Despite current Market complexities, Graphite remains a key commodity for the Future
Graphite and Graphene Month-in-Review: The ProEdgeWire graphite sponsors index lost an average 11.85% during the month of April 2013. The losses went across the board, affecting both those companies in pre-development and those in pre-production or runner-up stage. Even Zenyatta Ventures (TSXV: ZEN), which owns what has been called the ‘miracle deposit’ or ‘freak of nature’ at 99.96% graphitic carbon purity was not spared as its share price dropped 5.71%. Focus Graphite (TSXV: FMS | OTCQX: FCSMF), while rebounding toward the end of the month, lost 7.81% in Toronto trading and 5.97% on the OTCQX. Even Mason Graphite (TSXV: LLG), which published a very encouraging preliminary economic assessment (PEA) for its Lac Gueret graphite project in Quebec, lost 4.48%. Indeed, it is by considering Mason Graphite that the graphite investment climate becomes clearer.
Mason Graphite is one of the more practical graphite propositions. Not only does its high purity level and prolific resource hold promise for the high technology graphite applications of the future, it also has its ‘feet on the ground’ by targeting the more pedestrian graphite market demand in refractories for the steel industry.
Evidently, graphite stocks have been victimized by the current market, which is rather complex. The complexity stems from a lack of optimism for an economic turnaround in the West, especially vulnerable to slow growth in Europe. At the same time, there has been rather bullish sentiment in the major stock market indices have been reaching for record highs and most fund managers and institutions have been putting their money in the majors and away from resources – not to mention the mid-April gold price collapse, which affected the commodity market in general.
The other factor is the general investment public’s unawareness of graphite’s potential. Indeed, if current price valuations are a factor of the continuing worldwide economic recession – or slowdown, the drop is not a reflection of the actual value of graphite. In China, which has the fastest growing automobile market, electric cars are more popular than they are in the West, which suggests battery demand will surge – and that’s just one application. Until recently, and not unlike the situation for rare earths, China was seen as maintaining an unchallenged monopoly over graphite. Indeed, China supplies half of the graphite needs of Europe, Japan or North America (combined). Overall, China is said to account for 70% of world graphite production, but, this could change very soon as export restrictions and greater downstream processing comes on line in China.
China itself will be cutting its own supply of graphite as new legislation comes into play, restricting the opening of new mines and closing many, failing to meet the new and tougher standards. Most of China’s graphite comes from Hunan province and few mines will be left operational, as new production standards are adopted. Graphite suppliers in China will likely undergoing a consolidation and rationalization echoing the new provisions for rare earth miners. The graphite supply problem is that there are few active mines for this resource outside China and a few dozen are said to be needed in order to address demand.
The conditions that pushed graphite prices higher in 2011 and early 2012 remain as valid as ever; all the more so, given that China is now targeting consolidation and ‘cleanup’ of graphite miners, just as it has done in the rare earths sector, potentially reducing supply of flake graphite. As noted by Gary Economo in a recent article published on ProEdgeWire, graphene, which is a 100% graphite derivative, is the main leading the pace toward “a new industrial revolution is fueled by economic necessity, national security and the desire to lever graphene’s myriad advantages.” On a more ‘contemporary’ level, the average mobile phone or laptop Li-ion battery already contains ten times more graphite than it does lithium and as new applications continue to be developed, demand for graphite can only increase by several factors before the end of the decade.
There are some mines closer to reaching production stage than others, some of these featuring outstanding grades and varieties such as Zenyatta, Mason Graphite or Focus Graphite – the latter is also developing expertise in the scalable production of graphene through its subsidiary Grafoid Inc. It makes sense to revisit and begin graphite mining projects in North America, as the same market conditions that drove its production to China some 25-20 years ago, are no longer valid. The demand for graphite over the rest of the decade might be best described as being acute, and the alarm of higher prices will be sounding soon enough, especially in view of the time needed to bring the new mining prospects to production. Surely, petroleum derived graphite will continue to fill the more basic and common applications from sports equipment to alloy additives or carbon fibre, however, naturally occurring flake graphite is the type needed for the development of new technologies and applications.