November 2013

Poised to compete

Ontario Graphite is the first out of the gate in the renewed race to bring a secure supply of flake graphite to the manufacturing sector

By Alexandra Lopez-Pacheco

Just four kilometres west of Algonquin Park, near the town of Kearney, Ontario, lies one of the largest confirmed mineral resources of any North American graphite project. Discovered in 1979, it is rich with high-quality, large-flake graphite that commands top prices. Global market forces and production troubles frustrated the first attempt to exploit the resource, but now, 20 years after the Kearney mine shut down, Ontario Graphite is bringing the re-engineered operation back to life.

While graphite is considered a niche market, it is an essential one. The mineral’s heat resistance makes it a key material for the magnesia-carbon bricks that line steel-making furnaces, foils and gaskets. It is also used in lithium-ion batteries, lubricants, solar cells, fuel cells and, of course, the humble pencil – with about 14 billion sold annually.

With all its major equipment on site, Ontario Graphite has been building its team and gearing to start operations in early 2014 and ramp up over the course of the year. “We have the management team in place, a mill manager, a mine manager and me,” said Jerry Janik, the mine’s general manager, in September. “Combined, we’re pushing 70 years of mining experience. We have about 20 other employees, a fairly good workforce in the area and a good training plan being put together for those used to heavy industry, such as logging. We will provide about 80 full-time jobs.”

Also in September, the company released a new NI 43-101 study completed by Golder Associates Ltd., using historical drill data as the well as the results of a dozen new drill holes. The report estimates the mine’s mineral inventory to be 51.5 million tonnes of Indicated Mineral Resources at an average grade of 2.14 per cent carbon graphite (Cg), plus an additional 46.8 million tonnes of Inferred Mineral Resources at an average grade of 2.0 per cent Cg – adding some 20 more years to the mine’s existing 30-year life. While the current permits for the operation are for 20,000 tonnes of material extracted annually for up to 10 years of mining activity, the company expects no issues in getting renewals when the time comes. Canada’s graphite production – currently about 20,000 tonnes per year – comes from two mines, one in B.C., and one in Quebec.

In 1989, Cal Graphite began milling ore from the open pit at the Kearney mine, and over the next five years produced almost 17,000 tonnes of flake graphite for Canadian and U.S. customers.

By the early 1990s, however, the company was under enormous pressure from an ever-growing giant in China, which was fuelled by the growing belief across the manufacturing sphere that the road to success was paved with low-cost and low-quality graphite. And in those days, China, which has the world’s largest graphite resources, was the mecca for cheap product. It flooded the market with mainly lower-quality small flake graphite. Prices crashed. Canadian exports dropped 10 per cent, and China strengthened its hold on the graphite market.

Production and management problems at the Kearney mine compounded those market pressures, and in 1994 the operation was shut down. In the meantime, global demand for graphite has continued to grow rapidly. In fact, it increased from 600,000 tonnes in 2000 to 1.1Mt in 2011. By 2005, prices began to increase, and this renewed interest in past producers. The following year, the mine property was acquired by iCarbon, which was renamed Ontario Graphite Ltd. In 2009, the company’s plans to re-commission the mine were in high gear.

Getting ready

Ontario Graphite, owned and financed by a consortium of private equity organizations, and led by an experienced management team, knew the first step to succeeding was to identify what had gone wrong in the original operation. “In the early 1990s, there was a confluence of unfortunate circumstances at the macro and the micro levels,” said Ellerton Castor, the company’s CFO. On the macro side, there was China’s dominance. The country still accounts for 80 percent of all graphite production in the world.

As well, the Kearney mine was choking with inefficiencies and bottleneck problems, and it never did achieve its planned raw ore throughput rate of 3,000 tonnes per day.

But today, fortune is smiling on graphite producers. Graphite prices have been on an uphill curve, despite fluctuations, with large flake prices at around $1,400-$1,800 per tonne in the last year. China’s graphite sector is undergoing changes that will remove a good chunk of graphite from the global market (see sidebar). In recent years, scrutiny of the “cheaper at all costs” formula has been growing, including from the Chinese, who are reckoning with the environmental impact that follows from this approach. In addition, wages have increased in China, and the long-term and hidden costs of complex supply chains dependent on products from China are now better understood. From transportation and warehousing costs to reliability of timely delivery and quality, no longer does the cost/value formula of importing from China seem as straightforward as it once did.

“Now you have a scenario where the North American and European clients to whom we plan on selling our graphite are interested in an industrialized-world supply they can count on as a secure source of large flake graphite provided over a long period of time,” says Castor. “The logistics issue is coming into play. They are looking to ensure that the process of managing their supply line is as efficient as possible. Quality control is the other issue. One of the biggest concerns in buying from China is getting exactly what it is you pay for. You don’t want to be in a situation where you prepaid for a product and then you wait six to eight weeks for it to arrive via containers, and the product that you think you are getting is not exactly up to snuff and has to be preprocessed prior to being introduced through a manufacturing process. That costs money.”

Getting set by doing it right

Ontario Graphite began its EPCM process with a small engineering firm. It quickly realized, however, that the mine would need a comprehensive plan not to just re-commission it but also re-design the mine in order to address the bottleneck issues that were largely engineered into the system, and to create an operation capable of optimal production at all times. It hired international engineering firm DRA Americas Inc. and Vancouver-based project and construction management firm Merit Consultants International Inc.

“We have spent a lot of time redesigning the plant to be much more efficient, and that really goes from the mining methods, the drilling blasting methods, through to power generation,” says Janik. “We have built in some redundancy to the capital equipment, so if we have to do repairs we can maintain production.” Contractors will handle the drilling and blasting, with the company managing the mine planning and all subsequent mining steps. “The goal is to use the rock stability to our advantage and to maximize the pit angle in order to minimize the amount of necessary waste removal,” he says. “We anticipate that the new mine plan will include a 3:1 stripping ratio or less.”

Power was a problem for the original operators of the mine. Off the grid, the mine simply did not have enough generating power to maintain plant production. This time, Ontario Graphite will run three 1.24-megawatt diesel generators for plant operations and have a fourth on standby.

A new 5.5-metre, hydraulically driven SAG mill has been installed on the existing mill foundation. The company is also adding additional flotation circuits on the head end of the ball mill to improve both recovery and quality, especially of coarse graphite. “The coarser it is, the more it is worth,” says Janik. “So the challenge is to liberate the graphite without breaking the flake. That is a processing and mining challenge. We’re addressing that right from the drill-blast pattern, how we haul and how we crush and size the material for flotation and with the extra flotation we’re putting in to capture what was lost in the previous operation,” he points out.

Other new equipment includes high-efficiency horizontal screens that are easy to maintain and fully enclosed to contain dust. Waste heat from the generators will be used to dry the graphite concentrate to make the most of the fuel burned for power generation.


The Kearney mine is about 100 kilometres south of the mining supply hub of North Bay and a few hours’ drive from port facilities on the Great Lakes. Ontario Graphite expects a return on investment within six months, once shipping begins in early 2014. The bulk of the mine’s output will be used in the production of graphite foil and gaskets. “Most of the Chinese material flooding the market is medium-sized product,” says Michael Coscia, the company’s senior vice-president of sales and market strategy. “Ours is predominantly large flake (+50 to +80 mesh with purity between 92 and 97 per cent). We still will never be as cheap as them, but we will be very competitive.”

Low-risk reward

The supply dynamics of graphite


Courtesy of Ontario Graphite

In 2010, China began consolidating 200 to 250 illegal, privately owned graphite mining operations, reportedly in an effort to be more proactive in addressing the mines’ harmful environmental impacts by putting them under state control. The impact of this is estimated to be a reduction of roughly 200,000 tonnes per year in graphite put out to the world market. Further, in an effort to keep graphite – which is considered a critical manufacturing resource – for domestic use, China has imposed a 20 per cent export duty on graphite and a 17 per cent value added tax.

“China has an impact not just on production, but also in terms of exporting and they can pull levers such as export duties, which ultimately affects how much gets exported and the landed price in North America,” says Jay Patel, who leads Ernst & Young’s mining and metals valuation practice in Canada. “So North American manufacturers using graphite in their projects have to look at the risk and volatility in the price they are getting. Is the price going to change on them? Is there a supply risk? And I think that’s where the North American graphite producers have an advantage. They assure the manufacturers there isn’t a supply risk.”

In addition to all this, should the electric car market gear up in the coming years, the demand for lithium-ion batteries would take off – as would the need for graphite. All this has not been lost on project developers, especially since manufacturers in the United States are among the world’s top graphite users despite the country producing very little of its own. According to a July 2013 report by U.K.-based Roskill Information Services on the graphite industry, “There are now more than 70 flake graphite projects under development outside China, which have the potential to add 200,000 tonnes per year to global capacity by 2016.” Some 40 of those are in Canada, with almost all still in the early exploration stage. This puts Ontario Graphite at the head of the pack, with Ottawa-based Northern Graphite Corporation the runner-up. The company aims to be in production in early 2015, if it can finance the project.

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