The namesake project of Sarytogan Graphite Ltd (ASX:SGA) in Kazakhstan has strong potential to be the world’s largest and most profitable graphite mine, according to a research report from Denver-based Bonanza Kings Capital.
The analyst’s report states that the Sarytogan project has “multi-bagger potential including 20x+ bull case upside tail”.
Bonanza Kings Capital has set a target price of A$1.00 for the company, which compares to the current price of around A$0.205.
It has a simple thesis on the company – “Mineral deposits that have both the very highest grade and that also are of enormous size nearly always become mines whichever the commodity or jurisdiction.”
"Makings of a supermine”
It stated: “Sarytogan has the makings of a world-class ‘supermine’ with the world’s highest grade, the third-largest deposit size in the world at 60x current industry production, flat at surface geometry with super low extraction costs, and demonstrated early success in metallurgy and anode battery compatibility.”
This is enhanced by “access to existing transport and power infrastructure, low power costs, low diesel costs, low labour costs, an easily permittable low-tax jurisdiction, and in a commodity with exceptionally high growth demand growth prospects.
"We believe valuation (at A$22 million EV) is extremely low (vs A$500 million-$2 billion NPV project value depending on scale) mostly because it is relatively unknown by investors as a fairly recent discovery and public stock in a lesser-known commodity; and to a lesser extent its jurisdiction of Kazakhstan, which we think has risks but is not at all fatal."
Bonanza Kings said that world-class economics were likely for the project.
"Sarytogan has yet to put out a pre-feasibility study, which is due in mid-2024. We expect that economics could be very compelling.
"Note that it’s extremely rare for any deposit across any commodity to have all or most of these characteristics – perhaps a couple dozen projects out of tens of thousands."
Following are extracts from the Bonanza Kings Capital report:
World’s highest grade
Grade is king in mining as less energy and labour to retrieve valuable minerals greatly improves economics.
Excluding small-vein deposits, Sarytogan is by far the world’s highest-grade graphite project with an average 28.9% grade. This compares to mines currently in production of 8-16% and the next highest grade of 23.8% for Talga’s Vittangi development project in Sweden and 6.9% for Renascor’s advanced project in Australia.
Flake size also matters in graphite. Large and jumbo flakes are more relevant to historical applications such as flame retardants and lubricants. Sarytogan’s flake size is small, which is amenable to anode battery production.
Massive size - third largest
Sarytogan has a resource of 66 million tonnes of graphite making it the third largest resource in the world behind two Balama projects in Mozambique and equating to 60x current industry production.
Size allows for greater scalability of expenses and a long mine life. Size is particularly important for anode battery production as graphite deposits are not uniform and require specific testing by automakers to ensure compatibility with battery chemistries.
Low-cost mining and scalability
Sarytogan’s deposit geometry is ideal being large and flat and at surface. It is located within sandstone and siltstone, and easy to extract via truck and shovel. It is amenable to lower cost and safer open pit mining (vs higher cost and more dangerous underground mining).
With little overburden to remove it should have a very low strip ratio leading to lower mining costs. This type of deposit likely also allows for scalability and ability to incremental grow the mine rather than massive capex upfront. This is one of our favourite mine attributes as it allows for potentially less equity dilution.
Early metallurgy success
Metallurgy is ultra-important in graphite production as anode-grade spherical graphite requires very high purity of 99.95%. Early results for Sarytogan have been promising. Using flotation, they have achieved an intermediate product with purity of 80%.
They then demonstrated two separate flowsheets, alkaline roasting with acid achieving 99.87% and thermal purification of 99.99%, both producing spheroid graphite.
While these are not yet done at scale and it’s difficult to estimate costs, we view early results as promising as they were achieved by well-respected specialized metallurgy consultants.
Sarytogan’s ultra-high grade is also likely to translate to lower separation costs with less gangue material to separate.
Access to infrastructure
Unlike certain large competing projects in Africa or Northern Canada which require major government funding, Sarytogan is near existing infrastructure, 170 kilometres from a large city, 6 kilometres to a road, 68 kilometres to rail and access to existing power lines which provide electricity in the lowest quartile of costs.
As Kazakhstan is a major oil & gas producer and refiner, it has very low diesel costs – about 50%-25% of that in competing graphite countries. Goods could likely easily be transported by rail to Europe and/or China/Asia.
Permitting seems unchallenging
Kazakhstan is a mining-friendly jurisdiction with mining and oil & gas comprising large components of the economy and tax base. Tax rates are low at 20% and its 3.5% royalty is reasonable.
The deposit is in a semi-arid (generally less risky for tailings) valley location that is sparsely populated. Water isn’t abundant but is adequate. The mine plan is likely a lower risk open pit mine.
The one risk on social licence side is fallout from a nearby Arcelor Mittal underground coal mine had a disastrous fire in 2023 that killed dozens and led Arcelor to have a forced sale to the government. Offsetting is that Sarytogan is a far less risky mine plan.
Growing demand for graphite
Graphite demand and need for new graphite mines may grow very fast due to electric vehicle demand as it is currently the main component of the anode portion of all major battery chemistries.
In a well-done study considering substitution of synthetic graphite and recycling impacts, the IEA forecasts graphite to be among the fastest-growing commodities. It forecasts graphite demand to grow 8-25x its 2020 levels by 2040 depending on pace of net zero initiatives.
Benchmark Minerals translates this forecast to mean the need for the equivalent of 97 new mines at 56,000 tonnes per annum.
We believe ESG mandates, renewables, net zero, EVs, carbon emission fears and climate change have been very overhyped and that related demand forecasts and regulatory timetables will be rolled back considerably, which is already beginning.
We also believe much of the graphite demand will be serviced by expanding output of existing mines which have very large reserves relative to output (ie decades of mine life at current production) and from synthetic graphite. Nevertheless, we see ample room for a few of very best graphite projects to advance to producing mines. This one makes the cut.
To view the full report click here.