the EVs. Here’s the Benchmark Mineral Intelligence Demand projection 2022 vs 2035:
The investment case for graphite is that the anode of Lithium Ion (Li-ion) batteries is made of graphite. At the moment, those anodes are made almost exclusively in China using synthetic graphite – which is an environmentally awful product made by roasting petroleum coke for days at a time. It is so nasty that the Chinese are scaling back production.
When I first heard about Gratomic’s Aukam natural graphite project in Namibia I realized that this was exactly what the EV makers were looking for. A non-Chinese source of high purity natural graphite. I interviewed GRAT CEO Arno Brand and wrote the company up at Seeking Alpha in May 2020. I also established my position.
GRAT had quite a run. It touched $1.76 March 1, 2021. I bought steadily on the way up. Largely on the strength of GRAT actually doing what Brand had told me the company would do.
Brand wanted to put Aukam into production. Which meant building a production facility. Which GRAT has done with the official announcement of Product in Bag coming April 21, 2022. This is a huge step along the way to a fully functioning commercial operation.
While the plant was being constructed, GRAT has been diamond drilling at Aukam with the intention of proving up a 43-101 compliant mineral resource estimate by the end of 2022. All of its drill holes have hit graphite with one intercept being 2.77 meters wide. The Aukam graphite mineralization is close to surface so these are quite shallow holes, 42 to 141 meters.
Brand and GRAT have been criticized for building the processing plant before having a 43-101 mineral estimate in hand. However, the fact that Aukam had been mined on and off from 1940 to 1974, that it has stockpiles left from that mining, and that in the old workings there were visible graphite veins all suggested that there was plenty of mineralization. Earlier drilling, in 2017, intersected graphite veins at shallow depths and was sufficient for GRAT to be granted a Mining Licence by the government of Namibia.
The exposure of and the commencement of extraction of 150 tons of graphite much sooner than Brand expected demonstrates how GRAT’s confidence was justified. In the release Brand states, “Watching the stockpiles grow gives us an immense sense of achievement that we are moving closer and closer to commercializing our Aukam project."
The absence of a 43-101 Resource Estimate or a Feasibility Study may have hurt the share price of the company in the past couple of years – every press release has to disclose this absence. However, as these regulatory hurdles are cleared the share price should adjust to reflect the de-risked nature of the Aukam project.
Brand has not stopped at Aukam. He knows that the world needs many graphite mines. GRAT has acquired and is exploring successfully, the Capim Grosso graphite project in the Brazilian state of Bahia. Sampling and trenching have been undertaken on the 4.26 square kilometre property. A 5000 meter drill program began in November 2021 and has been reporting the results of the fairly shallow holes. As I write the drilling program is 78% complete. As well as drilling, trenching continues and in a recent release, Armando Farhate COO & Head of Graphite Marketing & Sales stated “The results obtained with this trenching program are perfectly in line with our previous expectations and we expect a lot more to be unveiled at Capim Grosso.”
The plan in Brazil is to work towards a conventional 43-101 Resource Estimate. However, in the process, GRAT is discovering additional deposits on the property. The most recent trenching disclosed what is a third graphite bearing structure at Capim Grosso. GRAT expects to find more.
35 kilometers away from Capim Grosso, GRAT is exploring two other properties, Jacobina and Igrapiuna. Both of these properties are in the very early stages of exploration with the encouraging results from the first trench at Jacobina recently reported. The long-range plan is to have these two properties feed a plant built at Capim Grosso.
The company just announced the close of a 2 million dollar “working capital” private placement ensuring that it has cash in the bank to finance its activities. The company has no debt. GRAT has hired the people it needs from all over the world and is ready to start producing graphite in ever-increasing quantities.
From the market’s perspective, the news flow from the three projects should be significant. COVID derailed the timetable at Aukam which the market understood but did not like. Now that the financing has been completed, there should be interesting, substantive, press releases from now until Christmas and beyond.
The story I liked in May 2020, I like even more now, with the Aukam plant putting graphite “in the bag”.
[Disclaimer: This is not investment advice. I am not an investment professional. I am down about 30% at the moment on my overall portfolio. I will write about companies that I hold. I will disclose any holdings. Do your own due diligence. Do it hard. Call the CEO.
I currently own shares in $GRAT.V which I intend to hold but which I may sell at any time.
Gratomic is a client as well as a holding.]