Graphite in 2012: A Wave more than a Bubble
During the first half of 2012 the graphite sector was on everyone’s lips. The Vancouver (Cambridge House) conference in Vancouver in January 2012 did not mince its message: Graphite was the ‘raw material’ of the year. In the weeks that followed there was nothing short of a scramble to develop graphite projects, especially in Canada, after years of neglect and indifference as the West seemed all too happy to allow China to dominate that sector along with so many others. 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).
China is said to account for 70% of world graphite production, but, this could change very soon as export restrictions are expected to be adopted by authorities in Beijing, including fewer openings of new mines (with the closing of many that have failed to meet the new and tougher standards). 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. Much of Chinese graphite is said to be of low quality amorphous material. Graphite demand until 2020 will be driven by batteries, accounting for at least 6% of the projected 9% demand rise.
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Apart from Canada, the renewed impetus to develop graphite spread to Madagascar, Sri Lanka and Germany as the interest to get hold of new graphite projects grew. Indeed, the demand for graphite and its prospects remain strong now and the notion, that some brought up by the late spring of 2012, that graphite’s renewed attraction was a ‘bubble’ is unjustified. Undoubtedly, the graphite sector has been the target of speculative capital and, as with all mining projects, few will ultimately reach the production stage; nevertheless, there is no shortage of good investment targets.
During 2012, graphite stocks have suffered losses after booming in April. The losses were less a reflection of the actual value of graphite than general market volatility. While some analysts have interpreted this as the validation of their ‘bubble’ cries, the conditions that pushed graphite prices higher are still valid; so much so that the US State Department and the European Commission maintain that graphite is a critical mineral because of its applications in the development of batteries, steel, lightweight composites for aerospace and pebble bed nuclear reactors. The average mobile phone or laptop Li-ion battery already contains 20 times more graphite than it does lithium, which suggests that demand for graphite will 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 Focus Graphite – the latter also developing expertise in the scalable production of graphene. Zenyatta (TSXV: ZEN) – which showed the most remarkable share price rise of the year moving a gargantuan 464%, reflecting confidence that the Company would achieve unprecedented purity grades after it intersected Sri-Lankan type graphite last April, enabling it to compete with the much more expensive petroleum derived graphite. Zenyatta’s property offers graphite that is very similar in chemistry and appearance to the famed Sri-Lankan or vein graphite variety. And the comparison with synthetic/petroleum derived graphite is one of the main points for investors to consider. While the latter will still be used in such applications as sports equipment or carbon fibre, the flake graphite at the heart of all the new graphite plays is the variety needed to meet the needs of the new technologies and applications. The higher the percentage of large flake and high purity mineralization (higher carbon content), the better the price a resource can command. Focus Graphite and Standard Graphite have prolific high grade resources. Those companies whose share prices are not indicative of the quality of the resources have suffered from overall low market confidence. Graphite demand will persist thanks to demand from emerging technologies.
Focus Graphite (OTCQX: FCSMF) and Standard Graphite (TSXV: SGH) have uncovered very high grade resources and the former is relying on these to stimulate the emerging graphene industry. Canadian Platinum Corp. (TSXV: CPC) launched a graphite project in Saskatchewan at its Brabant Lake graphite property. Galaxy Graphite Corp. (TSXV: GXY) announced encouraging sample results from its Brownell gold project in mid-November. Flinders Resources Limited (TSXV: FDR) published its first NI 43-101 mineral resource estimate for its Kringel flake graphite deposit in central Sweden. Quebec has proven to be one of the most desirable areas for graphite mining and many new plays, including Mason Graphite (TSXV: LLG), which is targeting the production of very high grade graphite, noting that its ore body has shown average graphitic carbon content of 20.4%.