CEO Interview: Capitalizing on European Battery Demand

Written by Gerardo Del Real
Posted April 8, 2019

Joining us today is Mark Saxon, recently appointed Interim CEO of Leading Edge Materials (TSXV: LEM) (OTC: LEMIF).

Leading Edge Materials owns the Woxna mine, one of Europe’s very few fully-built graphite mines. With battery growth, especially large ones for vehicles, poised to explode in coming years, Leading Edge is in a unique position to capitalize on European demand.

To your wealth,

gerardo-sig

Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.


GR: We have the opportunity today to have a quick conversation with Mark Saxon, recently appointed Interim CEO of Leading Edge Materials. To begin, how is the new role going?

MS: Thanks very much for the opportunity to talk today Gerardo. Happy to bring you up to date on what is happening in Leading Edge Materials and the industry in general. As you mentioned, I’ve recently taken on the role as Interim CEO, but I am not completely new to the Company or its assets. I was a co-founder of Leading Edge Materials, or Flinders Resources as it was then known in 2010, and remain a major shareholder. I am pleased and proud to pick up the reigns from the former CEO Blair Way and get more involved in the day-to-day management.

GR: That is a great introduction and I’m very pleased to hear you have substantial skin in the game with your shareholding. The original asset of the Company I recall was the Woxna graphite mine in Sweden that you are still working on today.

MS: That is quite correct Gerardo, but our thinking with the Woxna project today is in complete contrast to when we first acquired the mine in 2010. At that stage, we had identified the opportunity to supply natural flake graphite into what we refer to as “traditional” markets. Graphite, because it has a very high melting point, is used for products that can operate at very high temperature without breaking down or reacting. A large part of the demand was with the steel industry — if you think for example of spectacular pictures of molten steel that I’m sure you have seen, the steel will be held by crucibles made from graphite.

GR: It sounds like an essential commodity for industry. Remind me of how the market developed back then.

MS: Graphite has been defined as a Critical Raw Material by the European Commission and the U.S., so its importance is well recognized. However, approximately 70% of supply was coming from China, which was a double-edged sword. This was creating a tremendous concentration risk for European customers, but also came with the ability of a dominant supplier to influence pricing, so the graphite price did well for a period, then softened significantly.

GR: So how is the industry looking today? Is China still in control?

MS: The graphite industry today is a complete contrast from how it was when we began at Woxna. The industry is no longer driven by the traditional markets. Renewable energy and energy storage have reset the clock.

When we first got involved in the graphite business, we had little idea how important graphite is to lithium-ion batteries. A lithium-ion battery is comprised of around 16% graphite — so that is around eight times as much lithium and five times more than cobalt. The lithium and the cobalt have been getting all the recent attention — they form the cathode — while the graphite forms the anode. There is lots of discussion around changing the cathode in particular to increase nickel and reduce cobalt, but there is very little discussion over replacement of graphite as the price, performance, and safety are pretty well spot on.

GR: You seemed to have learnt a lot about the battery industry! So how does that play for Woxna?

MS: I guess the change in focus began for Woxna in 2015, with the “Dieselgate” scandal that focused on the claims made by the auto industry with regard to the performance of clean diesel. Prior to that time, the European automotive industry had not engaged with electric vehicles, but was focused on improving the economy and environmental performance of internal combustion engines. Dieselgate completely changed that thinking in Europe, and EVs and batteries went from being an interesting sideline to the vehicles that will determine the future of German industry.

GR: It was a huge shift in thinking for sure. Before 2015, EVs were a novelty but today they are a regular sight and there are new models coming to market all the time. Range anxiety now seems to be a thing of the past as well.

MS: Exactly, so the European automotive industry suddenly had to change their raw materials strategies and think about battery materials that had never come up before within their procurement teams. That included graphite, as well as lithium and cobalt. It was pretty quickly revealed that the battery raw materials supply chains were very skewed towards Chinese control — in fact, 100% of graphite anode comes from China. As you can imagine, German procurement teams don’t like supply chain risk and so they began to learn about where graphite is mined, and Woxna popped up on their maps.

GR: We are seeing some pretty lofty forecasts for EV and battery demand going forward. What is your feeling on how big the industry can get?

MS: There are certainly some big numbers quoted — if you follow Benchmark Minerals, who provides one of the key forecasts, the requirements are going to jump 5 to 10 times for all battery raw materials over the next decade. That is going to take a lot of investment in the supply chain to make it happen, and there will be opportunities for suppliers on almost every continent.

If you consider the lithium-ion battery industry of even just a few years ago, it was comprised of small mobile devices. The batteries and the end products that contained them were manufactured in Asia, and the raw material needs weren’t huge.

Jump forward to now, and Benchmark Minerals is tracking more than 70 battery megafactories in construction or planning. Batteries for EVs and for stationary storage are large, heavy, and expensive, so they are going to be manufactured fairly close to where they are consumed and each megafactory will have its own raw materials networks flowing to it. Local sourcing will be an important part of the factory roll out, for supply security, for reduced carbon footprint, for cost, and for access to innovation with new materials.

GR: So how does Woxna fit into that story today? I note that you have been talking of a strategic review that includes the Woxna project.

MS: Woxna is one of Europe’s very few fully-built graphite mines. The mine, the mill, the waste management is all there. And of particular note we have an operating permit until 2041 which was renewed recently on the basis that the site was well managed environmentally.

The permits and the sunk capital give Woxna a clear lead as a supplier of high-value graphite materials in Europe. The project includes four granted mining leases with significant graphite resource and the potential for expansion when demand requires increased scale.

The work we have been doing in the last few years is developing a process to convert low-value natural flake graphite into high-value lithium-ion-battery-ready anode material. This is the material that today is 100% Chinese sourced, so it is very much in demand by battery and automotive customers for a whole range of reasons. It isn’t an easy process, and there are a range of steps than need to be learned and developed, but it comes with an increase in graphite value of around 10 times over the raw material, so it is certainly worth it.

We have done a great deal of the work required, and the next step is to run a pilot plant or a demonstration plant, so we can produce enough material to get the customers engaged and finalize process design.

As we move through the pilot plant phase and begin to look for the capital needed to restart Woxna as a producer of anode material, we are keen to ensure that we are offering investors the right corporate structure. The strategic review is designed to identify and compare alternatives. The Company has a good Swedish shareholder base including institutional shareholders, and we believe that finding ways to increase our Swedish profile could be beneficial to the Company.

GR: In the few moments we have left, can you update us on your project in Romania and the work that has been done there. It seems quite a different story to Sweden.

MS: Romania is part of the European Union, and when we headed out to look for new project ideas we started first with battery raw materials in the EU. In Romania we went looking for cobalt, and came up with a very interesting site that has never produced cobalt, but has high grades on mine dumps in a very attractive geological setting. Western Romania is part of the Tethyan Belt, which has had a series of great discoveries including Timok, so it has the pedigree for major deposits.

We have set up a local company in combination with an excellent local partner, and are now working through some of the permitting requirements. The area we are currently focused on is not close to any population and has active mining nearby so we believe we are in good shape.

GR: Sounds very interesting, Mark. Any last words?

MS: We have covered most of it there, I think, Gerardo, and I appreciate the opportunity to bring you up to date. The value proposition of Leading Edge Materials is underpinned by the Woxna mine with the pure exposure to electrification in Europe. The rollout of EV manufacturing is happening on an enormous scale, and it is a very exciting business to be involved with.

I look forward to bringing you updates over the next few months.


For the past decade, Gerardo Del Real has worked behind the scenes providing research, due diligence, and advice to large institutional players, fund managers, newsletter writers, and some of the most active high-net-worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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