A Compelling Investment Opportunity: Berkwood Resources Ltd. (TSXV: BKR)
Jeff Nielson, Stockhouse | September 28, 2017: Hi-tech and “green” metals and minerals have captured the interest of many mining investors. Large, new markets are emerging for several of these commodities. The most-famous of these green/hi-tech applications is the rapidly emerging market for lithium-ion batteries. In turn, the most important end use for lithium-ion batteries is the exploding demand for electric vehicles.
Yet one of these hi-tech/green tech commodity markets has largely escaped the radar of mining investors. Which one? Elon Musk of Tesla Motors provides a large clue:
“Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide… [there’s] a little bit of lithium in there, but it’s like the salt on the salad,” the CEO explained.
The nickel market is a large, well-publicized market. But who is talking about graphite? Perhaps the better question is why aren’t more mining investors talking about the New Black Gold?
The fundamentals for the graphite market are very compelling. This is a specialty mineral in that it does not naturally occur in the same abundance as many of the larger metals and minerals markets. At the same time, graphite possesses some extraordinary properties.
Graphite is a carbon-based mineral that is geologically similar to diamonds. However, graphite offers one very important property not possessed by the more aesthetically-pleasing form of carbon. Graphite is highly conductive of electricity. This opens up numerous energy-based applications for graphite – including lithium-ion batteries.
As a smaller market, investors seeking to gain exposure to this vitally important mineral have only a limited number of investment options. For junior mining investors, one company offers a compelling investment opportunity: Berkwood Resources Ltd. (TSXV: BKR , OTC: CZSVF, FSE: A2DNV4 ).
The Company is led by CEO Thomas Yingling. In a conference call with Stockhouse Editorial, a single point immediately stood out. Thomas Yingling hates risk. He hates it for his Company. He hates it for the Company’s shareholders.
BKR’s flagship property is the Lac Gueret Extensions Project, located in Quebec, perhaps Canada’s most exploration-friendly jurisdiction. The Berkwood management team has made it its driving mission over the past six years to de-risk this project to the maximum degree possible.
How? It starts with diligently working through all of the lower-cost forms of exploration work. First Berkwood did an airborne Mag-EM survey of the prospective zones. Then BKR moved to ground geophysical targeting, to confirm the large magnetic anomalies.
After that, BKR advanced to a program of surface sampling, which yielded surface assays as high as 36.3% carbon (graphite). It was only after thoroughly engaging in these preliminaries that the Company was satisfied that it was finally time to move a drill rig on site.
Thomas Yingling is no neophyte to the mining industry. He has logged more than 23 years of experience in the industry, including serving as President and CEO of several other public companies in the resource space. Along the way, Yingling has gathered an understanding of how to conduct exploration operations in a manner that conserves shareholder capital by minimizing the level of risk.
The CEO explains:
There is an old saying in the junior mining industry, “Why ruin a great project by drilling it?” This is because more often than not, drill results are poor and it kills the project. Berkwood has done the opposite. We have intersected graphite in every drill hole completed to date!”
Through methodically conducting all of this preliminary work, Berkwood has avoided “ruining” its flagship Project. Now was the time to sink some drill holes into these highly prospective targets – and produce the drill results craved by mining investors.
On August 16, 2017; BKR announced the commencement of the first drilling program at Lac Gueret: up to 18 drill holes in the Zone 1 target area. On August 22, 2017; Berkwood announced it had intersected graphite mineralization on its first two holes. By September 6th; the Company was reporting 10-out-of-10 on its drilling to date – a perfect record. Assays are pending.
Probably the least-surprised people with respect to these results are the BKR management team. Their high expectations were only based in part on their diligent preliminary work. Why is La Gueret described as an “Extensions Project”? It is because BKR’s property is on-strike and adjacent to a high grade graphite deposit being developed by Mason Graphite – Mason’s “Lac Gueret Deposit”.
A visit to that company’s website is illuminating:
Mason Graphite is a Canadian graphite mining and processing company focused on the development of the Lac Guéret project located in northeastern Quebec, where the graphite grade is believed by management to be among the highest in the world. [emphasis mine]
Grades “among the highest in the world”: if you’re a junior mining company focused on graphite, being next-door to this deposit is a great place to be situated. BKR’s location has also substantially reduced the risk in this project.
It’s not just the fact that Berkwood’s graphite Project is adjacent to this high-grade deposit. Mason Graphite is steadily advancing its own project toward production. To facilitate this mining project (and others), the provincial government is making a $400 million infrastructure investment, committed toward improvements of HWY 389.
HWY 389 passes right past the Berkwood property and these improvements will significantly improve access to Lac Gueret. This improved access will reduce exploration and developments costs, further de-risking BKR’s graphite Project.
Thomas Yingling modestly observes that Berkwood can’t take any credit for how development of the Mason Graphite project has reduced the risk for BKR. However, management does earn kudos for finding and acquiring this ideally situated graphite land package.
With graphite, grades are only a part of the equation. Like diamonds, graphite occurs naturally in different qualitative forms. For industrial purposes, the naturally occurring graphite that is in greatest demand is the “large flake” form of graphite. The Mason Graphite deposit (and the Lac Gueret Project) host large-flake graphite.
Where has the world previously been obtaining most of its graphite supply? China. In 2016; China produced 780,000 metric tonnes of graphite, more than four times as much as the next-leading producer: India. Here is where the dynamics of the graphic market become especially interesting.
Going back as far as December 2014, Benchmark Mineral Intelligence was suggesting that China could have reached “peak graphite” in terms of its production level. That’s the supply side. On the demand side, in May 2016 Benchmark was projecting that graphite demand from lithium-ion batteries would triple in just four years.
Flattening production from the world’s leading producer combined with a tripling of demand for the graphite used in electric vehicles: where will this extra graphite come from?
Turning back to Tesla, that company has already famously proclaimed its intent to supply its North American “gigafactory” with metals and minerals only provided from North American sources. How much graphite is produced in North America? Not much.
Mexico and Canada rank #6 and #7 in global production. But (as of 2016) Mexico produced a mere 22,000 metric tonnes of graphite and Canada produced 21,000 metric tonnes. Combined, these two nations produce little more than 5% as much graphite as China. The United States doesn’t even rank in the top-10.
Where will Tesla get its North American graphite?
Over the medium term, one answer to that question might be Mason Graphite. Their Feasibility Study boasts a post-tax IRR of over 34%. Cap-ex is a modest $165.9 million and the projected construction timeline is a mere 13 – 16 months.
This may lead investors to a second question. Given the very attractive economics of Mason Graphite’s project, why buy into Berkwood Resources?
Market cap for Mason Graphite: $203 million.
Market cap for Berkwood Resources: $6.6 million.
Two next-door neighbours with virtually identical geology. Mason Graphite is clearly currently in the lead in terms of the level of development. However, the two companies may ultimately end up in the same place. For investors looking further down the road, BKR is also holding two other green metals exploration properties.
Meanwhile, Berkwood is sitting in the middle of a very promising drill campaign, with its $6.6 million market cap, and with (potential) investors already knowing that the Company has hit on its first 10 drill holes as they await the assay results. Shrewdly, management recently staked-out additional claims, quintupling the size of the land package. For small-cap mining investors, this is a very intriguing scenario – to say the least.
Investors buying shares today will be buying into more than a promising project. Including CEO Thomas Yingling’s 23 years of experience, the BKR management team has collectively amassed a century of mining experience. Berkwood’s field work has particularly benefitted from the experience and expertise of Edward Lyons, PGeo (Project Lead) and Michel Robert (Advisor).
This is a Company focused on structure: geology, management, and shares.
Berkwood is confident it has acquired the geological structure necessary for mining success. It has assembled a management structure capable of executing on this promising geology. And it has maintained a (tight) share structure that will allow BKR shareholders to fully participate in the success of the Lac Gueret Extensions Project – only 18.5 million shares outstanding.
Connecting the dots, we have a Company with a market cap of only $6.4 million. It’s holding a highly prospective property in a rapidly emerging commodity market. It’s already hit on its first 10 drill holes on this property, with assay results imminent.
Going back as far as 2014, industry analysts were already pointing to graphite as “the new black gold”. As investors await the results on BKR’s first drill holes, they may be contemplating some “gold” of their own: investment profits.
Full Disclosure: Berkwood Resources Ltd is a paid client of Stockhouse Publishing.