The gulley of graphite: the return of Lincoln to Australian mining

In September 2020, Australian miner Lincoln Minerals suspended operations, withdrawing from the Australian Securities Exchange (ASX) once the company’s operations were no longer sufficient “to warrant the continued quotation of the entity’s securities and its continued listing” on the exchange, according to the company. 

The suspension of activities followed various failed takeover attempts, and despite owning considerable graphite reserves at Kookabuarra Gully, the plight of Lincoln became something of a cautionary tale for miners in Australia, a reminder that simply controlling access to a potential deposit is not enough to warrant continued existence, but that a company must be actively involved in extracting those minerals, and possess the financial reserves to do so sustainably 

But with demand for the mineral never higher, a new Lincoln has emerged to continue work at the Kookaburra Gully, now trading under two stock tickers and offering revitalised promises for the future of its shareholders. The work of the revived miner could demonstrate that holding onto an asset, despite financial challenges and opportunities to divest control, is the wise choice in the long-term.

Lincoln’s recent recovery has been driven by Jigsaw Investments, which led a $4.6m rights issue to pump the necessary funds into the company in September 2022. A rights issue is essentially a fund-raising exercise, often offering existing shareholders the opportunity to buy more shares in a company at a fixed price, usually at a discount to the market, on a stated future date. The mechanics can appear complicated, but in simple terms the company is raising money and is issuing new shares to raise the money. 

Yet Jigsaw was not the only party interested in Lincoln and its access to the Kookaburra Gulley. In both August, and then again in October 2022, Quantum Graphite was making offers for all of the shares in the company, offering a 30% premium on Lincoln’s share price as part of the deal. 

The bid included a 30% premium on Lincoln's share price at that time. Quantum wanted Lincoln badly, and Quantum's management team made it clear that they thought they possessed the skills to determine prospectivity and ultimate commercial exploitation to Lincoln's best advantage. Equally, Lincoln would get immediate liquidity as a result.

But it never happened. On 24 October last year, Lincoln put out an ASX announcement that 52% of its shareholders including Poly Minerals Investments, Poan Group Holdings, Good Make and Regal Fortress rejected the takeover offer made by Quantum. 

The very next day, Lincoln put out another release, explaining its new capital raise, its plan to lift the moratorium on trading its shares and the recommencement of work in the Gully, without the involvement of Quantum.

Lincoln did not respond to requests for comments for this piece, so details on the thought processes behind these deals are unclear. For sure, Quantum wanted Lincoln's graphite resource, and were willing to pay. Lincoln's shareholders weren't keen, but they needed cash help to hold onto their shareholding and ultimately extract the graphite. 

In came the $4.6m million rights issue white horse, and out went Quantum's hopes. Lincoln has also stressed that its focus remains on continuing its work at the Kookaburra Gully to the point where it can conduct a feasibility study. Should this study reveal encouraging results, the miner is keen to embark on a large-scale and drilling program across all tenements in 2023.

Lincoln’s decisions, however, do point to a shift in dynamics in the mining sector. No longer is money the only driving factor in decisions regarding ownership and exploration – Quantum’s offer was a generous one – but access to deposits, and control over that access, are equally important. Lincoln may lack the funding and support of Quantum, but it has not had to give up its access to the Kookaburra Gulley 

The example of Lincoln Minerals' re-emergence couldn't offer more crystalline proof of that fact. Various reports down the years had noted that Lincoln’s shares had been suspended from trading, with rumours of takeover attempts and boardroom realignments. In recent months, definite takeover attempts have been on the cards too. Yet one constant has remained, a core part of Kookaburra’s work that its shareholders have not relinquished: the Kookaburra Gulley.

The plight of Lincoln has taken place against the backdrop of one of the more interesting mineral deposits in Australia. Studies into the Kookaburra Gully concluded that it could support mining operations for around a decade, and that any mines in the area could produce around 35,000 tonnes per annum of flake graphite. 

According to Lincoln, the Kookaburra Gully is among the world’s top ten graphite deposits in terms of grade, averaging 15.1% total graphitic carbon. While the price of graphite varies depending on global supply, graphite quality and the prevailing market trends, Fastmarkets puts the value of the mineral at around $840 per tonne in its recent analysis, not an insignificant amount of money for a commodity that is seeing increased attention from a number of sectors. 

According to Fortune Business Insight, the value of the global graphite market is set to increase from $13.6bn in 2020 to $25.7bn in 2028, resulting in a combined annual growth rate of around 8.2% between 2021 and 2028. Much of this increase in value is driven by the use of graphite in electric vehicles (EVs), demand for which is set to increase in parallel. According to the International Energy Agency, EV sales have exploded in recent years, with the 6.6 million cars sold in 2021 double that of the previous year.

Simply put, EVs won't work without graphite, making the mineral essential to the net-zero transition and to mitigating climate change. In the long-term, ensuring future growth in both graphite and EVs will demand greater efforts to diversify battery manufacturing and critical mineral supplies to reduce the risks of bottlenecks and price rises. 

Lincoln, then, could be in a strong position for the long-term. With unchallenged access to its precious Kookaburra Gulley, and the minerals deposited in the area more valuable than ever, Lincoln may not simply be back, but could be in a position for a new generation of growth.