Martin McFarlane, President and CEO at the Cambridge House Vancouver Resources Investment Conference
Many investors love the "ground floor opportunity" – getting into an investment while it is still a newly listed company. But there is a speculative quality about these investments that can make them seem riskier.
But Flinders Resources (TSX-V: FDR) offers an interesting combination of being a newly listed company with an exciting resource.
We spoke to Martin McFarlane, President and CEO of Flinders Resources about his project and the opportunity he sees for investors.
He started by telling us about his own experience in the industry: "I've been in the resource industry for about 25 years. I started with Rio Tinto and was involved in base metals. Most recently, after 25 years in base metals, I've joined a junior company – Flinders Resources – that is restarting up a graphite mine in Sweden. My experience is in operating, development, exploration investor relations, and community relations. All of those things will be important in taking this company forward."
The company is very young. At the time of the interview, the company was expecting to be listed on the Toronto Stock Exchange (and might be newly listed by the time this article is published). Mr. McFarlane told us during the interview: "Flinders Resources is in the process of listing on the TSX Venture Exchange. We just had conditional approval and we have our ticker symbol, FDR. We expect the shares to start trading during February."
Next, we talked about the company itself, which has a flake graphite project in Sweden. "It's a flake graphite mine, which is a higher value part of the graphite market. It's large flake, which is the highest value of the flake segment of the market. It produces a premium grade material," explained Mr. McFarlane. "The resource is substantial; there are 30 years or more of high grade minable resource in the ground. It's grade is 2- to-3 times that many operations have today."
Graphite is a burgeoning opportunity that is being called "the next rare earths". Mr. McFarlane told us: "Graphite supply has been effectively frozen at 2005 levels but graphite demand has grown about 6% per annum, which is a combination of traditional uses (steel, brake linings, pencils, paint, and batteries) and new uses."
Among the new uses are energy products, said Mr. McFarlane: "Lithium batteries contain 10 to 20 times more graphite than lithium. Lithium batteries are now about to go into cars; they're replacing nickel batteries in some cars. Fuel cells is also a potential area of future use for graphite. And if we are going to move away from carbon (coal or oil) as an energy source, we may move to nuclear power which includes pebble bed graphite reactors."
Along with these near-term uses for graphite, there are some advanced innovations in the world of graphite as well: "Grapheme is a relative new product with attractive properties. It's one of the strongest materials known to humans. It can be made very thin and it also conducts electricity so it's possible in the foreseeable future that instead of having an iPad, we might have an equivalent that folds up like a piece of paper."
So, Flinders has a great resource of a mineral that should be in very high demand. But this new company isn't just trying to prove out its graphite resource. This is the part that investors will really be interested to know: "The mine is already built and permitted," said Mr. McFarlane. "The mine operated until 2001 when graphite prices were appallingly bad and they were forced to shut down. So we are starting up an existing project. There's a pit that is open to about 35 meters deep. There's a processing plant already on site. Water, roads, and power are all on site. It's fully permitted and it's fully compliant today, although we are improving the environmental operations because they are different now than they were ten years ago."
The company is well-prepared to move forward with the project. "We have about $6 million in the bank today, which will be put toward advancing the project," said Mr. McFarlane. "Our goal is to turn the project into cash flow within two years."
The biggest challenge that Mr. McFarlane sees with this project is finding good, skilled people to operate the mine in Sweden. He said: "You need the same kinds of people that other mines need – mining engineers, processing engineers, geologists, and more. It's hard to find good people."
Lastly, we talked briefly about the future of Flinders and what Mr. McFarlane sees as the opportunity for investors over the long term. "There is a lot of upside potential at Flinders," he said. "We have a 13,000 ton per annum plant [on the property] today and there's a 30 year mine life. Once we're operational, we would look at expansion opportunities: It makes sense to double or triple the size of the plant. As well, the resource has only been drilled out to 50 meters but we know that it extends down to 500 meters."
Mr. McFarlane summarized what he felt were the key points of opportunity for investors: "If you look at all the projects out there, what differentiates Flinders is its speed to cash flow. We expect to be back in production in two years, and therefore back in cash flow. Everyone else who has a graphite project out there has to do feasibility studies, procure equipment, and build their mines. We don't have to do those things."
This is a multifaceted story for investors, and it can appeal to investors who want to invest in new IPO's, or investors who want to invest in graphite or investors who want to invest in companies that can get to cash flow quickly.
Note: Investors who are doing their due diligence should be aware that there are a few resource companies with the name Flinders: Flinders Exploration (www.fexploration.com) is doing gold exploration in Australia. Flinders Mines (www.flindersmines.com) is an Australian iron ore company. Flinders Resources (www.flindersresources.com) is the graphite company being discussed in this article and is not affiliated with the other two companies.
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