NextSource Materials (TSX: NEXT; US-OTC: NSRCF) — which is developing its large flake graphite project in Madagascar and is backed by Sir Mick Davis’ Vision Blue Resources — is teaming up with a prominent Japanese trading company and its Chinese partner, which owns and operates graphite anode processing facilities in China, to build a battery anode plant that it says should be ready for commissioning in the fourth quarter of 2022.
NextSource did not identify its Asia-based partners by name because the two companies “requested not to be identified” for the time being, but described the Japanese company as a “prominent Japanese trading company” and “a major supplier” of spherical and purified graphite (SPG) for anode material used in the lithium-ion batteries that go into electric vehicles (EVs) and hybrid electric vehicles (HEVs). NextSource noted that the Japanese company supplies graphite anode material “to the majority of Japanese automotive original equipment manufacturers (OEMs) and the Tesla supply chain.”
It is also the same Japanese company that in October 2018 signed an offtake agreement with NextSource for 20,000 tonnes of graphite a year over ten years.
The Chinese partner is described as a “leading processor of SPG” and “is regarded by OEM anode producers to be a best-in class processor and one of the highest quality suppliers of SPG globally.”
NextSource also pointed out that the two companies have been processing battery-grade graphite for more than 15 years and “have had an alliance” for over 30 years.
“With our Molo project fully financed and commissioning of the Molo mine expected in March of the next year, this partnership fulfills our strategy of having upstream integration supporting the battery anode facility at any scale the market may require,” Craig Scherba, the company’s president and CEO, outlined in a press release. “This gives NextSource the enviable “pole position” in the battery race to have a fully commercial and vertically integrated graphite operation.”
The news follows a US$29.5 million investment in NextSource announced in February by Vision Blue Resources, which was set up by Sir Davis to invest in the battery minerals sector. Sir Davis, who is best known for building Xstrata into one of the world’s largest mining companies before it was acquired by Glencore in 2013, is also chairman of NextSource’s board of directors.
Sir Davis noted in the press release that the three-way partnership “is part of NextSource’s downstream growth plan and partners the company with prominent and established processors and suppliers of graphite anode material to the Tesla supply chain and other global automotive OEMs.”
“NextSource is well positioned to be a significant strategic supplier of high-quality flake graphite to major battery anode customers globally, while simultaneously gaining an immediate foothold into the high-growth markets for EVs, as well as the burgeoning energy storage market that will be reliant on graphite anode material,” he stated.
Under the three-way partnership, NextSource will source the funds for the battery anode facility (BAF) and will wholly own and operate it once constructed. The Chinese partner will be the technical partner “and provide NextSource with a complete, turn-key BAF operation that is a duplicate of the facilities it currently operates in China that is producing SPG for the Tesla supply chain.” In addition, it will “price, design and source all required graphite processing equipment, design and develop the process flowsheets, and provide all required training and operational know how related to the production of anode material,” and receive a 3% licencing fee based on the total annual sales value of the anode material sold.
The Japanese partner “will utilize its network with OEMs and as act as NextSource’s exclusive agent in the sales, marketing and trading of anode material to OEM anode suppliers and to OEMs directly.” It will also be entitled to a 5% sales commission based on the total annual sales value of the anode material that is sold, NextSource states in its April 12 news release.
In an interview, Brent Nykoliation, NextSource’s executive vice president, said the company is considering three locations for the BAF — South Africa, Europe, and North America — and is undertaking a technical study to compare the operating costs for the plant for each jurisdiction. He expects the study will be completed within the next three or four months.
He also noted that the three-way partnership fast-tracks the use of the company’s graphite by OEMs and car companies. “The partners we have have already tested our graphite, and they use a process that is already approved by the OEMs,” he said. “It’s taken us from the required three-year verification process and shortened it down to about a year.”
“All other graphite companies out there that may be trying to develop anode material will have to go through a process in order to verify their material and if they are using unproven processes then it’s akin to a science project for some companies … the process to spheroidize and coat graphite is quite technical. In our case, we have proven intellectual property processes being supplied to us by reputable and leading companies already established and supplying anode producers today.”
The partnership was also a long time in the making. “We didn’t just start talking to them two months ago, we started talking to them five years ago,” he said.
NextSource discovered Molo in 2010. The deposit contains 100.4 million measured and indicated tonnes grading 6.3% carbon (graphite) for 6.3 million tonnes of graphite and inferred resources of 40.9 million tonnes grading 5.8% carbon for 2.4 million tonnes of graphite. The resource estimate used a cut-off grade of 2%.
The graphite at Molo will be relatively inexpensive to mine because it lies between 1 cm and 5 cm below grass cover – yielding a strip ratio of just 1:0.8.
An updated feasibility study in September 2019 outlined a phased development approach with the first phase producing 17,000 tonnes of graphite a year over the first two years and a second phase beginning in three year of 45,000 tonnes a year. (Production in the second phase is now expected to be much larger than 45,000 tonnes, and will be closer to 100,000 tonnes, according to Nykoliation.) The study outlined a mine life of 30 years and initial capex for phase 1 of US$21 million and phase 2 of US$39.1 million.
The plant for phase 1 will be modular — consisting of 35 units that will be built and put together offshore, tested, and then dismantled and shipped to Madagascar.
In addition to the Molo project, NextSource owns the Green Giant vanadium project, about 11 km away. Green Giant contains indicated resources of 49.5 million tonnes grading 0.69% vanadium pentoxide for 756.3 million pounds of vanadium pentoxide and another 9.7 million inferred tonnes grading 0.63% vanadium pentoxide for 134.5 million pounds. The resource estimate used a o.5% cut-off grade.