Monday, April 25, 2011

Just how valuable might graphite become

With the world recognizing that graphite is becoming so critical to so many uses in our lives it is easy to see the future of graphite climbing significantly. The US has already added graphite to its critical minerals list which in essence makes the urgency to find new sources of supply paramount. This comes on the discovery, that similar to rare earth elements, graphite is at least 70% or more controlled by Chinese supply. The Chinese have stated recently that their graphite deposits are falling behind in production to the point they have added graphite to a list of products that may not be available for export as they consume all they can produce. There is at present only a couple of companies that are nearing a position to bring a graphite deposit into production. So as the Chinese approach the problem of their graphite deposits becoming depleted and the demand for graphite only continuing to grow globally it is clear the effect of this imbalance could turn any company with a world class deposit of graphite into a very lucrative endeavor.

Graphite, although not really that rare, is not something that is worth enormous prices unless it meets certain specifications. As with many minerals the purity amongst other factors determines just how viable any particular deposit may be. Most known graphite deposits at present have a carbon content in the range of  approximately 2% to 3.5% with a select few being possibly slightly higher. The higher the carbon content, the higher the profit margin becomes. Now this is only one factor, another aspect we need to examine is the content of flakes in the graphite and what size is the flake. Since graphite has been introduced to the high tech sector of the world it has gained popularity immensely. What they refer to as large flake is one of the most sought after grades and this does seem to be rare. Therefore the premium that companies will pay for large flake graphite is exponentially higher than for any of the lower grade graphite's. To bring this into some numbers so we can gain an actual appreciation of just how much higher this price can be let's first look at the average price of what we will refer to as regular graphite, which currently sells for between $2,000-$2,500. Now compare that to what large flake graphite has brought recently in sales that have seen the price at $10,000-to$35,000. This is not expected to become a top at all but rather as the Chinese have added export limitations along with value added taxes in the amount of 17% along with an export duty of 20% and all this amid calls for even further export limitations. Meanwhile the global appetite for graphite is growing at about 4% to 5% annually.

Graphite can be used in an ever increasing amount of applications. In light of the recent disaster in Japan in regards to the nuclear power plant suffering from meltdown conditions we see that graphite can and is being used in the next generation nuclear power plant. China is currently installing this new technology in their continuing push to bring multiple nuclear power generators on line in an effort to reduce their carbon emissions. This next generation nuclear generator is, according to the experts and engineers, nearly meltdown proof as the graphite pebble bed that replaces the heavy water approach can sustain temperatures of  >3,000 degrees Celsius. The implications here are astounding to say the very least.

Another use for graphite that I am sure we can all relate to quite well is the upcoming push for electric vehicles. Most car manufacturers have adopted the lithium ion battery as it far exceeds anything the previous batteries offered in terms of both weight and the length of time the charge would last. What many people do not know is that to make a lithium ion battery it takes 20 times as much graphite as it does lithium. The graphite to be used must be purified to a point of 99% in order to be used for these batteries and the only graphite capable of this is large flake graphite. In the US alone, President Obama has stated he wants at least 1 million electric vehicles on the road by 2015. That's only 4 years down the road so it is hard to not see this the new becoming trend and one which is going to continue to build momentum.

As I stated in the beginning, there are only a very few companies with a world class deposit that has all these requirements. The one company I have done an over abundance of due diligence on is Focus Metals and I truly believe this company is well on it's way to becoming a giant in the graphite space. The management is working very diligently in their efforts to bring this project online as quickly as possible and I feel the entire management team is top notch at what they do. I strongly urge everyone to please take the time to do some due diligence on this company and to think whether this is something that fits into your medium to longer term investment needs. I am confident you will appreciate what you discover as you delve into this company. The company has a web site which I encourage you to explore at

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