Maurice Jackson: Joining us for a conversation is Dan Weir, the
executive chairman of DNI Metals,
which has established itself to become one of the world's leading graphite
producers.
We have some important topics to address today for current and prospective
shareholders regarding Cougar Metals and production. Before we discuss that,
what is graphite, where is it used, what are the global supply and demand
fundamentals, and what is the unique value proposition that DNI Metals
presents to the market?
Dan Weir: Thanks for asking that question, Maurice. It is good to
provide an update on our view of the graphite situation around the world. I
consistently talk to a lot of people in the industry. And here's our view.
Now, our view is going to be very different than many other graphite projects
in the world. But I like to inform people about what's going on in the world,
specifically in the graphite space, because everybody starts jumping up and
down and talking about batteries and excitement and everything else. That is
very important in the graphite space. But I want to explain some other
fundamentals that are happening out here in the market.
I would like to provide a brief history lesson about DNI, and what our
game plan is going forward in the graphite space and why we think we can be
one of the leaders in the world in the graphite space. In 2015, we came in
and took over DNI Metals. It was basically a shell; it had a very large
polymetallic deposit in Alberta. The capex on that was $3.9 billion. It
didn't make a lot of sense. The previous management knew that it couldn't
raise the money to do anything, and we came in and took over DNI.
DNI has been around since about 1954 and has been public for many of those
years. I'm very lucky now to be the CEO and chairman of the company. The
reason why we came in to DNI was to refocus the company specifically on
graphite. Our group, which includes some of our directors and other people
who we work, with have done a lot of work in the graphite space, built
graphite mines in both Canada, Australia, Sri Lanka. One of our directors
operated mines in Sri Lanka and Canada as well.
We know and understand the graphite space. We knew that in order to take
advantage of the graphite space, in order to be a producer and be profitable
in the graphite space, you had to go look for deposits that are in this
weathered-type material called saprolite and laterite. You find it in
climates that are hot and have lots of rainfall.
We first went to Brazil and searched for the right deposit. We tried to
buy a couple deposits there. We realized Brazil is a very difficult place to
do business; it's extremely bureaucratic. What was exciting about Brazil was
that it is the second largest producer of graphite in the world behind China.
I'm going to come back to China in a minute.
DNI decided to go from Brazil and look to other places that had that same
saprolitic type of material. Certain parts of Madagascar had been producing
graphite for over 100 years, and I want to emphasize that the area in which
we are, 50 kilometers from the port, is an area that's fairly close to the
ocean. There is a ridge that runs along the east coast of Madagascar; it's
like a mountain range close to an ocean. So, think of Vancouver where the
winds coming off the ocean, they climb up a plateau, or up a mountain, and
they dropped a lot of rainfall in a certain area. That's what we have in
Madagascar.
In and around us there is a company called Ambatovy. It is owned by
Sherritt International Corp., a nickel producer in Canada; Sumitomo
Corporation, a very large Japanese firm; and the Korea Resources Corp.
(KORES). It spent $8 billion in our area developing a nickel, cobalt deposit
in these laterites, or this weathered type material. The advantage of this
weathered material is you can go in with an excavator, dig it up and process
it. DNI's costs will be significantly lower as compared to hard rock deposits
that you find in China, and specifically Canada, Germany, Sweden, other places
in the world that would have these hard-rock type deposits.
It is critical that investors understand specifically why we've gone to
Madagascar. We know that the costs for production are lower than what we
would have found throughout the world. And this is precisely why we've
strategically identified Madagascar for our operations.
We all know graphite is in pencils. We all know that graphite is a great
lubricant. We put it on our bicycle chains. However, what most people don't
understand is that 50% of the world's graphite is used in the steel-making
industry (not batteries). It has a very high heat tolerance and you can line
all the crucibles, or all the molds, to produce steel.
The other area that is growing is the lithium ion battery area. Up to 30%
of a lithium ion battery is made up graphite. So, by comparison, everybody
starts talking about nickel, cobalt and lithium, only 2% of a lithium ion
battery is actually lithium. So, you can see here that one of the largest
components of a lithium ion battery is graphite.
Audi has come out here recently talking about new electric cars. In fact,
I saw a commercial on TV last night, it has got a new four wheel drive SUV
that's being launched. Porsche's doing the same thing, Volvo's talking by
2019 or 2020 that it will be all electric. GM has multiple models coming out.
The world is becoming more and more interested, let's say, or there's a
bigger demand for electric vehicles in the world. A lot of that revolves
around the battery and demand for the battery. To put it in perspective, in
the larger size Tesla, there can be 100 to 200 kilograms of graphite.
We know that's where the growth demand is in the world. I mentioned that
China is a big producer of graphite; it produces 60% to 70% of the world's
graphite. The demand in China is growing exponentially. It will produce a
majority of the lithium-ion batteries going forward in the world. It is
throwing billions of dollars at research, not only in batteries, but also
electric cars. China is the leader in the world right now in electric cars,
and I can't see that changing anytime soon.
Graphite, when it's mined out of the ground, has to be upgraded and
processed. There's a four-step process. It includes refining it, or purifying
the material. Then shaping the material or curling it into a ball. Another
term used for that is spherization. The next thing that they do is they code
it. A lot of the coding technology is done in Japan.
So, comes out of the ground. We sell it to somebody who is going to do
some of the upgrading. There are not many groups in the world that do all of
those four steps: purification, micronization, spherization and coding. It
tends to be different companies or different countries doing different things
to the graphite before it actually goes into a lithium-ion battery. I want to
emphasize this, currently in the world, over 99% or even maybe even close to
100% of the spherization or shaping of the graphite is done in China.
So, here's our view. A lot of the Chinese graphite is going to go to the
lithium-ion battery. I've been to Korea; I've met with different groups in
Korea, in different places in the world. There are groups in Korea that want
to do some of the spherization as well. Japan and Korea currently do over 50%
of the coding. So, they'll buy the spherized graphite, they'll do the coding
themselves. They want to do some of the spherization. But again, China still
is doing the majority of that.
Our research indicates that most of the graphite produced in China will be
used in the lithium-ion battery. Why is that significant? Why is that a huge
opportunity for DNI? If most of the graphite now is then going to the
lithium-ion battery, the Chinese graphite, where traditionally it was sold to
the different steel companies around the world, that leaves a deficit that
the steel companies now start scrambling trying to get material from other
places.
DNI Metals could in fact try to compete with China and try and get deals
and sell all of our material, grind it all up, this large-flake, high-quality
material that we will produce, and sell it to the battery industry. But that
wouldn't be in the best interest of revenue and shareholders. Why? It's
because the material that's sold to go into the battery industry is probably
sold for $500 to maybe $750 a ton depending on the purity of it.
And in the best interest of our shareholders would rather sell material
for $1,200, $1,300, or even the large flake, which we could sell up as much
as $1,800 a ton to other industries. Whether it's lubricants, whether it's
the steel-making industry, whether it's different areas making foils that need
the large flake graphite. You can see here where DNI Metals is so excited
about the battery industry, because we know the Chinese materials are going
into the batteries, and it opens up a big void that DNI Metals can fill, and
we can sell material at much higher prices, mostly because our quality of our
material is, I believe, far superior than the Chinese, and we can fill that
void at much higher prices.
So, yes, we are very excited about the battery industry. But I want
current and prospective shareholders to understand that that's not our focus.
DNI's focus is to sell material at much higher prices to other industries
around the world.
Maurice Jackson: I want to add on to that if you would. So, you're
selling the material, talk to us about offtake agreements. And for someone
who's not familiar with that, what is an offtake agreement?
Dan Weir: Okay, so let's look at the graphite industry because
there's a lot of misnomers regarding graphite. If you're a gold producer,
zinc, copper, nickel, there are exchanges that you can sell that material
into. You've got the LME, the London Metals Exchange, or into China,
different places. There are quoted prices on that material every single day.
You can sell into that. Everybody, every day looks at what the gold price is.
It's right around $1,200. I think yesterday it was up $1, $1,204 or so.
Everybody looks at that and they know that the gold producers can sell any
day into that market and get that price. Graphite is not sold that way.
Industrial minerals are not sold that way. The whole key to selling graphite
is being able to have customers and sell to those customers. It takes some
time to get those customers. They will want a one-kilogram sample, they'll
want a one-ton sample. And then they likely want a 20-ton sample, which is a
20-foot container full of graphite so that they can do the testing on their
machines to fit your material.
So, good and bad, that can take some time to get those customers. But once
you have those customers, they tend to be long-life customers. They're going
to modify their machinery to fit your material, and if you continue to supply
that material on a consistent basis, then they will buy it from you. Also
very, very critical to understand, that there are hundreds of different types
of material that we will sell. It's sold by flake size, and the purity of the
material, but then they also look at things like the ash content. They'll
look at what other sorts of other impurities are in your material. And that
can change. We've seen it on our Vohitsara property where one zone can be
quite a bit different than another zone. We've seen the same thing over on
the Marofody property where the materials can be the same in certain zones,
and it can be quite a bit different within certain zones, or within certain
veins that we find these in.
So, it's very important to understand, I have been to Brazil. I've been to
the largest processing plant in the world, which produces about 40,000 tons a
year, and it has about nine small mines that it pulls material in from and
then mixes and matches depending on what the customer wants. It's very, very
important to understand that. That graphite isn't all about just getting an
offtake, as you said, and I'll explain what an offtake is here in a minute,
and selling the product. Because you have hundreds of different products, and
that product has got to be qualified by the end user.
So, back to what an offtake is. You will have many groups or companies
around the world looking for material. They want specific material. If you
can supply that specific material to them, they'll say, "Okay, we're going
to give you an offtake agreement. We'll buy X amount of tons per year from
you if you can supply that material. It's basically like a long-term contract
if you want to think of it that way.
That's what everybody's looking for. Investors want to see that you have
offtake and that you have customers as you're putting the money into building
plants and moving forward. So, we understand that, we have been working very
hard at different offtakes over time. And you will see we have signed a few
customer agreements. I think, over time, you'll see a lot of offtakes come
out of us as well.
But again, I emphasize it takes time, and it takes a lot of work, and you
need material to be able to supply to those customers in order to do that.
Hence the reason why we're building this pilot plant so that we know that we
can supply the material, whether it's 20 tons, 40 tons, hundreds of tons for
testing and get these long-term contracts. It's very important to be able to
do that. At the same time, you're selling the material to them and making a
little bit of money as you're doing that.
Maurice Jackson: All right, we've covered the graphite
fundamentals. Let's get to company specifics. What can you share with us
regarding the arbitration involving DNI Metals and Cougar Metals?
Dan Weir: I have to be very careful what I say here. We have signed
confidentiality agreements that we won't talk about each other's companies,
that we won't go out and do postings, again, about the arbitration or
anything else. I can talk about what has been publicly released. Any
information that I give here will be information that you can find in press
releases either from DNI or what Cougar has press released.
So, let's start a little bit on what we did with Cougar and the settlement
with Cougar so that we can move on. I think most of our investors know that
we signed an agreement in March of 2017 with Cougar Metals out of Australia,
which is publicly listed on the Australian Stock Exchange, where Cougar had
the ability to earn into one of our properties, the Vohitsara graphite
deposit in Madagascar. There were certain criteria that Cougar had to meet to
earn into that. Part of that was completing a drilling contract, completing a
resource study and a PEA.
We at DNI provided Cougar with extensions to do so. The timeframes weren't
met. So, what we did is we put them in default of the contract. Cougar argued
that and over the last, call it nine and a half, ten months we have been
working towards going to an arbitration hearing where the arbitrator would
hear each other's side of the story and make a decision on that, and award
either to DNI or to Cougar the outcome of that arbitration. That hearing, and
again, this is public, was to take place the week of September 24th through
the 28th. After that the arbitrator would make a decision. We don't know how
long that decision would have taken. It could have taken weeks. But in all
likelihood, it was going to take multiple months in order to get a decision
out of the arbitrator.
DNI, within that arbitration, we looked at all the good, the bad, what
advantages DNI had to complete the arbitration, or was it better to settle
this arbitration and just move forward with our business. Myself, being on
the board, and the Board of Directors took all of that information that we
could get from our lawyers, and we had an expert team of lawyers that gave us
advice on all of this. We were able to negotiate with Cougar a settlement.
The terms we put in the press release that we announced on Sept. 24.
The terms are set up that it's paid over about two and a half years. We
plan to have the pilot plant up and running, hopefully very, very soon. It's
not going to hinder DNI so that we can hopefully pay a lot of that out of the
cash flow. Again, that's all in the premise that the pilot plant is up and
running and going forward. I'm keeping my lawyers happy by throwing that in
there as we go forward.
So, our plan is to get the pilot plan up and running. There is no other
hindrances on the project, and we can move forward. The last thing that we've
always talked about are the permits. We are working on the environmental
permits. The environmental permits should be completed very quickly here now,
and we'll be moving forward getting into production and moving forward with
the project.
By agreeing on a settlement we have taken the uncertainty out of our
stock. Shareholders do not like uncertainty in a stock. We've taken that
uncertainty out of the stock and we've done it in a way that we believe won't
hinder the operations of DNI.
Maurice Jackson: All right. Well, Dan, let me ask you a couple more
questions here. You've addressed production and the environmental permit. In
the meantime, what will DNI be working on?
Dan Weir: There are a number of announcements that we plan to make
over the next little while. I know I'm being a bit of a politician and not
directly answering your question. There are many things happening within the
company. I think everybody's going to be happy as we move forward with this
company. I'm extremely excited. I have told everybody many, many times, I am
going to get this into production. I believe that it's one of the best
graphite deposits in the world.
Last week, I had one of our investment bankers with us in Madagascar. We
also brought one of our directors, Keith Minty, a mining engineer; he's
operated mines in Canada and Sri Lanka. We had our process engineer, the man
who has designed the pilot plant. He came with us as well. He was very
excited about the project. He's blown away that we're 50 kilometers to a port,
that we have some of the roads that are put into the property. The material
as he said, and I think I can quote them on this, at surface, he saw where we
took the bulk samples that it looks fantastic seeing these large flakes at
surface and everything else. He doesn't see any issues with us moving forward
and getting this done.
As I've said before, this plant is engineered, it's designed. We have
quotes out of China to build all of the machinery. We're ready to go. Once we
receive our permits, we're set, we're ready to go and we're very excited to
move this thing forward.
Especially, for me. I love being there, I love working with the local
people. Actually, there's another point here I want to make is that we were
on the property, we met with the local people, our investment bankers saw all
of them, the local presidents, I met with them, shook their hands. They're
eager to get going and seeing development happen on this property as well.
Everybody kept saying that we have all these issues with locals. We did
not have any resistance when we're out there on the project. People are happy
and they want to see this developed. They're looking for jobs, and they want
to move forward.
Maurice Jackson: You referenced engineering there, Keith Minty, for
those that are not familiar with the name. That is a name that you want to
follow as one of the serially successful members in the natural resource
space. Wherever Keith goes, you're bound to find success. So, shout out there
to Mr. Keith Minty. Dan, what keeps you up at night that we don't know about?
Dan Weir: Capital markets are always the toughest thing when you're
running a junior mining company. I worked for some of the best brokerage
firms as a stockbrokers for almost 13 years in Canada. I managed an
institutional equity sales desk. For companies, the toughest thing is making
sure you have the right amount of capital, and getting that capital as you
move forward.
One of the reasons why we picked Madagascar is for its low capex, because
we can get this pilot plant running, and once we do, we can start making some
cash flow from that pilot plant. Remember, the main purpose of the pilot
plant is to provide samples and sell samples to potential customers, but at
the same time, we're going to be selling that material and selling it at a
profit. So, that is key in what we're doing. But you've got to make sure that
the capital that you're raising is low enough that it makes it so that you
can be profitable as you're moving forward.
Some of the biggest problems you see, especially in the graphite area, is
that guys try and make these massive projects, 50,000, 70,000 tons a year,
that they want to start at. You're not going to get the customers as you do
that. You've got to grow with the customer. If you can have a low capex,
build your customer base, grow a lot of your business, partially from cash
flow, maybe from capital infusions, from offtake people, or other groups, you
have a winning strategy to make this go forward.
Again, it's always the biggest concern is, what are the markets doing? Do
people care about graphite? Can you raise the money? That's always the
toughest part in any of this. I think the way we have moved this forward and
our strategy moving forward and the people that we have in place to make this
all happen, I think we have a winning combination, and have an opportunity
here to not only get into production, but be a leader potentially in the
future, in the graphite space.
Maurice Jackson: Last question, what did I forget to ask?
Dan Weir: I'm not sure. Maurice, you've been to the property,
you've met the people that we're working with at the property. You've met our
mining engineer, Keith Minty, as you said. I think you've checked a lot of
the boxes. You've been there again, firsthand and seeing how amazing this is.
You've felt that graphite in your hand. You have seen how important it is to
have this saprolitic-type deposit, and how much cheaper the production can be
from the saprolite versus the hard-rock deposits that you find in North
America. So, you know what, I don't think there's much else that you can ask
at this point in time.
Maurice Jackson: I've actually been there twice, Dan, if you don't
recall. But I also have the graphite from the first site visit. Everything
that you've shared regarding DNI Metals, we are proud shareholders and we
look forward to growing with the company. Dan, if investors want to get more
information about DNI Metals, please share the contact details.
Dan Weir: Yes, you can always get a hold of me. Email is probably
the best at danweir@dnimetals.com, or can get ahold of me on my cell phone at
416-720-0754.
Maurice Jackson: DNI Metals trades on the CSE, symbol DNI.
And on the OTC, symbol DMNKF. DNI Metals is a sponsor of Proven and
Probable and that we are proud shareholders of DNI Metals for their virtues
conveyed in today's message. Last but not least, please visit our website www.provenandprobable.com
where we interview the most respected names in the natural resource space.
You may reach us at contact@provenandprobable.com.
Dan Weir of DNI Metals, thank you for joining us today on Proven and
Probable.
Dan Weir: Thank you Maurice.
And last but not least, please visit our website www.provenandprobable.com
where we interview the most respected names in the natural resource space.
You may reach us at contact@provenandprobable.com.
[NLINSERT]
Disclosure:
1) Dan Weir: I, or members of my immediate household or family, own shares of
the following companies mentioned in this article: DNI Metals. I personally
am, or members of my immediate household or family are, paid by the following
companies mentioned in this article: DNI Metals.
2) Maurice Jackson: I, or members of my immediate household or family, own
shares of the following companies mentioned in this article: DNI Metals. I
personally am, or members of my immediate household or family are, paid by
the following companies mentioned in this article: None. My company has a
financial relationship with the following companies mentioned in this
article: DNI Metals is a sponsor of Proven and Probable. Proven and Probable
disclosures are listed below.
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