Tesla's Master Plan - Graphite: The Powerhouse Behind The Battery

0:08 Let's get going. My name is Matthew McElborough. I host the Junior Resource Investing Podcast. I'll be guest moderating this panel today on graphite. A couple of disclaimers before we get going. Standard forward-looking statements here. This will be recorded so everybody in the room is aware of that. And there will be a Q&A at the end, so I do encourage you if you're listening and if you've got questions along the way, please feel free to fire them off and if they fit into the flow of the conversation I'll get them in. Otherwise I'll make sure to carve off 10 or 15 minutes for viewer questions at the end. But our topic today is graphite. Despite a rough 2023 in terms of pricing, the future for graphite remains unquestionably bright, with consensus expectation that we will see graphite demand growing powerfully and outstrip existing supply sometime over the coming years.

0:54 Graphite is obviously a critical mineral for any green energy revolution. It has unique properties that makes it useful for a wide variety of high-tech and low-tech uses. However, the primary driver of future demand is the coming green energy revolution and the electrical vehicle revolution itself, where graphite plays a key role as anode material in the batteries. It is a practical certainty that the next generation of EVs being built will be using 100 to 200 pounds of graphite in each battery as their add-on material. Add-on geopolitical complexities where China tightly controls the graphite market and you have the conditions for strong positive price discovery in the future graphite markets. Joining me to discuss this topic today are 3 CEOs, 3 near-term graphic producers. We have Richard Pierce, CEO of Southstar Battery Metals. We've got Sasha Jacob, who is the CEO of Ceylon Graphite and Brent Nicolaitan, who is the Executive VP at NextSource Met Materials.

1:48 So, General Leo, thank you for joining all 3 of you. And so I think right off the start, we'll just keep it simple, just, you know, simple rundown of your companies. Give us your elevator pitch. And Richard, why don't you start for us? Sure. Thanks for having me. Southstar basically has a portfolio of 2 projects, 1 in the US and Alabama called Bama Star. We also have Santa Cruz, which is in Brazil, where I'm at today. And we're right in the middle of, well, right at the end of construction here. We've got scalable assets in tier 1 jurisdictions,

2:21 very low capital intensity, first quartile OPEX will be the first new graphite production in America since 1996. So, exciting times for us as we move from development into production. Strong financial position. We were just awarded a DOD grant for moving the project forward in the U.S. Strong capital partners and feel like we're bringing production to the market at a really critical time as you say when provenance and supply chain diversification is a really important topic and certainly the battery transition will depend on that. So appreciate the opportunity to be here today and good to see everybody. Excellent. Brent, do you want to run us through NexSource?

3:08 Yes, thank you. I appreciate Matthew and thank you for having me today. NexSource, we are a graphite producer. We started production in Madagascar. We have our Molo mine, which right now is generating capacity for 17,000t per annum of flake graphite. We also have started construction of our battery anode facility in Mauritius. We have fully funded for line 1 of that facility. So Mauritius is just the island East on the closest Island off of Madagascar.

3:40 So we're going to be a vertically integrated project. So Madagascar will produce the graphite flake and then we will value add that in our anode facility that we are currently starting construction on in Mauritius. Right now, the 17,000t, as I mentioned, we're just at the final stages of our commissioning phase, but our offtake is 100% spoken for. So we have 2 offtakes. One is with the big German steel conglomerate ThyssenKrupp. Most of you recognize the escalators and elevators of that company name. And then the other half of that material is going to the anode divisions and industry of Japan. We have a Japanese partner right now that we have licensed the technology to actually value-add our flake graphite into coated spherical purified graphite.

4:28 So, Next Source actually has the ability and the know-how to produce the end product that goes into Lithium-ion batteries. So we have 2 streams. One goes to the refractory side with ThyssenKrupp, and then we have the battery anode stream going into our Japanese technical partners industry. Excellent. Thank you, Brenton. And on to you, Sasha. Hey, thank you. Thank you, Matthew. Salem Graphite Mines are in Sri Lanka, which was previously the world's largest producer of graphite until the end of World War II. It has a vein graphite, so the highest purity graphite which is 95% plus carbon. We control the majority of historic production in the country and have been working since about 2014

5:16 on bringing those sites into production, having prioritized to 10 different locations.

5:25 The mines Have a very low environmental footprint because it's all underground and because of the high purity. There's no no primary processing Very low cost as well in terms of production, starting off with that high grade. Performance has been exceptional, different testing with some of the leading universities as well as potential customers. And we're looking forward to getting into commercial production in the very near term, hopefully early next year. Excellent. And so I think this is an opportunity here, you know, graphite is not gold, it's not so well known, and so I think that's part of a big part of being an investor in this space is just always learning something new, right? And so I think fundamentally the question I have for you next is not all graphite is created equal, and this is an industrial mineral anyway, so metallurgy is king, right? And so I'll ask you gentlemen, just what are some characteristics required for graphite to be considered battery grade?

6:24 And then could you maybe provide some insight, you know, tips in terms of what for investors to look for, for a resource or deposit-wise when it comes to natural graphite? And of course, feel free here to tone advantages unique to your own project. And Sasha, I'll let you lead this one off. Awesome, our plan is to start with initial production going to direct ship uses. So the range as you're noting is quite broad. So everything from lubricants to expandable graphite for fire retardant materials, and they range quite a bit in terms of margin. Since the Chinese announcement

7:00 potentially restricting exports, there's been a significant demand from customers looking for alternative supplies. Our ultimate goal is to also look at anode material as the volume scale to be able to satisfy an upgrade facility, most likely in the US to do that. Our material has been tested for many different applications. One of the ones that actually 6 had done a previous webinar with the team from Imperial College on was the graphene-related applications as well, sensing devices, quite a range and it's tested extremely well. As a matter of fact, that Imperial College team, which is led by one of the top PhDs in the industry, is using Ceylon Graphene Material for almost all of their applications.

7:49 So quite a range of commercial uses.

7:53 Excellent. And Richard, any kind of advice or tips for investors in terms of what to look for?

8:00 Yeah. I don't envy retail investors trying to figure out battery transition metals. It's not an easy task. And, you know, usually material science and chemistry and physics aren't anybody's hot buttons that really get them excited. But a few of us get excited about it. And again, I think as Sasha said, there's a bunch of different markets out there from industrial applications all the way through to, let's say the battery grade. If you think about industrial, it's growing at whatever GDP is more or less, and it's lubricants, high-strength steels, etc. Midstream and downstream, that's kind of where the growth really happens. And certainly related to cars and EVs, it's growing at 20 plus percent compounded annually. So a lot of the growth will come from from that sector. And as you said, all graphite is not the same. So you've got, you know, different degrees of how easy it is to purify. So you go from a concentrate, which is, you know, whatever, 95, 96, 97, need to take it to like 99.95.

9:10 And typically you use acids or heat to melt away or wash away the impurities and what's left over is important so the impurities you know say are half of that minus some moisture and those impurities are important so you know you can use graphite and nuclear applications and it's really important what those contaminants are. Battery applications are all like 99.95

9:38 typically. And if you soak it long enough in acid, you'll get there. But the location of the gang is important. If it's intercalated and tough to get to, that makes it harder. So I always try to tell investors to look at it as what's your cost per ton to get to con? And then what's your cost per ton to get to a finished product, whatever that finished product may be, if it's coded SPG or uncoated or whatever. But really what this is, is you wanna be competitive with the Asian production. And so that's what I try to tell investors when they're trying to understand it. It's really about if you're in the first quartile of cost or kind of where you fit in with the cost curve and what the production is suitable for. Because at the end of the day, you want to create value for your clients and your shareholders. So it's one of those things that it's not easy, but really I try to have folks focus on cost to get to some saleable product and how that fits in within the global cost curve.

10:47 Excellent. And to you, Brent? Yeah, I'm gonna step back actually and just kind of assume a lot of the listeners today may not be aware of all these analogies and terms we're using. So first of all, I wanna just say that most of the information out there right now on the graphite and graphite projects is mostly misinformation. A lot of it is actually quite inaccurate. I always quote about 60% to 70% of what you're actually reading is hyperbole or just outright misinformation. And then when I was at a graphite conference in Los Angeles with Benchmark Minerals and the Nobel laureate for Lithium-ion batteries came out and said 95% of what you're reading about battery grade and graphite in general is inaccurate. So we certainly see this. I've been with the company 16 years, traveled the world.

11:38 One of the first things we did when we discovered our graphite deposit back in 2007 was that we went and traveled the world and I went to the biggest markets in the world and I asked the end users, not laboratories or universities as to what's going on, but the actual end users and buyers of graphite. So really asking them what do they look for in deposits? What type of graphite did they buy and how do you evaluate? So really quickly in basics is how you basically look at graphite. It comes out of the back of the plants of the 3 companies we're talking about as a graphite concentrate. It looks like silver oatmeal. So flake Graphite is very easy to process. It's basically a glorified gravel operation. You do a crush, you grind. Graphite is hydrophobic, so it does not like water. You put it into big washing tanks called flotation cells and the graphite will float to the top. You skim it off, you bag it, you dry it, then you put it into different flake sizes. Depending on the

12:35 purity, the higher the purity, the higher the flake size, the larger the flake size, the higher the price. So in graphite, the largest market today is not batteries yet. That's coming on very quickly, but it's really the steelmaking industry. So Graphite has been used in the steelmaking industry for over a century. Madagascar itself is one of the regions in the world that's regarded to be the highest quality Graphite and has one of the largest flakes. That's where our deposit is. It's a brand new discovery. Very, very large. But that flake graphite is not the form

13:07 of graphite that goes into the battery world that everybody likes to talk about. But what people don't realize is that graphite is very sconce and it's a traditional material in the steelmaking process. So it's essential in the steelmaking process. Over 200 items we touch every single day would not exist if it wasn't for graphite. But when you're looking at the battery side, it's certain things that you have to make sure that your graphite is qualified for. So it's all the volatile, so that deleterious, the imperfections and some of the contaminants in graphite, the things you do not want is iron. For example, you need to have less than 30 ppm, parts per million, you need to have 10 ppm less of vanadium, for example, all these things that can be entrained in your graphite.

13:52 So you don't want to have credits necessarily in your graphite. You'd like to have make sure you have a deposit that's very clean because any contaminants in that graphite that be OK for the steel market is not necessarily okay for the lithium-ion battery market. The big one there is iron. Actually, in graphite,

14:12 grade is not king. All these graphite companies that talk about, I have a head grade of 18, 20% in the ground, that does not translate very well when you actually have your finished product. So what you're looking for and what all the end users look for is usually a head grade between 6 and 10%. Anything over 10% you will get fines, which is very, very fine graphite. Again, the larger the flake sizes, the better for certain applications. And of course, when you have iron in your graphite, then you have to spend extra metallurgy and extra processing to get that out. So the higher head grades in which do benefit your operating costs do not necessarily benefit the end product when it's going to the battery stream. So these are things again that a lot of investors don't realize. So when you're looking at these graphite projects, what you have to look for is graphite projects that actually have Feasibility Studies. You need to know where they are, as Richard mentioned, on the cost curves.

15:09 What are actually the selling prices they're using?

15:11 A lot of these companies use inflated selling prices. Again, you can go to Benchmark Minerals Intelligence, FastMarkets and find out what the price of graphite sells for by flake size. Our deposit itself is actually perfectly bifurcated between large and jumbo and a small graphite, which is what the battery grade material is used. Smaller flake is used to make the battery grade. So again, each flake size has specific markets. So consumer electronics, foils use a jumbo flake or large flake is what you'll often hear. And that is really important for those markets, in the battery world can use any size of graphite, but they use a small flake because you're taking small flake and you're making it smaller in the process of making battery grade graphite. So again, you can talk quite a bit, but do the research. There's actually good analysts out there. I would recommend Cormark, McMurray Whale. You've got other analysts out there that actually know a lot about graphite and you could read up on them, but it's an opaque market. That's the issue with retail investors. How do you find out what a good graphite project is? Because every graphite project

16:14 will tell you, I have the best Graphite, but then you have to do the research to make sure, you know, what can they do? What's the processing ability? Have they de-risked the metallurgy? Do they have a feasibility study? Where are they in the cost curves? And at the end of it, what is the product they're actually going to? I would caution investors that any graphite company that's only focused on the downstream for the battery world, you're ignoring the largest market out there, which is still steel. About 50-60% of the offtake of graphite still goes to the steel market, and you can sell every single drop of that Graphite to those markets like ThyssenKrupp. But the battery world will overtake the Steel world in demand, likely next year. And that's what I call the Lithium moment. Graphite has not had the Lithium moment. Lithium and Cobalt, The number 1 off takes for those are battery.

17:02 Graphite, not yet. So we're going to see that appreciation in the price. We're going to start to see that whole market grow because the demand for batteries is exponential compared to the steel market. No, well said. And I'm going to ask this to Sasha, because Sasha, you mentioned it yourself, these Chinese exporting rules, right, because I think the game has changed, right, geopolitical concerns are evolving, your understanding of this rather opaque sector to begin with. And so back in October, China announced that they were going to have some export controls on graphite, and those came into effect on December 2nd, I believe. I have not checked how strict it's been. But I guess, can you, And this is what I find interesting here is that we have a wide variety of jurisdictions here, right? We have USA, Brazil, we have BRICS, we got Madagascar, and we have Sri Lanka, right? So I think that there's potential here for some interesting kind of diversity in this discussion. But again, I'll leave it with you. Do you just want to discuss what impact do you anticipate this having? What are the consequences, kind of the ripple effect of this Chinese restrictions?

18:13 Yeah, I mean, I think some prudent governments were planning on this happening quite a while ago. So you saw different initiatives from the US, for example, with different funding programs to try to get domestic resources and to support projects in US-friendly countries or even as wide as non-Chinese countries. So that had already begun quite a while ago,

18:38 and that has just really significantly accelerated with others. But I think what significantly changed was the customers themselves. So much less the governments looking to secure non-Chinese supply, the customers themselves now saying this is a potential threat to our supply chain, we have to do whatever is possible to source material from other jurisdictions and that really caused an acceleration from distributors, brokers and some of the direct customers. So it's been a pretty profound impact and I think funding wise It's also maybe not quite yet on the corporate finance and the public market funding reflected in the share prices.

19:24 But certainly in terms of project finance, I think there's been a significant expansion in potential sources of project finance. Excellent. And Brent, I'll pass it off to you. Obviously, you articulated well that you are beyond just the battery-grade graphite, but I'll pass it off to you for your thoughts. Yeah, I mean, In terms of what the markets are doing right now, sorry, if you want to repeat the question, Matthew, because I have 2 questions I think you asked and I prioritized. No, it's all good. So just your thoughts on the Chinese restrictions is the simple version, right, that have come into effect now. Yeah, so right now the true answer is we all don't know what's exactly going to be happening. I think it's going to take 3 to 4 months for this to kind of percolate through the markets. What we are seeing right now is an uptick in the graphite prices for the first time in 2023 is occurring.

20:17 What the Chinese restrictions have done, And the reason I was asking the question, cause part 2, I'll tell you our experience right now, cause we are shipping graphite right now. It's being processed in our technical partners facility in China, and We can explain right now what we're going through as we are experiencing some of these export licenses. But the Chinese market really has announced to the specifically to North America, look, we have a hammer and we can pound a nail whenever we like. So really is them flexing their restrictive muscle to say, look, we can disrupt the supply chains of critical industries and specifically the EV. So most of these listeners today realize that graphite is the universal denominator. It's the negative anode side of a battery, it's irrelevant what the cathode is, whether it's an MMC, which means a heavy nickel and cobalt battery, versus an LFP, which is a lithium phosphate battery, which does not contain nickel and cobalt.

21:18 It doesn't matter what the chemistries are. You still have between 40 to 45% of the volume weight of the battery graphite. So it's agnostic to the chemistry. And that is the crippling point. It's very interesting that China chose to restrict graphite. I mean, they process 99% of the midstream of the graphite, which is called spherinizing and purification, so an SPG product. And then there's a coated spherical purified graphite, CSPG.

21:48 So lots of other companies, not lots, but Japan and Korea do a lot of coating, but the SPG, the Spherinizing and Purification, literally 100% of that's done in China, and that is a massive choke point. So we're going to see how that goes. NextSource right now, we've actually taken material that we're having processed at our technical partners plant, the plant that's currently in China that does all this material through our Japanese partner. We are replicating that plant in Mauritius. So that's the licensing and the technology I was talking about that NextSource has actually acquired. We will be replicating that facility in Mauritius and be able to make that CFPG product. But right now, some of the material we're sending is by export license, and we have no issues sending that to the Japanese and Korean markets.

22:37 Probably a different story if we were sending that material to the United States. And Richard, to you, and I would maybe potentially if there's any difference than you see in terms of jurisdiction being both 1 foot in Brazil and for the United States, if there's a difference that you see there as well. But your thoughts on this one? Yeah, I'd echo, you know, what Brent said, I don't think we know what it means. And I think it's a tit for tat sort of shot across the bow. You know, a lot of this revolves around the US and its restrictions say on chips and AI technology, et cetera, versus, you know, what the Chinese are doing, which is, you know, we were happy when the world was flattened, it was just in time, production, et cetera. So I look at it as an opportunity.

23:27 You know, there's lots of incentives and movement towards on-shoring and near-shoring. When you look at the Americas and Europe versus Asia, I think we're going to see basically 3 centers of gravity. And it's going to be, you know, kind of split between those 3 centers of gravity. You have, you know, China and India, then you have basically the Americas and principally North America, and then you have Europe and everybody is moving towards EVs or hybrids and stationary storage and renewable energy, et cetera. So I think it's a bit of a race to get to a more diversified, stable, secure supply chain.

24:23 Again, I think a lot of this isn't a surprise to a lot of people. And again, I think the US is trying to figure out how to incentivize so that there is kind of a stick and a carrot out there. The DPA and the DOD funding programs, the DOE funding programs,

24:42 the Canadian government just announced, I think 1.5 billion Canadian incentives. European jurisdictions, UK are also providing different incentives. So I think for all the horrible things that came out of the pandemic, one of the great things was a realization that supply chain, the way it was set up, was really fragile. And so I think overall, when we look at the current marketplace, and graphite is really just, you know,

25:13 you know, maybe an example of the broader supply chain, I think there's going to be a big boom in onshore and near shoring. If you think about in the US, sunk capital, there's 18 gigafactories in some stage of planning, design or construction. That's 50 plus billion dollars that's being invested just in the US. The number I've heard is about a trillion dollars of sunk capital into the energy transition so far. So I think a lot of these plants that are being built

25:49 are based on the technologies we have today. How it plays out in China, I think we'll know when we know, but a driver behind this is all economies, jurisdictions, and companies are really looking towards provenance and security supplies an important factor more than previously and that'll drive investment and drive opportunity. So we're excited to be part of the solution. I think we're in 2 fantastic jurisdictions, logistical advantages, infrastructure advantages. So I think it's nothing but an opportunity for us And we'll see how it all plays out here over the next couple years. But unfortunately,

26:36 I think a little bit of pain coming up in 2024 yet. But when that tipping point happened that you know, the print referred to, I think that's really an opportunity when supply and demand get a little bit out of whack and progressively so over time, and that's when Graphite will run and price will be similar to what happened with Lithium and all ships rise with the rising tide. I think If I wouldn't mind just adding something to Richard there. I was just at a conference 2 weeks ago and in LA and someone from the Department of Energy and Defense got up just to talk about these grant monies that are being put towards the supply chains for EVs and battery materials. It was a striking comment that this person made that of all the money that's been handed out in the last 18 months, and it's hundreds of millions of dollars, 90% of that money has gone to the downstream.

27:31 Meaning these are the facilities that actually finish and make the Lithium Hydroxide, the active material when you're talking about graphite, only 10% has actually been invested up in the upstream, which is the mining side. And they've described a critical situation where the money has not been put into the raw materials that are feeding these gigafactories and battery manufacturing facilities that are being financed and built very quickly. They need to see that start moving up into the mining side. 2 issues is 1 is the applications of the companies are not supporting that. Very few mining projects are actually applying and they need that. And of the ones that are actually applied on the upstream, that 10%, very few have been Graphite.

28:20 They're looking specifically to start boosting the investments into the Graphite projects. Remember, your project does not necessarily have to be in the United States or Canada. You've seen instances where the DoD

28:33 has extended their funding to companies like Canadian headquartered like NexSource, but our projects in Madagascar, they can actually put money towards projects in Africa, in Madagascar and actually help you build the mine, because now they realize that these deposits aren't necessarily situated in the United States. They're, it's where mother nature said the deposits are going to be. NextSource has a world-class deposit. It's one of the highest grade, the highest quality deposits, but it's in Madagascar, it's not in the

29:03 United States. But that material is crucial and it will end up having to feed a lot of these facilities as long as you're downstream is in the FTA slash, you know, localized North American markets. So That's very encouraging to see, but also it is alarming. That's what we're also seeing now in our discussions with the OEMs, the car companies, is they've woken up to the fact

29:27 that different language is being spoken. OEMs have never spoken to mining companies before. They're realising that you have to go in there and educate them on these battery materials, and there are 5 of them. You've got Graphite on the negative, but you've got 4 potential materials on the cathode, the positive side of the battery, and they have to understand and ramp up and figure out which deposits, which companies are the ones that are real. And then at that point, figure out, okay, how do we invest in these? And it's a learning curve. They don't realize it takes on average 12 years from a discovery of an asset to get it

29:59 in production, 12 years. And they can build a gigafactory in less than 16 months. So that's a big learning curve for them. And basically you're asking all the procurement people, I use the analogy that you're looking at buyers for OEMs who are used to buy a fully assembled car seat and Now you're asking them to go to a farm, pick out the cow because they've got to figure out where the leather is coming from the seed. That's the nuances, that's the analogy I use. It's a huge learning curve. These individuals who are used to buying parts now need to go and understand the raw material, but figure out first what's the asset, what's the resource, is it quality, does it fit my battery? We all talked about how natural graphite, every single deposit is different, has a different DNA.

30:44 That deposit may not be suitable for battery or for refractory or for graphite foils. You have to do all this metallurgy to figure that out. So the companies that can actually present themselves and our project, for example, is Flake Graphite. It's the only form of graphite that goes to all top demand markets and ours has been verified by these end users. And the end users I'm talking about are the actual companies that purchase or use their graphite in their products. So that's what's critical and that is a process. That is a very long verification process and NextSource has gone through that. I mean, this is, again, we've been doing this now for 7, 8 years and finally we're in production, but it has been a process. No, I think that obviously Richard's having some technical issues, but I think both of you guys, the geopolitical ramifications of this, right, I think is important to understand that that wake-up call, yeah, it takes 12 years to wake up to, right, so that we're understanding now where we need to be, it's going to take some time to get there.

31:43 Let's just switch gears here, because we're kind of switching, transitioning from that geopolitical back down to more kind of the nitty gritty individual deposits. And so, Sasha, I'll let you, I've got a couple of questions for you just around the nature of your deposit, right? So yours is just like, you know, from a geological perspective, I find it quite interesting because it is unique. I mean, I don't know very many underground graphite deposits. I mean, you have this ridiculously high-grade, still small project. Can you just kind of run us through just what makes it unique and why it serves to your advantage? Sure. I guess a little bit of history. As I mentioned before, Sri Lanka was the world's largest supplier of graphite and then towards the end of the war, the demand dropped. But also a lot of these mines were artisanally mined and they were really mining in the overburden and so when they get to the bedrock they didn't have the mechanization to continue. So a lot of these were abandoned for many, many years until we came around to secure these historic assets.

32:47 In the meantime, the government mine has been producing continuously. So that's a mine that has been producing since 1873 from the same vein. It is at quite a depth, it's about 2000 feet now. So it's not as economic as it was before. There's also AMG Cruft Mill, which has a mine which the material doesn't hit the market, but it's supplying its own uses. And there's a couple of others that are a bit smaller. So the deposit is definitely very unique, 95% plus carbon and they are vein systems so all underground mining and the material separates quite easily from the host rock, so it's done mostly manually, although we'll be introducing mechanization starting at our M1 site shortly.

33:45 So relatively simple and of course there's a direct ship market without requiring primary processing which is really attractive to be able to generate early initial revenue at quite high margins. So, yes, that's the basic overview. I think the environmental footprint is also extremely important. Being on the ground is very beneficial, not having primary processing, using the power or even chemicals associated with that, and using 100 percent certified renewable power from hydro sources, some of which actually myself and many of our colleagues at Ceylon Graphite had previously founded and built a hydro company that developed 13 hydro sites in Sri Lanka.

34:32 We had actually Sprott Asset Management as our largest shareholder and sold that company a few years ago. But we were able to get 100% certified renewable power there as well. So all in, even if landed in the United States, our environmental footprint is really, really small. Scope 1 is extremely negligible in terms of emissions and really the only significant emissions, and they're actually not significant, but the scope 2 emissions are a little bit higher and they come exclusively from transport and the calculations we've done are transport to the to the US. Okay and so I just have a follow-up question I'll stick with you Sasha here. So this is one that you and I chatted about briefly in our correspondence prior to this, but I mean, in your own news releases, you discuss how your particular graphite, as we talk about, not all is equal, is unique, right? So in addition to your pursuit of sterilization for battery grade graphite, You're also, as per your own news releases, discuss how it's suitable for graphing ink, graphing-based sensing programs.

35:36 Can you just discuss this, the use case, the industrial demand, and potential offtake partners, just kind of the significance of that to you? Yeah, so we'll be going through 3 phases. So the first is the direct ship, as I mentioned. So taking a 95% product and shipping it directly to end-use customers. And that would be products such as lubricants. And there's a huge range of applications, as Brent mentioned, still massive demand is from the refractory market, the steel manufacturing market, and all kinds of different applications, even lubricants used in there throughout the factories. That's a very large component.

36:22 Then we'll be upgrading at site, beneficiation at site to get it to a 99% product. Our mine manager has built an upgrader like this in Sri Lanka which will be processing the 95% material to 99% and that has additional applications such as the expandable graphite market, flame fire retardant material, quite a range. And that is also a significant jump in margins for those products. So those are very low CapEx upgraders that are required. Our budget is somewhere around the $600,000 level to upgrade, keeping in mind relatively low volumes, only about 400 tonnes per month, but getting to the 99% product.

37:14 And of course that upgrader can be then expanded and additional units put in place to increase the volume and the throughput there. And then lastly, we have also done extensive testing with OEMs and other partners on the anode material and have also been actively for several years now looking at funding options to upgrade most likely in the US and that would be to go to SPG, CSPG, and already material. Thank you and so Richard welcome back here. A couple questions for you. So I mean first of all Santa Cruz I mean near-term production obviously and I know all 3 of these gents, near-term production, but when can we expect that? Do you have off-take agreements in place? Are you in pursuit of those still?

38:04 Or what's the update there? Yeah, so Santa Cruz produced, the way it's configured right now, produced 13,000 tons. We're licensed for 5,000. And we should have our phase 2 and phase 3 permits and licenses in hand basically in January, February of next year. So the plant can do 13,000 tons. We'll start producing more as soon as we get our licenses completed. And as far as, you know, markets, we have several MOUs that are signed. We have several conversations that are ongoing, and a couple of them, again, are looking at refactories, high-strength steels.

38:52 The unique thing about Brazil really is the fact that there's a very large internal market. So within in Brazil it consumes about 75-80 thousand tons of graphite concentrate annually across a variety of different industrial applications. So we've got several clients that are looking for 1 ton to 5 ton samples, and then off that they'll be ready to sign off-take. So we've got several conversations both in Europe, North America, as well as in Brazil, looking to basically put about 100 tons on the deck when we commission. We basically should be commissioning in end of January, first part of February, full commercial production basically in March. So we're looking to basically have offtake signed shortly thereafter.

39:51 But it'll be the great thing about Brazilian Graphite is the markets already understand Brazilian Graphite has been producing for 80 plus years. We can sell into the internal markets or for export to the international markets. And it's a product that's well understood and well liked. So I think we're in a good position there. Again, it's not like we're trying to place hundreds of thousands of tons. So I think we're basically bringing a reasonable amount of material to the markets at a time when there's a need for additional sources. And Brazil is uniquely situated there. We've tested for a variety of different applications from industrial applications all the way through to coded SBG.

40:41 We've produced graphene. We've produced batteries. We've produced alkaline batteries, different formats from cylindricals to pouch cells. We're working through the battery design right now. So again, I think lots of alternatives out there, but our goal is really to start off in the industrial space. 0 to 18 months, we'll be doing that and qualifying material for alkaline batteries, lead acid batteries, expandable graphites, 18 to 36 months, we should have that material qualified. Alkaline inlet acid and expandable graphite fire retardants. While we're working on EVs and lithium ion batteries for EVs, and then 36 months and beyond, we'd be selling into a full range of applications.

41:36 So Brazil has got some fantastic well understood material in a large internal market and the material from Alabama right in the process of getting that characterized and building some cells. And again, everything we've seen, it should work very well, but obviously we don't have those results yet and we'll disclose those as soon as we have them, but so far so good. So we've had a lot of questions here from the audience. So I'm going to cut, I'm going to cut, I'll just ask one more from Brent here, and then I'll move into the Q and A here as a very, very active conversation. But Brent, so you kind of, one of my questions I had asked, I was going to intend to ask you is just, you know, You have this broad range of graphite flake sizes, which kind of opens up your potential kind of suitors or offtake agreements rate, which I think you already touched on that nicely. So maybe just again, maybe get into the nitty gritty of things a bit here. Just reading through recent news releases of your companies and just you discussed optimization and kind of reducing bottlenecks.

42:34 And I thought just maybe just as for color, for retail who maybe aren't necessarily privy to these conversations, can you just discuss some of the optimization work that you've done that's been successful in removing those bottlenecks? Yeah. As I mentioned, our mine in Madagascar, we commissioned that at the beginning of March. So it takes anywhere between 9-12 months to actually fully commission a mine, get it up to the nameplate capacity. Our nameplate, once again, is 17,000t. So It's a smaller operation. The average graphite mine in the world is roughly 56,000 tons. Most of them, 70% of them are in China. Again, those are areas now that we've talked about with the IRA. You cannot source any graphite, especially if you want to have your subsidies of EVs in the United States. Not 1 molecule of that battery can come from materials that are processed or mined in China.

43:27 So our graphite mine right now, we expect to finish that optimization part of our ramp up. So we're in what's called ramp up and we're now approaching our nameplate capacity. We're not there yet, but we expect to in Q1 to reach the nameplate for our mine. So it's taking a little bit longer. As I mentioned, there's always things to work out when you open up a mine, especially in Madagascar, we're in a remote area, but we built what's called a fully modular mine. So we were very unique to the market. We were able to build that in less than 14 months. We built it offshore. It was fully tested. It was then dismantled and shipped to Madagascar and then put back together in about 45 days, almost akin to a Lego set.

44:14 We had introduced a fully modular build and that's quite unique in the mining space. That's the IP that Next Source has that we are now using as we roll out our expansions both at the Molo level. Today we released a feasibility study on a 10-fold expansion at Molo in Madagascar. That will be an additional 150,000t, a dedicated plant that will be built once again in a modular fashion. And then as well, our Hano facility we're building in Mauritius will also be done in a modular format. This applies and advantages in 2 ways. It's very low cost of capital and it's also speed to market. Our phase 1 was only US$21M. Vision Blue Resources is our largest strategic shareholder.

45:02 They came in that company, a big private equity company, is run by a very well-known mining guru, Sir Nick Davis. He's formerly the CEO of Xstrata. It used to be the world's largest mining company until it was acquired by Glencore. But that's our chairman. That's who our strategic partner is, a strategic investor. They own about 47% of NexSource. That's given us the ability now to move very quickly and accelerate our expansion. So we did this large expansion feasibility study of growing our mine. The reason for that is because of all the discussions we're having with the automotive companies and the amount of graphite material that they need in the next 3 to 5 years. So Our material right now has been de-risked.

45:48 We have 2 off-takes. We have Tyssenkrupp. They're taking half of our material for the steel world. Again, we get a very high quality. We can get to 96%, 97% with simple flotation. We have 4 flake sizes, But we are just right now working out the ability to ramp up our facility up to the 17,000 tons. But we've already sent 35 tons of material for verification to the battery supply chains in Japan and Korea. So we are already shipping material, it's being processed into that battery grade graphite, that SPG and CSPG, and then being qualified with very notable OEMs. I'll just add before I summarize here is that our technical partner right now, the licensing and the technical know-how that we have acquired exclusively from our Japanese partner is the same process right now that's used in the Tesla and Toyota supply chains.

46:45 So the SPG process, that's uranizing and Purification, that actual process is used today in the facility that supplies most of the Nevada Digitoptry for Tesla and all of Toyota for Japan. So again, ours is already an established, fully de-risked process. NextSource basically knows how to make this material right out of the gate because of our technical partner. And I'll just add that every graphite company that you're talking to has no idea how to make battery grade graphite, that's CSG. NextSource has no idea, we identified 2 years ago, that's a very technical process, it's difficult, there's only as large billion dollar companies that are in the space making these materials for very large cell manufacturers, And that's an R&D experiment that can cost you tens of millions of dollars in research and development, and it can take you 5 to 10 years to figure it out. We didn't have the time for that, so that's why we went and exclusively licensed this. It took us 7 years to acquire the offtake with TyssenKrupp. It took us 7 years to get the technical joint venture strategic partnership with the Japanese side.

47:56 These things aren't done overnight, but it now has come to fruition And that's really served NextSource very well as we move to our vertical integration strategy by having a mine as well as having this anode facility. And we will be looking at building a much larger anode facility in North America to make sure that we onshore it because that's where large OEMs are asking us to build it. I'm sure every graphite company that's being approached by an OEM is being asked, what are your plans? How quickly can you supply material? The amount of material they need by 2025 is going to be a tripling, if not a quadrupling of the graphite market. These are not 1 or 2 car companies' requirements. This is Volkswagen, the Fords, the General Motors of the world.

48:45 If you combine them all, you're looking at exponential growth required for full graphite. It's very encouraging to see what's out there, but you have to go through the process and there's very few projects that are capable of ABB production in the next 2 years, let alone be funded as some of these requirements are in the hundreds of millions of dollars. Next source, for example, our tenfold increase is only $160 million. Again, some projects require $500 million, some are a billion. So where are you going to get this capital from? And then once you've built the mine, put your expertise in actually providing and processing a material the actual car companies need, because it's not flake graphite, it's CSPG. It's that active anode material, the battery grade graphite, people will call it.

49:39 That's what they want to buy, but you need to be able to show them that you have the raw material to begin with, because it takes 2 tons of flake roughly to make 1 ton of CSPG. So again, a car company says I need 30,000 tons by 2025. That's about 90,000 tons of flake graphite just to supply that one car company. That's why the numbers are so good. Yeah, no, thank you, Brent. And so I think we will transition into some Q&A here. Lots of questions. So this one just for Sash, I'll start out with just a question from Toronto, just around pricing or on expenses rather. He has heard before that in Sri Lanka that faying graphite production can be expensive and struggles to compete with Chinese graphite, and he just knows that you tout yours being cheap, and he wonders if you could just provide some light or color as to the difference there.

50:32 Yeah, sure. I mean, the example with the government line, as I mentioned, is a little bit more expensive because it's a significant depth and the volumes are a bit lower and inconsistent for that matter. But I mean, the cost comparison, I guess, is really simple to make. We're removing 95% plus carbon with very little waste material. So those costs are very low, right? Most other resources you have to move significant amounts of material, separate the graphite, process it, and then you get somewhere higher, usually not as high as 95. So that's the key reason that the cost is so low, is you're removing much, much lower amounts of material, less energy, and no primary processing.

51:24 The downside obviously is that each mine does have much smaller volumes than most other companies and what they're planning with large open pits. So for Sri Lankan material, it's really getting a series of mines into production, but the relative capex is extremely low. Our average capex per mine is about $2 million. And as I mentioned, the beneficiation again, it's 99, is only an additional 600,000 per location per mine. So that's the basic cost overview. Okay, excellent. And in that vein, and I'll switch it, I'll switch over to Richard here. Richard, just someone's asking here, and I might kick this off to Brent after too, but in terms of your economic modelling, and this is, I guess, your own thoughts on the future of graphite as well. What are you modelling as a long-term price per tonne for your graphite?

52:26 Again, I think investors need to be aware of every deposit because aside from grade there's also flake size distribution so you know Santa Cruz is two-thirds medium and large flake so it's 80 mesh and above we have 30 mesh 50 mesh 100 mesh etc so at Santa Cruz we're modeling about 1250 right now 1200 1250 depending on the client as the average basket of all of our products sold. Alabama's a very complimentary deposit. So it's about 2 thirds fines and about 1 third medium grain fraction. So when you put the 2 together, they're very complimentary to be able to provide material for a broad range of sectors. But obviously, the per ton price is lower. So when we look at the grand scheme of things, Brazil is about 1200, 1250 and the modeling out of Alabama and Bama Star is more around 1100 bucks a tons 1100 1100 1000 to 1100 bucks a ton. So it just again depends on what markets you're putting that into.

53:45 And again, we'll be moving fairly quickly in phases into midstream and downstream. So there's really nice markets for alkaline battery space. Again, that's just basically a purified micronized product. There's no shaping, there's no coding really associated with it. There's fire retardants, there's expandable graphites, etc. So our goal really is in the next 12 months or so to be able to stand up a midstream facility, which is kind of a stepping stone then into the downstream markets as you move through it. So it's kind of sequential. It's a lot of the same technologies. One of the really nice things about Brazil is, again, it's already producing all these products, so we're able to tie into expertise that has been doing this for decades.

54:41 And then we'll take that same know-how, knowledge and expertise and stand that up in Alabama. So that's a ballpark figure. When you look at the markets today, again, I think this last month was the first month where prices went up. We obviously have a little bit of a seasonal variance from when winter happens versus other places. So prices typically go up in the wintertime in North America or, you know, northern hemisphere, let's say. And then this latest restrictions associated with the Chinese licensee requirements, again, I think will have a significant impact. So last news I saw was that there were no permits yet issued from China. So again, I anticipate that there will be very little export from China over the next 2 to 3 months.

55:42 If any significant volume, just because of the difficulties there. And then most of the companies that we've been speaking to have a month, maybe a month and a half of inventory on hand. So I think price pricing in first quarter, second quarter next year will be very different than current pricing, but we'll just kind of have to see how it all plays out over time. Interesting stockpiling, yeah, once that runs out. Strategic reserves. So this one's for Brent and from Will Behrens here. Is the primary application of graphite in the steel industry within graphite electrodes for arc furnaces and blast furnace linings or is it something else? Yeah, no, it's something else. So when you look at electrodes you're using for steel making process, that's actually synthetic graphite with very little natural graphite.

56:32 The largest consumption of natural flake graphite in the refractory world is actually for crucibles and for brick linings and furnaces. So when we talk about molds and crucibles, graphite large flake, medium flake is usually the number 1 size that's used in the refractory and just think of it as the great graphite flake is actually used to coat the crucible so when you pour the molten steel into the ladles and the crucibles if you didn't have that line with graphite that molten steel will go right through the ladle. So the graphite, again, it's a very, very unique material. It's the only material known to man that actually has a melting temperature of roughly 3,600 degrees Celsius. It actually gets stronger as it gets hotter. It's impervious to acids, doesn't break down, it's a natural lubricant, but all those qualities make it essential in steelmaking. So it's actually the process of using it in the molds and lining it, so for example, engine gaskets.

57:30 I mean, a lot of the gaskets in internal combustion engines, your brake pads, et cetera, Are graphite because they can stand significant heat pressure won't warp. So that's the number 1 offtake most people confuse Carbon fiber bodies thinking that's natural graphite. That's not Graphite tennis rackets. That's all synthetic graphite. That's all man-made. That's nothing to do with natural graphite. But natural graphite still is essential, and the largest market is that refractory market. And It's also used in brick furnaces, some of it's used in nuclear applications etc. But just think of it as a coating. On coating are the things that keep it impervious to heat, acid breakdown. So defense, aerospace uses graphite gaskets.

58:20 They're essential in space shuttles, for example, they don't break down in space under extreme heat, re-entry, all that kind of stuff. So that's really the primary focus. What's going to happen is you're gonna have that tipping point now where graphite will become the number 1 offtake, will become its use in batteries. And that has not yet happened. And as I said before, that's gonna, you're gonna see a price appreciation. I will say though, that you're gonna start to see smaller flake, which is usually less expensive, less valuable, start to go up as you need more of that material for the battery world and you're going to see the jumbo flake, the large stuff there that those that right now is premium price, there's going to be a surplus of that. As all these mines come online, you're going to start to see a lot more jumbo and large flake and it's more difficult to place because the current applications for large and jumbo, including refractories and expanded graphite for consumer foils. For example, your iPhone has a sheet of graphite in there. It keeps your electronics cool, makes sure your heat doesn't build up in your ear. All that is jumbo flake graphite. It's all natural flake, but that's a small market. It's essential but as more of these mines are coming online, you're going to see the price of the jumbo and large flake decrease and the cost of the lower priced battery flake increase.

59:45 Remember, you can always make large flakes smaller, but you can never make small flake larger. So it's great to have a deposit that's bifurcated and has different flake sizes because there's markets for every single flake size. But again, you can always take large flake and make it smaller. I think we have time just for one more here. Thank you, Jalen, for your excellent answers so far. I'll head back to Sasha. Just a question here. So given the high grade nature of your vein graphite, Sasha, what is your, when it comes to the point in time, and when you get there about purification and processing, do you have a notion of what your flow sheets are going to look like? For the initial beneficiation stage to the 99 is very simple, flotation and gravitational flotation.

1:00:33 That's really the simple process, and that's why it's so inexpensive. And anything beyond that is further down the road and we'll take quite a bit of work to work with different partners on that. But the initial stage is quite simple. As I mentioned, our mine manager has built an exact same facility previously in-country that does that very efficiently and very inexpensively. Okay. And you know what, I think the rest of the questions we have here are very dense and will take a lot of time. And so I unfortunately think we're out of time. I apologize if I didn't get to your question, But yeah, I think we'll have to just call it for now. And thank you gentlemen for your time. Thanks for your excellent articulate answers and have a good day. Yeah, Matthew, if I don't mind making sure any of the investors who have questions to any of us, If you'd like to email us, for example, for me, you just go to info at next source materials.com.

1:01:36 So info at next source materials. Ask your question. I'm more than happy to get back to you or provide a phone number and I can have a conversation, but certainly happy to answer questions to any of the investors or listeners out there that didn't get a chance to ask. Absolutely, reach out to your executives, I can't stress that enough as a part of your due diligence process. Richard, Sasha as well, thank you