EDITOR: | October 8th, 2014 | 14 Comments

The Tesla Beauty Contest

| October 08, 2014 | 14 Comments
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TESLATesla has confirmed that it will proceed with plans to build the battery ‘gigafactory’, choosing Nevada as the location. Now, it will have to secure the critical raw materials to launch production and keep the plant running. There has been much focus on the lithium supply requirement, but for the initial period, Tesla does not need to secure a lithium offtake agreement as there are two or three major suppliers in the western United States (such as Western Lithium – TSX: WLC – in Nevada), which have expansion capabilities. Three new lithium mines have also opened in the last couple of years and at least another is ready to proceed subject to financing. However, it is unlikely Tesla could go ahead without a secure source of graphite which is needed to make the anode material in the battery.

Batteries contain some 10 to 12 times more graphite, by weight, than lithium. Losses in the manufacturing process end up consuming 30 to 40 times more graphite than lithium. China produces 70 to 80 per cent of the world’s graphite and its industry has serious environmental and resource management challenges.  The associated resource nationalism and the preference for selling value added products rather than cheap natural resources suggests that the supply chain could be compromised and unreliable.Tesla’s domestic sourcing ambitions are not a secret and the Gigafactory will source such materials as cobalt, graphite and any other critical material it needs in North America in order to establish as tight a supply chain as possible with an aim to keeping low costs and low environmental impact.

Who will win the Tesla graphite beauty contest? There is only one company that can meet Tesla’s volume and timeline requirements some contend. It is also located in North America and has the best location/infrastructure and the lowest capital cost of any new graphite project — that company is Northern Graphite (‘’NGC’, TSXV: NGC | OTCQX: NGPHF).

NGC is planning on producing about 44,000 tons of graphite concentrate per year.   90% is battery grade and the yield of anode material (called “spherical graphite” or “SPG”) is 50%, both the highest in the industry. This would put its annual SPG production at 20,000 tons and the company has already defined the resources to expand beyond this. Tesla’s initial requirement is 27,500 tons in 2017/2018. Other companies with similar sized projects have 40-70% battery grade material and a yield of 33% or less which make their potential annual SPG production less than 10,000 tons. What will they do with the high percentage of non-battery grade material that must be sold to maximize projects economics?

NGC has completed a bankable Feasibility Study and has also secured its most important environmental permit. The company is ready to start construction next year and reach the production phase before the end of 2016. The competition is well behind in the engineering/permitting process. NGC also has one other huge advantage over its peers…

It is not enough to just be able to produce graphite. It must be purified to 99.95%C for use in lithium ion batteries. The Chinese wet chemical approach, a veritable environmental nightmare, and the thermal method, too expensive and inefficient, are not options. The only company that already has a proven, proprietary purification technology also happens to be NGC. In part, this is due to the pristine nature of its flake graphite which makes it easier to remove impurities. Even if its peers knew the process, it is unlikely it would work on their concentrates due to different mineralogy. Initial testing also indicates that this high quality flake results in greater battery capacity but further testing and validation is required.

We don’t know when or what Tesla will decide to ado about its graphite supply, but those who would venture a gamble in the graphite beauty contest would clearly have to place NGC at the top of this list.

Of course, there are also questions as to whether the Gigafactory will actually be built; indeed, even Tesla’s sales targets of 500,000 EVs by 2017/2018 are rather ambitious. However, few would venture to bet against Elon Musk. Alternatively, it seems highly probable that the production of EV’s from all car companies will exceed 500,000 units per year by 2017, considering that every major manufacturer already has an electric or hybrid vehicle on offer in 2014. This is less than 1% of the annual new car market.  Regardless of the outcome, Tesla will need more graphite than lithium and NGC is in the best position to supply it.


Editor:


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Comments

  • advenbound

    With all due respect
    Another article to piggy back on Tesla’s potential.

    the merits of NGC should be based instead on their progress and where they stand as we speak.

    The tesla pitch is so overdone/overused

    October 8, 2014 - 12:01 PM

  • BankerBob

    With great respect Mr. Bruno, you don’t know what you’re talking about. To have omitted Focus Graphite as a front-runner in the beauty race shows an absolute lack of understanding of the competitive advantages Focus holds.

    Or, perhaps InvestorIntel is courting Northern Graphite as a client.

    Shame on you!

    October 8, 2014 - 4:41 PM

  • BankerBob

    I see Northern is a client as is Focus. So how do you choose one client over another?

    Cast your lot to the wind and hope for the best?

    Scandalous.

    October 8, 2014 - 4:44 PM

  • Tracy Weslosky

    Thanks for the feedback BankerBob…Jon Hykawy has a piece planned on FMS that is on our storyboard for this week….appreciate you reminding me to send him an email. We are receiving a lot of data on the sector these days, and would like to thank Alessandro Bruno on integrating a new story for coverage — Northern Graphite. I like Greg Bowes a great deal, and have a great deal of respect for his Board member Dr. Sethu Raman.

    The graphite market review is being done weekly by Peter Epstein, and we have Dr. Luc Duchesne covering the graphene sector — with occasional pieces from our Asian correspondent, Hongpo Shen.

    Thanks for visiting.

    October 8, 2014 - 5:23 PM

  • Jim Martin

    My bet is on Zenyatta to be chosen by Tesla. Today, Tesla uses Panasonic to manufacture the bateries. The anodes are made by Hitachi for Panasonic. It is common knowledge and has been written about by InvestorIntel that Tesla uses synthetic graphite for its battery anodes. As has been proven by ZEN scientific and metalurgical testing the Zenyatta hydrothermal lump graphite Albany deposit is comparable in all aspects and superior to synthetic graphite in some respects.

    So, bottom line, Zenyatta is located in NA, has a benign purification process to obtain 99.95% purity, (ie GREEN), has great infrastructure and can be substituted for Teslas existing high quality, high purity graphite supply directly.

    Not saying Northern and Focus are not good candidates, but my money is on Zenyatta!!!

    Jim

    October 9, 2014 - 8:09 AM

  • Tracy Weslosky

    Dear InvestorIntel Audience;

    Well I sure received an email inbox full of comments on this one yesterday….with some very strong opinions…keep em coming, as I do read them: and listen.

    Yes, Northern Graphite is finally and officially an InvestorIntel member and what can I say: I am delighted. Frankly, this is one of the few leaders that were not on board and we rely on membership sales to provide complimentary content.

    Who do I think Tesla will pick? Well, I think they will select an electronics or battery company to do their picking — and we will be doing a whole series on this. Plus, I BELIEVE that there is more than Tesla in this race for revenue…

    I would like to thank the professional in the industry, who will remain nameless for sending me a response to BankerBob. I don’t mind BB as I love all of our readers, but I do wish he would appreciate how often we cover his favorites….

    This email came X and it was written so eloquently that I thought I would share this with you: “Dear Tracy — BankerBob, whoever that is, needs to understand that the graphite industry needs more than one new supplier outside China. Maybe more than 1 I think, even, given everybody from SGL to Graftech to Asbury to Superior want to diversify away from Chinese supply. InvestorIntel has more than one graphite client for the same reason and there will be more than one winner. If he figures he is allowed to invest in only one junior company in one sector at any one time, then he can look in the mirror to see the definition of ‘broke retail investor’.”

    Keep the comments coming — we do listen.

    October 9, 2014 - 9:48 AM

  • Tom

    Since we all seem to be touting our favourite junior graphite miner throughout this thread, please allow me to join in the fun ….LOMIKO is my bet for a non-exclusive partnership with Panasonic in Nevada. Why not?

    October 9, 2014 - 11:13 AM

  • Tony Phillips

    Could you please do a comparison piece on which company has what in the graphite space. Here is my quick breakdown of the ‘usual suspects’ in terms of Location / Total Resource (M&I) / Grade % / Purity (sourced from a GPH presentation):

    Focus Graphite Quebec 9.6 Mt 14.8% 98.3%

    Mason Graphite Quebec 50 Mt 15.6% 99.9%

    Flinders Sweden 2.8 Mt 10.7% 94.0%

    Energizer Madagascar 124.3 Mt 6.3% 99.9%

    Graphite One Alaska 285 Mt 4.5% 99.2%

    Zenyatta Ontario 45.2 Mt 3.1% 99.9%

    Northern Graphite Ontario 70 Mt 1.7% 99.9%

    It can appear convoluted when each company (and their newsletter writers) tout that they have the perfect combination. Is there any truth to such a sweet spot? 4 from the list have a resource greater than 50 Mt and 3 have grades over 5 % Cg.

    I know the relevance of flake size/distribution and purity is hotly debated (i.e. tailored processing for customers and varying end user preferences) but I didn’t have flake size data available for all, so I did not include it in my attempt. Perhaps somebody could add that. It would be great to see these ‘big boys’ in the graphite space dissected and charted this way.

    This all begs the question, does one company’s large resource offset another’s high grade, ever? Surely it has to come into play somewhere. Specific company structures, jurisdictions, infrastructure and geological settings are important but often divert us from making these simple evaluations, and are frequently used as the overriding factors so we cannot draw basic comparisons. With the market media and other reputable online sources of information being sponsored by (and often friends with) many of the names listed, it is understandable why this charting has never been performed impartially. No criticism of investorintel intended here, it’s just the nature of the industry.

    October 9, 2014 - 5:46 PM

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  • Bob Martin

    I see that Tesla has now secured suppliers for LiOH with some projections for battery production to start in 2017. I assume this means that a suitable graphite supplier will be needed by then. I wonder if NGC could possibly be ready by then. As the NGC pilot project has not started as far as I know, I somehow doubt that Northern Graphite could be included as a supplier. As an investor, this is disappointing to say the least.

    August 29, 2015 - 2:26 PM

  • Tom

    As for a beauty contest consideration for Tesla my money is on Lomiko.
    While still a year or so away from graphite production, the near surface pit and pod mining planned at the Lomiko properties could conceivably be developed and in operation by 2017.
    Lomiko estimates mining cost at around $800 a ton (competitive with China) and with the quality of owned graphite that Lomiko claims to be “battery grade” and the short supply line to the Timcal mine operation – if needed and a deal worked out – as well as to Nevada , it seems to me that a company with an adequate supply of “the right grades” of graphite, plus being a business partner with a recognized graphine innovator plus having their fingers into super capacitor development projects would be an ideal fit for Tesla, not only on the raw material side of the equation but also on the technology development front as well.

    August 29, 2015 - 3:55 PM

  • King Louie.

    There is a big new player in town with the best quality graphite in the world.

    The company is Magnis Resources. Their mine will be producing 250,000 tonnes of graphite per year with 80% of it being Super Jumbo, Jumbo and large flake.

    Unfortunately for me I did not jump on this pony and sunk all my money into a dog of a stock called Triton Minerals. I have been ridiculously ramping on this stock but it has got me nowhere. I will always regret not listening to the holders of Magnis and now will be eating humble pie forever.

    September 2, 2015 - 10:59 PM

  • Richard Brandon

    There is a dark horse that over the past year has surpassed everyone, like a runner in a race eclipsing everyone towards the finish line. It is Great Lakes Graphite. Their mill will be ready to micronize by February 2016 with sources outside of Canada.

    January 20, 2016 - 10:37 PM

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