Why Graphite Matters
– Momentum Public Relations –
Graphite. Sure it’s related to the diamond family, but it is decidedly less celebrated than the shimmering jewel that we associate with love, weddings, songs, and extravagant jewelry. Some of the commercially mined graphite is used for pedestrian products like pencils. The “lead” filling in a pencil is, in fact, composed of a mixture of graphite and clay. Based on application, the electrode industry held the largest share of the overall US and the world markets for graphite in 2014 (see chart below).
Some of the major drivers behind the growing worldwide demand for graphite has been attributed to the Asia-Pacific region’s increased demand for steel. Graphite’s main function, however, is as a lubricant. It has many electrical uses, primarily because it is the only common nonmetal that is a very efficient conductor of electricity.
Fuel Cell Technology Requires Supply of Graphite
Demand for graphite is expected to rise as electric vehicles, and lithium battery technology are adopted. Fuel cells, nuclear and solar power also have the potential to create significant incremental demand growth. Interestingly, there is roughly 10-20 times more graphite in a lithium-ion battery than there is lithium.
Graphite doesn’t get a lot of attention, but it showed up the headlines in 2015 when Tesla Motors began building its lithium-ion battery “gigafactory” in Nevada. When fully on-stream in 2020, the gigafactory could double the world supply of lithium-ion batteries, mostly for the automotive market but also for residential stationary power packs. By 2020, Tesla is planning to make 35GWh of lithium-ion batteries a year. Some market commentators have speculated that the potential new market from Tesla alone will require at least 50,000 tonnes per year of graphite.
Today, world natural graphite production is split almost equally between flake and amorphous, but the proportion of flake is expected in increase by 2020. This is providing opportunities for investors in key mining operations that are expected to produce commercial quantities of flake natural graphite.
The global graphite market was valued at over 15 billion USD in 2014, and it is expected to grow at a compounded annual growth rate of four percent from 2016 – 2021. Synthetic graphite holds the largest market share with greater than 70 percent share. However, demand is rising rapidly for flake natural graphite. Global consumption of natural graphite products has more than doubled in the past ten years, and the trend is expected to continue.
Price Recovery Underlines Opportunities for Investment in New Mines
Average prices of flake natural graphite have fallen almost continuously from the sustained peak seen between mid-2011 and early 2012. The decline in pricing resulted from reduced demand from steel refractories and slower economic growth in China. As prices begin to recover through 2016, companies developing new graphite projects have become increasingly interesting for investors who are looking at long-term growth opportunities.
China is the world leader in graphite with a market share of roughly 70{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce}. In 2010, South Graphite was set up in Hunan province to take control of 200-250 small, privately-owned mines and bring them under state control. Chinese domination of the market is likely to shift in the medium term as higher technology end uses for graphite require stable supply at reasonable economics. Also, the modernization of Chinese industry is likely to consume most of the higher grade product resulting in limited export availability of flake natural graphite.
Significant new opportunities are arising with the emergence of new uses for flake natural graphite, particularly in North America. Mining companies are exploring vast flake resources in places like Mozambique. However, political stability, security and transportation costs are a factor in many developing countries. As a consequence, high-quality vein graphite resources in North America are being actively explored. Around a quarter of all new capacity could be in Canada, where more than 30 credible flake natural graphite projects are currently being developed.
Nouveau Monde – a Timely Opportunity
One extremely interesting company is a start-up called Nouveau Monde Mining (NOU : TSX Venture). The company is exploring and developing a property in Matawinie, 130 kilometers north of Montreal, Canada. They are in the advanced stages of exploration and are joining forces with other graphite companies to acquire a mill to producing graphite for Lithium-Ion batteries. The company has also received a grant to help fund their operation from the Natural Science and Engineering Research Council of Canada (NSERC). Looking forward, they expect to release the Preliminary Economic Assessment (PEA) during the first half of 2016.
Nouveau Monde’s graphite operation is likely to bring product to market at an opportunistic time. Demand is on the rise and the largest North American graphite producer, Imerys, also located near Montreal, is nearing the end of its estimated resource. This means buyers for graphite will need to find a new supplier and it makes sense to source product from a well-known and reliable mining district.
Growth in demand for batteries will drive the market
The emerging technology of battery driven automobiles and battery technologies in homes may eventually provide a humble mineral like graphite with the status and respect of its cousin, the diamond. After all, existing world demand for graphite in all batteries is estimated to total 125,000 tonnes at present. But this is sure to double, triple, quadruple. Growth almost always produces investment opportunities for those who seize the best opportunities. Could graphite someday become a “girl’s best friend?” Stay tuned!