Graphite Mining Investments

One Graphite Mining Company Has Decades-Long Supply

Written by Nick Hodge
Posted May 1, 2013

The Toronto Stock Market Venture Exchange (TSX-V) is a broad measure of the junior resource industry: gold, silver, copper, uranium, and even oil companies with a resource in the ground, hoping to get to production — or better, a buyout from a larger company.

That entire market has gotten crushed.

It's trading at the same levels today it was in 2003. Truly a lost decade. It's still down some 60% from its 2007 highs.

Have a look at the 10-year chart of the TSX-V compared to the Dow Jones Industrial Average:

10-Year Toronto Venture Exchange vs. Dow Jones

Even the Dow has managed to tack on 80% in a decade, with a Great Recession in the middle...

The TSX-V is flat. No gain in ten years. Ten years, by the way, that saw copper prices up 369% and gold up 425%.

And it hasn't only affected small mining companies. Over the past five years gold is up around 75%, while some of the biggest mining companies — Newmont, Kinross, Barrick, Anglo-American — are in negative territory.

This isn't just a gold phenomenon, either. I just use it as my case in point.

Fundamentally, mining companies are facing some problems. Demand for minerals and metals is rising almost across the board. But mining costs — like the cost of everything else — are rising.

However, the quantity of quality reserves is declining, fewer discoveries are being made, and new resources that are found require long lead times to deal with resource studies, permitting, financing, and so on. This has been the case with gold, silver, copper... and the resource I want to discuss in this report.

Graphite

Like diamonds, graphite is an allotrope of the semi-metal element carbon. It's chemically inert, flexible, and very strong. It's also a good conductor of heat and electricity... all of which has made it perfect for several uses in the industrial and high-tech spaces.

Today around 75% of graphite demand is for traditional applications like steelmaking, refractories, auto parts, and lubricants.

The bulk of future demand will come from the use of graphite in lithium and vanadium batteries (there's far more graphite than lithium in lithium batteries), pebble-bed nuclear reactors, and fuel cells.

Already, demand for graphite exceeds current supply. And the supply/demand imbalance will only be worsened as these new sources of demand come online.

Which is why prices have more than doubled — with a 2012 spike even higher — since 2006, from $700 to $1,500 per tonne:

Graphite Price Chart 2013

Right now, batteries only account for 5% of graphite use. As this percentage grows, and as graphite is used for other energy applications, the 1.1 million tonnes currently being brought to market will no longer be enough.

Graphite Uses

Add to that the fact that graphite is kind of in a “rare earth” type situation because 70% of supply is controlled by China...

The country is limiting exports with quotas and value added taxes (VATs).

For end users outside of China, this means a secure supply of graphite is going to be hard to come by.

The 30% of supply that comes from outside of China is typically used in full by the country where it's mined. There are only a handful of graphite mines in North America and Europe.

Graphite Supply by Country

That's why graphite has been named a "supply critical mineral" and a "strategic mineral" by the USA and European Union as more demand is being created that surpasses the supply threshold. Graphite is the mineral of tomorrow and, as such, cannot continue to be overlooked and undervalued.

And that's why I like the graphite space so much...

Plus, with the junior resource space beaten down so much, it's time to take a stand. If you take a long-term view, you'd be buying today at historically cheap prices.

The market will come back. And I think it's smart to stake out some plays with steep upside while no one is looking.

The recent pullback has hit the TSX-V pretty hard, but the fact remains that non-Chinese countries need to become increasingly self-reliant in the acquisition of mineral resources, and graphite is certain to be an increasingly vital commodity — regardless of the fear that seems to be prevailing in the market at this time.

That's why I'm recommending buying shares of a graphite company that has an extremely large resource capable of providing an end user secure supply for decades.

The resource it controls is valued at over $8 billion... yet the stock is valued at only $17 million.

The time to act on it is now, and I've compiled all the information you need to get started right here. 

Call it like you see it,

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