Berkwood and Flinders drive upward momentum in graphite sector
Graphite Week in Review: The ProEdgeWire Graphite and Graphene members rose +2.12% for the week ending on July 19, 2013. The increase, however, could only be attributed to continued momentum from Berkwood Resources (‘Berkwood’, TSXV: BKR) and Flinders Resources (‘Flinders’, TSXV: FDR) which continued the rallies from the previous week increasing 40% and 15.79% respectively. As a reminder, Berkwood announced an expansion into more blocks adjacent to its main property at Lac Gueret property in northeastern Quebec. These new blocks have the potential to yield high quality resources given that the Quebec geological department described these zones as having a massive graphitic carbon value.
Flinders’ rise, while smaller in percentage terms, was very significant in actual value as it moved from CAD$ 0.47 to CAD$ 0.55 a share, continuing along a sustained rally after announcing the resumption of graphite production at its Woxna mine in Sweden and the start of deliveries of graphite to Germany. Flinders’ investors will gain from the Company’s lower than average operational costs and capital expenditures, given that it already has a productive capacity. Flinders, along with a handful of others, which may include Focus Metals and perhaps Zenyatta Ventures, may be ready to move to production stage in the medium rather than the longer term.
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As for the graphite market itself, given that industrial activity did not see significant growth worldwide, demand did not increase, especially considering that demand grew significantly in 2011. Flake graphite values almost halved compared to the 2011 highs reaching the USD$ 3,000/ton range. However, current prices of some USD$ 1,500/ton are still 40-70% higher than before the recession. There was also a further deterioration of the global economy which led to the price drop; therefore, considering the negative contexts, graphite remains a valuable commodity. Moreover, China experienced the biggest graphite production drops, which is not surprising given that it produces about two thirds of all natural graphite in the world, affording it a continued controlling position in the market.
The Chinese mining industry, especially its rare earths sector, has faced increased internal scrutiny over labor and environmental standards, which may have already started to extend to the graphite. This means that if its 20% export duties, added VAT and export licenses do not end up tightening supply again when demand grows in other industrial countries, its new mining regulations will, resulting in tighter supply and higher prices. This is good news for the various junior graphite miners that are banking on just such a pattern. Unlike other commodities, graphite requires much less capital expenditure (CAPEX) and natural or flake graphite is typically found close to the surface. Moreover, the kind of grades achieved by Zenyatta Ventures (TSXV: ZEN | OTCQX: ZENYF) at its Albany deposit in Ontario and by Focus Graphite (TSXV: FMS | FCSMF) suggest that flake graphite will be pure enough to compete with much higher priced synthetic graphite.
The timing is also ideal. While Focus Graphite is edging ever closer to production stage, by the time it and the other plays come to market, the technology that is fueling demand for natural graphite will also be more mature and ready to drive demand. Flake graphite will continue to be used in refractories, brake pads and lubricants, new technology from graphene to lithium-ion batteries and clean technology applications may require an exponential increase of the current supply.