Renascor Resources is developing the Siviour Graphite project, the world's second largest proven reserve of graphite with the potential to be one of the largest producers of graphite globally. At IMARC 2023, Energy & Resources Industry Leader Simon Scott spoke with David Christensen, Managing Director of Renascor Resources about the critical minerals supply chain. Highlights of that conversation, which share insights into developing a critical minerals project in Australia, are set out below.

What have been the notable challenges in developing the project and how did Renascor Resources overcome them?

The early stage challenge was figuring out who we were going to sell the product to. Graphite traditionally is used for industrial purposes, largely in steel manufacturing. The market is dominated by small-scale steel producers outside of China, who buy the material in very small quantities. This doesn't justify the hundreds of millions of dollars needed for a large-scale mining project. Selling to China is an option, but Chinese companies who buy your material tend not to be bankable. So we faced a conundrum in how to get up and develop.

We developed a strategy early on where we wanted to sell to the high-growth anode sector. With the growth of electric vehicles (EV) and lithium-ion batteries, we're looking at compounded annual growth rates of nearly 30%, and we wanted exposure to that market. It's a smaller market in terms of the number of participants, but large enough in terms of volume. The real challenge has been identifying those parties. Outside of China, there are probably two or three who are currently buying the majority of the material, and maybe about three or four companies in China that actually sell to the West. That's our market. Our target customer was the anode customer, the one who uses the uncoated, purified spherical form of graphite.

Over time, we developed relationships with larger companies who buy these materials, learned about their growth plans, and now have four or five publicly announced MOUs with anode companies. One is with POSCO, the largest anode producer outside of China; another is with Mitsubishi Chemical, which came about through our relationship with Hanwha, both Japanese companies, and Mitsubishi Chemical which is the largest chemical producer in Japan and also a large-scale anode producer. We also have relationships with Chinese groups. Our relationship with these groups is really about trying to convince them to buy our product versus relying on current supply sources.

Working in critical minerals presents a learning curve without a playbook. However, having a degree of patience when focusing on finding the market is crucial.”

David Christensen, Managing Director of Renascor Resources

What impact does graphite pricing have on projects?

We talk about graphite as being an opaque market price for transparency, I don't think it's opaque. We know what the price is and have good visibility on it; it's just low. Last year, the price for the particular product we'd be producing from our mine was pushing north of $800 to $850 per tonne, and things looked good. Our production cost at startup would be around the $400 mark. However, we've seen all battery minerals pull back since the start of the year, not just graphite but also lithium, due to various factors. This is where, in Australia we can't compete against China, as Australia doesn't have the ability to provide large-scale grants or very low-interest loans. The people making finance decisions don't want to accept the volatility, which is why these projects aren't getting funded commercially.

What role does policy play in broadening the critical minerals supply chain?

To address these pricing issues, we need to build up the midstream, and that's where government policy, critical minerals facilities, and the Inflation Reduction Act have a role in creating supply chain certainty and building up a customer base for companies in the critical minerals sector.

The US provides an example of the role policy can play. Policy-wise, the Inflation Reduction Act has created incentives to develop the supply chain in the US. The US, like most jurisdictions, can't afford to lose their car industry as we transition from internal combustion engines to electric vehicles. Everyone recognises the risk that if they don't build up their own supply chain, they will be faced with the choice of buying inexpensive Chinese electric vehicles or having no electric vehicles at all. This will likely involve a trade-off between short-term gains from inexpensive Chinese materials and making larger scale investments to build up the industry.

That's where the Inflation Reduction Act comes in, which for us was a game-changer. It forced the anode makers, our target customers, to start looking into the United States, and the market shifted from a strictly Northeast Asian focus to a US-oriented one. However, there is a slight unintended consequence of the Inflation Reduction Act. The rules make it difficult for Chinese organisations to have high ownership interests in the United States, and there's uncertainty over the limits. This has kept the Chinese out of the US, and if you crowd them out, who's left? Japanese companies treat the EV space more like a chemical business, requiring guaranteed returns, which doesn't work well in growing industries.

And the US really has stepped up to it by making grants available to new startup companies. In our case, we have $185 million loan facility from the Australian government. If we had a grant we'd be in construction right now. But the thing about getting loans is you have to pay them back, so that makes you more risk averse. The US has started a policy of making more funds available and even the loan programs in the US tend to be longer tenor at Treasury rate interest. So they're a bit more competitive. So I think the US is focused on doing what they can and the Australian Government, by doubling the critical mineral facility, is certainly thinking the same thing. So these kinds of policy things are starting to give maybe a leg up potentially to companies like us who want to get started in this sector.

What opportunity do market dynamics create for Australian producers?

The Chinese now control 93% of the market for all anode production globally, and their market share is still growing. China has a big advantage over anyone else in that they fund projects before the market is there. In the graphite sector, they've built up their midstream by creating capacity before it's needed. The Chinese are building up midstream capacity not just with battery factories but also with EV factories, in the precursor material, cathode, anode, and even spherical and synthetic graphite, which means they have significant capacity. This drives down prices, and customers will naturally buy the cheapest material available, which inevitably comes from China.

In the graphite sector, we've seen a recent bounce due to Chinese restrictions on graphite exports, which has highlighted their dominance and caused concern among policymakers about material availability for Western batteries. In part, this reflects China's demand for graphite and most raw materials being greater than their supply. It's a rational decision for them to develop cheap midstream processing and now there's a price war to build up market share, driving down margins and prices. The Chinese want to benefit from the cheap material for themselves over the next few years.

The Chinese already have their domestic market, but they want to expand into external markets, particularly the US and Europe. To do this, they'll have to compete on a price basis, which is where we may have an advantage, especially in Australia. We have an abundance of some of the best resources, such as lithium, nickel, and graphite. If we can produce these at a low cost, it presents a unique opportunity. In the past, we couldn't think about value-adding because we were competing against the Chinese. However, due to global circumstances and the growth of these markets, we now have a relatively unique opportunity to not only produce mined material but also become more competitive by moving downstream and creating higher value-added material.

What impact has the loan facility from the Australian critical minerals facility had on your ability to discuss offtakes with customers?

Securing the loan facility from the Australian Critical Minerals Facility was a game-changer for us for two reasons. First, there isn't commercial lending available for projects like ours, or perhaps only very high bond funding, which was too expensive before interest rates increased and is now even more expensive. This opened up an avenue of financing that would have been nearly impossible for a market that is not yet defined, like graphite. Secondly, it provides external validation to the market and, more importantly, to offtake partners.

To receive support from the Critical Mineral Facility, you have to work with Export Finance Australia, which involves going through a rigorous process. This requires convincing bankers in the government that you have an economically viable project. Once we achieved that, it put us on the map and helped us trade on par with other graphite projects, moving us forward to advanced stages, securing offtake agreements, and getting closer to construction and operation. The government support has been instrumental in enabling progress and demonstrating the viability of our project.