Graphite prices up 40% in the last 6 months, analyst reviews Northern Graphite
BBC refers to it as a “super element,” graphite is a commodity with a very attractive demand and supply fundamentals. The anode material in lithium ion batteries (LiBs) is a $20 billion industry that is growing at over 20% per year. Planned LiB manufacturing capacity growth will quadruple graphite demand within 2 years, as governments set targets of 17.5 million electric vehicles by 2020.
Northern Graphite Corporation (TSXV: NGC | OTCQX: NGPHF) (“Northern Graphite”) is excellently positioned to take advantage of this situation. The company’s Bissett Creek deposit in Canada is close to all required infrastructure and has the highest operating margin and best flake size distribution of any new graphite project. In addition, the project has been de-risked with a completed bankable feasibility study and major environmental permit secured.
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Demand for graphite has also been boosted by recovering steel demand and growth in hand-held devices. Another fast-growing market for graphite is expandable graphite where extra-large and extra-extra-large graphite flakes are converted into foil and sheets for use in consumer electronics, construction, fuel cells, and sealants. There’s a running theme, here; large flake sizes are essential for participation in the markets of today that truly matter.
On the supply side, things are getting rather tricky: 75% of global graphite production comes from China, which has imposed additional export taxes and cut production. The country also plans to build a graphite stockpile equal to 80% of annual production by 2020. The US, Europe, Japan and South Korea are almost entirely dependent on imported graphite; therefore, the US and the EU have declared graphite a supply-critical mineral. Very little recycling of graphite takes place, and there are almost no substitutes for the material. No wonder graphite prices have shot up by over 40% in the last 6 months.
The capital required to construct the open pit mine will be only CDN$101.6 million, and commercial production should be reached in 2020. Output will be almost 90% large and extra-large flake, the highest ratio in the industry, resulting in premium pricing of an average US$1,600 per tonne. The mine will have a high profit margin, as cash operating costs are estimated at only US$640 per tonne since there is no overburden to remove waste. Northern Graphite has also completed a preliminary economic assessment on doubling production to meet the expected growth in future demand by expanding the pit laterally, meaning lower capital costs than many competitors.
Test work carried out on LiB anode material made from Bissett Creek graphite confirmed in April 2018 that it meets or exceeds commercial specifications. Gregory Bowes, CEO, said, “Essentially all Bissett Creek production could theoretically be turned into a premium LiB anode material because of its outstanding crystallinity, flake size and purity, and this differentiates it from most other deposits. However, large and extra-large flake concentrates are too valuable to be used in this manner.” The high percentage of large and extra-large flake at the Bissett Creek deposit will enable the company to initially focus on high-value, high-margin industrial markets rather than the battery market.
Essentially all of the planet’s natural LiB anode material is produced in China using harmful hydrofluoric acid. Northern Graphite has however filed a patent on its own graphite purification technology, jointly developed with Hatch Inc. This technology would enable other countries to manufacture anode material in a cost competitive, environmentally sustainable manner. Shareholders in Northern Graphite will soon reap the rewards from the production of graphite concentrate as well as from opportunities created by the use of the purification technology.
Northern Graphite stands to insert itself quite readily into the graphite supply chain. The deposit and process are in-hand, and the company recently announced a successful simplification of the separation methodology that improves large-flake production by sacrificing some small-flake product. Company stock is currently trading at C$0.29, but we expect this to exceed the 12-month high of C$0.65 as the site approaches production.
Lara Smith has spent over a decade covering commodity markets. She started her career as a buyside analyst in South Africa where she covered soft ... <Read more about Lara Smith>