Alba Minerals (LON: ALBA) shares are up 8% this morning off the back of an announcement by GreenRoc Mining (LON: GROC). That announcement is that GreenRoc has shown that there’s an inferred and indicated resource of graphite at the site in Greenland, Amitsoq. This is good news for this stage of the mining game but there’s a long way to go before there’s revenue from it.
As it owns 54% of GreenRoc therefore Alba Mineral shares have risen that 8%.
However, still worth noting that this is very early days. The next stage for GreenRoc – and therefore for the Alba Mineral share price – is to do more drilling and evaluation work to prove that graphite resource up to a reserve. Then comes raising the capital to exploit it. Then, finally, some years down the line, there is the possibility of revenue.
Of course any particular stage of this process can be a valuation event. Removing the uncertainty about the volume of the resource, or the ability to mine it, adds value at each stage, each new piece of inflation. That flow of information raises the project value until, at that final stage of proof, the value has risen asymptotically to that full and final value.
There are still considerable uncertainties it has to be said. There’s the normal one of this stage of a mining exercise. Which is whether these inferred etc resources will in fact make the grade to become reserves and so on. The entire point of the next stage of investigation is to find out whether they will or not.
But there are other uncertainties too. At least one large mining project in Greenland has pretty much failed when the mining licence was declined. OK, so that was about uranium and rare earths but still – maybe they’ll allow something environmentally desirable like graphite and maybe they won’t.
There’s also the little problem of what will be the graphite price as an when any production does start? Companies like Tirupati Graphite (LON: TGR) are expanding production right now. Sure, we all know that electric vehicles and their batteries are going to require more graphite but how much more? It’s not exactly unknown for an investment cycle to increase supply by more than demand does after all.
There being one more wrinkle concerning graphite. It is actually possible to make it from other hydrocarbon sources. It is, after all, only a form of carbon and carbon’s pretty common.
There are people making battery-grade graphite from the sludges of oil refineries for example. We’re not dealing with something here where only those mineable deposits are possible sources.
The value of Alba Mineral Resources' 54% share of GreenRoc will depend on the success of getting through these varied valuation stages. Thus so too will the value of Alba, to the extent that it is dependent upon the GreenRoc stake.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.