DNI METALS | Will DNI Produce Spherical Graphite

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Maurice Jackson

Welcome to Proven and Probable, where we focus on metals, mining and more. I’m your host, Maurice Jackson, our featured issuer is establishing itself to become one of the world’s leading graphite producers. I’m speaking of DNI Metals, trading on the CSE, symbol DNI, and on the OTC, symbol DMNKF. Joining us for a conversation is Dan Weir, he is the executive chairman of DNI Metals. Before we begin, allow me to convey to our listeners that DNI metals is a sponsor of Proven and Probable, and that we are proud shareholders of DNI Metals for the virtues we will convey in today’s message. Mr. Weir, welcome to the show sir.

Dan Weir:

Thank you Maurice.

Maurice Jackson:

Dan, we’ve had a number of inquiries from subscribers regarding spherical graphite, and whether or not DNI will produce spherical graphite, can you answer that question for us please?

Dan Weir:

Yes, and actually the timings very good for that Maurice. PDAC, which is the largest mining show in the world starts Sunday, March 4 in Toronto, and runs through Wednesday, March 7. I’m actually speaking at a luncheon on March 5, and going to be talking all about lithium-ion batteries, and the materials that go into the lithium-ion batteries, and I’m going to be giving a presentation about graphite, and talking about spheroidization, and how that all works. I will make one very clear point, and people always ask me about this, is DNI going to produce spherical graphite?

The answer to that is, at this point in time, no, DNI plans on being a miner, what that means is, is we will mine and produce graphite. Spherical graphite is a manufactured product, there’s a whole process from after it leaves the mine to actually being upgraded to being used in a battery. Spheroidization is just one part of that, I think maybe what we’ll do Maurice, is let’s switch over to a slide, or a few different slides that we’ll talk about, and I’ll show you what this is, because it’s a lot easier than me just sitting here talking, to actually have some pictures behind this as well, so let’s switch over to that.

 

Maurice, you can see from this chart that we put together, and I’m going to use my mouse, so hopefully everybody can see me dragging around the mouse here. When we’re producing graphite in Madagascar, it’ll look very similar to this. This is actually saprolytic-type material, or weathered material in Brazil actually is what this is. You can see, you just go in with an excavator, you can dig up the material, put into a truck, take it over to the processing plant.

The processing plant, this is a couple of different steps, these are flotation tanks you can see here. We’ve mentioned in previous interviews that we’ve done, that graphite is fairly simple to process. It hates water, it’s a flotation process where you can skim it off the top. We’re not going to get into all the details of that today, because again we want to focus on the lithium-ion battery, and talk about spheroidized graphite, okay? In Madagascar, we’ll mine, we’ll process it, we’ll put it in bags, we’ll put it in containers, and ship it around the world, okay?

We’ll do those first four steps in Madagascar, okay? After that, graphite goes through another four steps before it actually goes down into a lithium-ion battery, or into a Tesla car, okay? Let’s focus today about the four extra steps you have to do to put it into a battery, then goes into a Tesla? When we ship it, it goes to a company that micronizes. What micronizing really is, is you grind up the material really, really fine. Material we’ll sell will be at a size of somewhere around -100 mesh, or less, it’ll be fine material.

They’ll grind it up finer than flour, like really, really fine, down to about 10 µm, and that’s step one. Step two is what they call purifying. At a mine and a processing plant, you can get the graphite up to around 97%, 98% carbon content. Normally graphite is sold for most customers at around 95% to 98% again, depending on what you’re using the graphite for, you may sell it at lower carbon contents. Again, let’s focus on what it’s going into, spheroidization in the lithium-ion battery.

Purification, what you’re doing, you can purify graphite in one of two ways, oh, and sorry, you’re taking it from the 95% to 98%, up to 99+ percent when you’re going to use it in the lithium-ion battery. Purification can be done one of two ways, one you can heat up the material really, really hot. Graphite has a very high melting temperature, it’s one of the reasons why they use it in the steelmaking industry. It’s used for all the crucibles and all the molds in the steelmaking industry, because it has a much higher melting temperature than iron ore, or other products.

Great if you want to purify the graphite, you can heat up the material really hot, burn off all the material, and it purifies the graphite, that’s one way. Second way to do it, would be to use chemicals. Graphite is very inert, it doesn’t react to sulfuric acid, or they even use even a more nastier, more nastier, is that a word Maurice? Can I use that? Just a nastier product called Hydrofluoric acid, in which you can put the graphite in there, and basically eat away any of the contaminants, again bringing the purity, or the carbon content up in the graphite.

After that is done, then it’s put into a machine where they do the spheroidization. Another word for spheroidization is shaping the material, so what you’re doing, is you’re taking the flake graphite, you’re curling it into a ball, and then you’re selling it. In a second I’m going to show you the difference between the flake and the spheroidization, or the curling or shaping of the material. The last piece of the puzzle here is the coating, they put a coating on it to keep it in that ball shape before it then gets put into a lithium-ion battery.

Here’s another myth for you, see how small that small little cell is? That’s actually the size that goes into a car, it’s a little bit bigger than a AA battery, it’s put into a pack like this where they have thousands of these little batteries, then it gets put into these modules. Again, little cells go into a module, the modules get all put together in the bottom of the car, and then the car gets put together and you have a Tesla, or a GM, or whatever car company is making an electric vehicle.

Those are the steps, so let’s go and look at the next slide, and I can show you what it looks like under a microscope flake graphite, versus spheroidized graphite. Maurice, here’s an example of what the material looks like under a microscope. Again, when we process the ore out of the ground, and again this is the advantage in Madagascar’s, it’s this saprolite, or weathered material that we can simply dig up with an excavator. When we dig it out of the ground, it’ll be somewhere between 3% to 15%, okay? That’s the amount of graphite material that we pull out.

We run it through the processing plant, which you saw in the previous slide, we get this flake type material, we now brought the purity of the material up to somewhere around 95%, 98%, okay? We then, it gets sold, it leaves Madagascar at that point, okay? Any mine in the world, it’s going to leave it at that point, it then gets shipped to the manufacturer’s who will again micronize, purify, shape or spheroidize it, coat it, and then put it into a car, okay?

Here’s what it looks like, it goes from this flaky, flat type material, into round little balls that they curl it into these balls, okay? One thing that we should also talk about a little bit is the pricing on this. When we sell it out of Madagascar, we’re overselling it anywhere again depending on the size of the flakes that we’re selling, can sell anywhere from the $500 US a ton, up to $2000 a ton. Material that’s used in a lithium-ion battery, or gets shaped and spheroidized and coated, is material that is fine material.

It’s not a high-priced material, it’s in fact what’s really interesting, is historically in Madagascar the large flake material that you’re going to use for other materials, not the battery industry, was sold and the fine material was thrown in the tailings ponds. Great for us, because now we can sell the fine material to the battery industry. It’s almost like a byproduct to us, and we’re able to sell that, so that’s a huge bonus for us, is this growing and expanding market in the battery industry.

That’s a huge advantage, so when the material is taken from this flaky type material, and done all the processing, brought it up to be able to sell into a car, we may sell this material for let’s say on average, let’s say we’re selling it, because it’s going to be fairly high purity material, let’s say we can sell that for $700 a ton, okay? Don’t ever hold me to those numbers, I’m just using general numbers, okay? Let’s say we can sell it for $700, $800 a ton, maybe we can get as much as a $1000, or $1200 a ton, but I’m telling you, it’s not the highest quality material that we’re going to sell.

When we sell it, then the first guy micronizes it, it probably costs him $300, or $400 a ton to micronize it. He’s now selling it or maybe $1800, maybe as much as $2000, but probably not. The next guy, and this maybe all different companies, it may be one company, the next guy may do the purification. His cost might be $800, $900 a ton to purify the material, now he’s selling the mature for let’s say close to $3000 a ton. Then it gets shaped and coated, again, two separate processes to do that.

Again, it might cost another $800 to $1000. I think you get my point here, is that there’s huge additional costs through this whole piece before it gets sold. When it gets sold to be put into the battery, it’s usually recurrent prices are somewhere around $500, $600 a ton, right? I prefer to be the guy doing the mining, because I believe my margins can be 50+ percent being a miner, digging it out of the ground and selling it, specifically in places like Madagascar and Brazil, where you’ve got this saprolytic material, my costs are significantly lower than anywhere else in the world, so I can still make some very nice profits.

The guys doing all the other work, the micronizing, purifying, shaping and coating, they are not making 50% margins all the way through that, so what I’m trying to tell you here, is I believe the highest margin business through this whole thing here is going to actually be the guy that’s the miner, and specifically us, because we’re working in this saprolytic, or weathered type material. Our costs are going to be significantly lower than everybody else. If we look here at this chart, I think it shows you again, emphasizing this.

Mining and processing is what we will do, we’ll do some of the sorting into jumbo sizes, large, medium, and fine. The fine material will be sold into the battery industry and be micronized, purified, shaped, and coated, and then the other ones, the medium flake, large flake, and jumbo flakes, which you get the much higher prices for, will be sold into other industries. Things like gasket type materials, all sorts of building materials, all sorts of other areas, refractory, steelmaking industry. We’ll sell it all to that, and get much higher prices than we will selling it to the battery industry.

Again, I want to emphasize that I’m excited about the battery industry, but in my view I’m going to make a lot more money selling to other industries and not the battery industry. I’m also excited about the battery industry, because what’s happening is, is China traditionally was selling 60% to 70% of the world’s graphite. A lot of their graphite is all going into the battery industry, because China’s leading the world in lithium battery manufacturing. What’s happening is, is all the other industries around the world now are scrambling to get material, because they’ve been buying it from China for the last 20 years, they’ve jacked the prices up because supply and demand, as well in a lot of cases, they can’t even get the materials.

I believe we can infill, and specifically because we can be one of the lowest cost producers, have some of the highest quality products, and sell to the traditional industries, and potentially not even sell to the battery industry. I am excited a little bit about that as well, because we’ll have this fine material, where traditionally in Madagascar they through into the tailings ponds, which I can recover and now I’ve got a whole new market for it. Again, it’s very exciting to see this all happen, but the initial question that you asked me Maurice, will DNI do micronization, purification, shaping and coating of graphite?

We have no intention at this point in time of doing that, we will be a graphite miner making great margins selling to the guys that are doing this, but more focused on selling to other industries, because we can sell this larger flake material, and we can sell it at much higher prices.

Maurice Jackson:

Dan, thank you for all that clarification, but that leaves me to ask one further question, why do we continue to hear graphite producers discussing spherical graphite and graphene?

Dan Weir:

There’s a number of reasons for that, I’ve mentioned it a few times in this interview so far, and in previous interviews. The strategic advantage we have having material in the saprolytic rock, or host rock, and really all that means, is that at one point in time this was like hard solid rock, that through thousands of years mother nature has basically grounded up for us, or broken it up. It’s a clay, sandy type material, in which we can go in simply with an excavator, dig it up and process it.

The guys in North America, and in a lot of cases most of Africa, Australia, places like Germany, Sweden, all their graphite is in hard granite, or hard rock. They have to go in and drill and blast the material, they’ve got to grind it up really, really fine, and there’s big costs in doing that, huge costs. Not only your operating costs, but your CAPEX costs in producing graphite from that. If you cannot be an economical deposit, and what I mean is, is if you can’t be economical working in this hard rock, you’re going to start talking about doing upgrading.

You’re going to start talking about spheroidization. You’re going to start talking about graphene, you’re going to start talking about all sorts of other things to distract people from the fact that it’s not economical in most cases to produce from the hard rock type deposits. You’ve got to be in this saprolytic type material that is found in Madagascar and Brazil. Those are the places where your costs are low enough that you can compete with China, and still make some really good margins in what you’re doing.

Again, that’s why we don’t really talk about graphene, you will never really hear me talk about that. You won’t hear me talking about spheroidizing graphite, upgrading graphite, and doing all that work. If the right opportunity came along, and some group in Korea, or India, or even the United States wanted to partner with us to do that upgrading, you know what? We’ll look at it and consider it, but quite frankly that’s a huge capital expense. I’d rather do an off take agreement with those guys, supply them the material, and make more money that way.

Again, that’s just my two cents worth on that.

Maurice Jackson:

All right, well Dan, on behalf of all of our listeners, thank you for your insights and expertise. If for someone listening today that wants get more information regarding DNI Metals, please share the contact details.

Dan Weir:

Yeah, anybody can call me anytime, my cell phone, I’ll be a little busy at PDAC this week, but normally just leave a message, I’ll get back to you. 416-720-0754, that’s 416-720-0754, or email me is even better. Danweir@dnimetals.com, that’s danweir@dnimetals.com, or please visit our website at www.dnimetals.com.

Maurice Jackson:

Last but not least, please visit our website www.provenandprobable.com where we interview the most respected names in the natural resource space. You may reach us at contact@provenandprobable.com, Dan Weir of DNI Metals, thank you for joining us today on Proven and Probable.

Dan Weir:

Thank you Maurice.

Maurice Jackson:

All the best to you sir.

Proven & Probable

Maurice Jackson

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