Graphite seems to be the new rare earth, and investor interest in the mineral, once seen as synonymous with No. 2 pencils, is heating up. Graphite is in short supply, especially large-flake graphite, a must for lithium-ion batteries, fuel cells, and nuclear power. China controls about 80 percent of the world’s graphite supply and its intention to curb exports is causing worry. Historic underinvestment in new graphite projects globally has prompted many juniors to step in and fill the gap. Investor interest in a cycle like this will not last for a long time, but for now, the bubble is growing bigger.
“I believe the Graphite cycle is now where Rare Earths were in 2009,” Ben Axler, managing partner and co-founder of Spruce Point Capital Management, a New York-based hedge fund, was quoted as saying on Seeking Alpha.
Axler, who is long on large-flake graphite company Northern Graphite Corp. (TSXV:NGC), said, “it’s entirely possible…NGC’s shares can easily double from here to over $6/share.” Northern Graphite shares were trading at $2.41 on Friday morning.
Northern Graphite, which owns 100 percent of the Bisset Creek deposit, said earlier this month that it has made test quantities of spherical graphite from graphite. The spherical graphite has been evaluated in lithium/graphite battery test cells, and the “performance of these cells demonstrated that it meets or exceeds current commercial performance requirements,” the company said.
Siddharth Rajeev, head of research at Vancouver-based Fundamental Research Corp. (FRC), told Graphite Investing News in an interview, “we are most bullish on high-grade, large-flake graphite projects.” He added that applications such as batteries and fuel cells will “require high-grade, large-flake graphite – and a significant portion of the demand is currently filled by synthetic graphite. We believe high-grade, large-flake natural graphite has the potential to take a significant market share from the synthetic graphite market.”
But Rajeev warned that “the recent boom and growing investor interest in the graphite sector have resulted in lot of new graphite companies and/or has prompted existing companies to switch their focus to graphite. Switching focus is not uncommon in the junior resource space. We saw the same trend a few years ago when the rare earth and lithium boom started. Several of those rare earth or lithium companies do not exist anymore. We will see the same in graphite as well. Investors should keep this in mind and look for strong fundamentals and management teams before making an investment decision.”
Nathan Pearson and Rachel Harrison reported for VantageWire that investors looking to invest in shares of graphite juniors need to “focus on projects with near-surface, high-grade, large-flake deposits that are in politically and economically safe areas with sound infrastructure.”
Besides Northern Graphite, other firms making headlines in the graphite space are Focus Metals Inc. (TSXV:FMS), Energizer Resources Inc. (TSX:EGZ), Flinders Resources Ltd. (TSXV:FDR), and Standard Graphite (TSXV:SGH) to name a few.
Focus Metals holds 100 percent ownership of its Lac Knife, Quebec, property, which has 16 percent carbon grade medium- and large-flake crystalline graphite, with production expected to begin in 2014. Its shares have risen more than 38 percent so far this year.
Energizer Resources last month confirmed jumbo-flake graphite with more than 90 percent purity at its Green Giant project in Madagascar. Shares of the company have nearly doubled so far this year.
Flinders Resources raised $15 million to advance the Kringel graphite mine in Sweden toward production this month. The Kringel mine, with a capacity 13,000 tonnes per year of flake graphite, operated from 1996 to 2001, when production was halted due to falling graphite prices. The company’s shares are down more than 23 percent so far this year, but have risen more than 20 percent in the past month.
Standard Graphite controls a 100 percent stake in twelve highly prospective graphite properties within known graphite districts in both Quebec and Ontario. Its shares have risen more than 80 percent so far in 2012.
Securities Disclosure: I, Karan Kumar, hold no direct investment interest in any company mentioned in this article.