Kingsland Minerals’ Leliyn prospect could become one of Australia’s largest graphite deposits

Just as silver has been dubbed the poor man’s gold so has graphite been described as poor man’s lithium, though an eye-catching discovery which doubled the money of investors in Kingsland Minerals (ASX: KNG) could put a gloss on graphite’s tarnished reputation.

A true small-cap with a market value of $18 million recently, Kingsland was a lot smaller last month when it was valued at just $7.6 million.

The market-value increase is a result of the stock’s run from 17c on May 4 to a recent high of 43c and the fact that it has a modest 45 million shares on issue.

What’s driving Kingsland is a potentially significant discovery in the Northern Territory with a maiden drilling program revealing a graphite-rich structure starting close to the surface with a true width of at least 100 metres.

Significant find in the Northern Territory

If that early result is replicated at depth and continues along a five-kilometre exploration target close to Pine Creek, about 200 kilometres south of Darwin, the Leliyn prospect could prove to be one of the biggest graphite deposits in Australia.

More drilling is required, and assay results published, before the significance of the discovery can be assessed, a process underway in the field where two rigs are drilling and in an assay laboratory – with news about both stages of the exploration process expected soon.

It is discovery news far more than the weak performance of graphite on commodity markets which is driving Kingsland.

Demand for the mineral is growing, but supply appears to be growing faster, with a depressing effect on the price.

Current graphite market

The latest study of the graphite market by a U.S. consulting firm points to the value of the global graphite market more than doubling over the next 10 years.

Fact.MR, a Maryland-based research business, said in a report released earlier this week that it expects the graphite market to grow from US$25.9 billion this year to US$58.6 billion in 2033 thanks to a compound annual growth rate of 8.5%.

Similar forecasts of rapid growth in graphite demand have been a feature for some time thanks to the mineral’s traditional market in industries such as heat resistant refractories and steel-making, as well as its new and fastest-growing role as the anode in renewable batteries which have lithium as the cathode.

Graphite prices in decline

In theory, the price of graphite should be moving in lockstep with lithium as it is the largest part of a lithium-ion battery, but the reality is that production of graphite has always exceeded lithium so when the battery boom started there was a ready supply of graphite available.

The end result is that graphite today is not in short supply as shown in the latest Fast Markets report which noted a steady fall in the price of the material which is sold in a variety of forms for the steel and battery industries.

The latest Fast Markets report indicates that graphite prices today are roughly 25% less than at this time last year.

A slowdown in Chinese steel production is seen as the major cause of the sluggish price for graphite which is an almost pure form of carbon and has been dubbed “up-market coal”.

Today’s weak outlook sits uncomfortably alongside a report released late last year by a rival commodities consultancy, Benchmark Mineral Intelligence, which said that graphite could be on the verge of replicating the performance of lithium.

The poor showing so far by graphite can be seen in the share prices of companies producing the mineral, or those edging closer, including one-time sector darling Syrah Resources (ASX: SYR) which has seen its share price plunge by 60% since late January, from $2.42 to $0.91.

The weak graphite market is a warning for investors that graphite is not in short supply as was expected by some analysts last year.

Discovery news outweighs commodity performance

That means stocks such as Kingsland will get their drive from discovery news, not from what’s happening in demand for steel or batteries.

So far, news from the Leliyn can best be described as encouraging but with much more required before the significance of the discovery can be fully assessed.

First hint that something interesting was happening came late last month at the Resources Rising Stars conference on the Gold Coast where Kingsland managing director Richard Maddocks outlined planned site work and noted past sniffs of graphite in earlier drilling by explorers not looking for the mineral.

Formed by the metamorphosis (change induced by heat and pressure) caused by an intruding granite, a line of graphitic schists has been formed. Maddocks said the early work appeared to have under-reported the true width of the schist.

But a fresh look at one of the early holes revealed graphite to a depth of at least 300m and a true thickness of 100m.

Assays of the early core samples returned up to 17.4% graphitic carbon, much of it in flake form suitable for battery production.

It was the Gold Coast presentation which sparked interest in Kingsland as its share price ran from 19c to 34c, before surging again last week to an all-time high of 43c.

Encouraging results and future plans

A week after the conference, Kingsland reported its first Leliyn drill result, a down-hole graphitic schist intersection of 150m which when corrected for the angle of the hole equated to a true with of 100m.

“We now have information along the graphite schist unit which suggests good continuity along the 5km target zone,” Maddocks said.

“We will continue drilling to define the schist unit while samples are assayed.”

Building on the positive exploration news was a report on Tuesday of results from a ground electro-magnetic survey which generated a strong response from the interpreted graphitic schist, confirming the size and shape of the target.

Kingsland has a long way to go but it could be a small company holding a graphite tiger by the tail.