Zenyatta Ventures Ltd. (ZEN) has soared 1,700 percent in the past year after discovering a graphite deposit it said may be among the world’s most valuable. Now the explorer has to prove it.
The C$202 million ($193 million) Canadian company, which has no revenue or income, is the second-best performer among the country’s natural-resource stocks. The shares climbed after it said the grade of graphite from its Albany project in northwest Ontario may rival the world’s highest-quality supplies, which are used in nuclear power plants and metal refining.
“They have to prove the size of their deposit, the cost of producing the graphite and that there’s demand for the production,” Jon Hykawy, a Toronto-based analyst at Byron Capital Markets Ltd., said in an Aug. 22 telephone interview. “The sooner the better for everyone.”
Graphite, which like diamonds and coal is a form of carbon, is prized for its capacity to conduct heat and electricity. Natural graphite is used in brake linings, high-temperature lubricants, pencils and to strengthen products including steel, golf clubs and tennis rackets.
Natural supplies come in three varieties including vein graphite, which commands the highest prices and is only mined in Sri Lanka. A synthetic variety, made from petroleum coke, vies with vein graphite for use in lithium-ion batteries for iPads and hybrid vehicles.
Thunder Bay, Ontario-based Zenyatta, which takes its name from The Police’s 1980 “Zenyatta Mondatta” album, says its deposit is similar to Sri Lankan supplies and the graphite can be refined to synthetic standards at a lower cost.
“We’re talking to some downstream companies that are reviewing this and saying that this is some amazing stuff,” Zenyatta Chief Executive Officer Aubrey Eveleigh, who keeps a vinyl version of the record by the Sting-led band in his office, said in an Aug. 16 telephone interview. “They’ll test it and see what applications it can go into.”
Zenyatta dropped 1.9 percent to C$3.67 at the close in Toronto. Its 18-fold increase in the past year compares with an average 34 percent drop for the 1,717 other Canadian resource companies tracked by Bloomberg as prices from gold to copper slumped after China’s economy slowed. The company’s performance ranks behind only that of Alpha Minerals Inc. (AMW), a uranium explorer that is a takeover target.
The near-surface Albany deposit, about 400 kilometers (250 miles) northeast of Thunder Bay, is 30 kilometers north of the Trans-Canada Highway and 70 kilometers away from a railway line, the company said in November.
Zenyatta plans to release a formal geological analysis of the deposit later this year and complete a preliminary economic assessment in 2014 to find out if the deposit can be exploited profitably, according to the company’s website.
Cleveland-based Cliffs Natural Resources Inc. (CLF:US), the largest U.S. iron-ore producer, has a stake of about 10 percent in Zenyatta. The two companies are working together to explore northern Ontario for base metals, said Patricia Persico, a Cliffs spokeswoman.
“Graphite isn’t a strategic focus for Cliffs, but because we have an equity holding in Zenyatta we have exposure to their project,” Persico said Aug. 23 by phone. She declined to comment on prospects for development of Zenyatta’s deposit.
‘Weird and Strange’
Zenyatta discovered the graphite deposit in 2011 while looking for copper and nickel.
“We drove into this, it looked weird and strange,” Eveleigh said. “We didn’t really know what we had.”
Some analysts are taking a wait-and-see attitude about what Zenyatta has, said Simon Moores, a London-based graphite-industry analyst at Industrial Minerals Data.
“There are doubters only because it’s hard for people to understand the deposit,” Moores said by phone on Aug. 22. “Its size and formation is unique and therefore Zenyatta’s plans for it will have to differ somewhat from that of other juniors in the market.”
Northern Graphite Corp. (NGC) and Focus Graphite Inc. (FMS), both based in Ottawa, are among companies seeking to exploit Canadian graphite deposits. Northern, which is concentrating on its C$103 million Bissett Creek project in Ontario, and Focus, which plans to develop its Lac Knife deposit in Quebec, both have declined 20 percent in the past year.
Since the onset of the global financial crisis in 2008, the benchmark price of graphite has risen 42 percent on demand from economies such as China and India, according to Industrial Minerals.
China leads the world in graphite mining, accounting for about 68 percent of 2012 output, according to an industry summary from the U.S. Geological Survey. India, the second-largest, mined about 14 percent of global output, with Brazil third at 6.8 percent.
Zenyatta’s story has inspired other companies to explore near Albany.
“Zenyatta’s such a tremendous success,” said Mike England, CEO of Caribou King Resources Ltd. (CKR), a Vancouver-based prospector for gold, copper and graphite. “So we kind of had to get over there and get some land.”
Caribou acquired 3,840 acres (1,554 hectares) of exploration land about 20 kilometers west of Zenyatta’s plot, according to an Aug. 15 statement.
“Maybe we can get a sniff, maybe we can find something as well,” England said by phone on Aug. 15.
Eveleigh, too, is looking forward to probing the far reaches of Zenyatta’s land holding.
“Our property’s quite big, it’s 15 kilometers by 15 kilometers,” Eveleigh said. “It’s a big block of ground.”
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