Mr. Doom's Great Graphene Play

Written by Jim Collins
Posted August 3, 2015 at 8:00PM

A friend of mine just started working at Roubini Global Economics, the firm led by noted economist, Nouriel "Dr. Doom" Roubini.

We were laughing at Dr. Roubini's nickname, though it was hard-earned via his prescient bearishness during the lead-up to the financial Crisis of 2008.

I've re-read my last few Outsider Club editorials and perhaps I should have a similar nickname. Mr. Doom???

My last editorial advocated buying the ultra-short Nasdaq biotech ETF (NASDAQ: BIS) and I have managed to throw in a few shots at my least favorite stock, Twitter, on every possible occasion. It is with smug satisfaction that I am watching TWTR hit new all-time lows as I am writing this.

Also, I haven't exactly been bullish on Greece. Seeing the Athens Stock Exchange (finally) open after more than a month off with a 23% plunge at the opening bell also played very well into my Mr. Doom sensibility.

But, sometimes doom and gloom present buying opportunities. I am always looking for diamonds among the ashes, but looking at the global stock markets, there aren't many ashes to go around.

One of the few pockets of weakness has come from our neighbors to the North. Canada's main stock index, the TSX Composite, has posted a small drop (-2.1%) in the past 12 months, but one of its cousins has suffered a major bruising.

The Toronto Stock Exchange Venture market (TSX-V) has fallen 40.7% in local currency terms, a drop that is even worse when translated into greenbacks given the relative weakness of Canada's dollar, popularly known as the loonie.

The loonie and the TSX-V have both been casualties of the drop in resource prices. Canada's economy is dependent on natural resources for almost 20% of its GDP, and thus the loonie's weakness relative to the dollar.

The TSX-V is even more dependent on resources than its national economy, with 55% (28.0% energy, 37.3% materials) of TSX-V market capitalization represented by resource companies.

Investors in all manner of globally utilized commodities — from oil to copper, from gold to iron ore — have been dumping futures contracts at an alarming rate. Why? China. Yeah, them.

As economic growth has slowed in the Middle Kingdom, commodity speculators have been dumping futures contracts across the spectrum of commodity types. They seem to be betting that the commodity upcycle initiated with China's admission into the WTO in December, 2001 is ending.

Every time a weak data point is released, the "China is slowing, the global engine is dying, sell, sell, sell" drums grow louder and louder, and it's hard to get in front of that freight train.

But that freight train squashes the stocks of the commodity producers as well as the commodities themselves, and that's where the TSX-V comes in.

The Canadians gave us the wonderful phrase "junior" to describe a mining or oil exploration company without massive resources or global reach. And some of those juniors have incredibly valuable reserves or important competitive advantages in extracting those reserves... or both.

My colleague, Nick Hodge, does a great job ferreting out tremendous value among the juniors. For instance, last week's issue of Nick's Early Advantage newsletter featured four names, and all four are TSX-V-listed. The man knows his juniors.

Nick knows that market much better than I do, but I have been researching one Canadian junior miner that I believe could be as interesting as the ones Nick has highlighted.

Lomiko Metals (TSX-V: LMR) has a unique position as a miner of graphite and, through an equity holding, as a producer of graphene.

Graphite is an allotrope of carbon, so its atoms are bonded together differently than other forms of pure carbon with different atomic structure, like diamonds. Graphene is another carbon allotrope, but unlike graphite and diamonds, its atoms are arranged in a two-dimensional array. This gives graphene all sorts of wonderful properties.

Graphene is super-strong, super-light, conducts heat much more efficiently than metals, and conducts electricity over extremely wide distances with minimal energy loss. Yes, it's a superconductor!

Graphite can be dissolved to extract graphene, and Lomiko's main mining project will be the source of the graphite for its equity-partner's graphene projects. Lomiko recently took a 40% interest in Canada Strategic minerals' La Loutre mine in Quebec.

The two companies recently announced the presence of multiple high-grade flake graphite samples at La Loutre with full-scale mining expected to commence soon. Lomiko also wholly owns a separate graphite mine elsewhere in Quebec.

So, they have the supply, and the demand comes through Lomiko's stake in publicly-traded (also on the TSX-V) Graphene 3D Labs. Lomiko recently announced an increase in its stake in Graphene 3D Labs to 10.7%. Graphene 3D recently began commercial sales of Conductive Graphene Filament for 3D printing, and I believe the sky is the limit for the company.

I have had the opportunity to meet Graphene 3D's management and to spend copious amounts of time with Lomiko's CEO, A. Paul Gill. As cool as it is to watch a plastic widget be created almost magically before your eyes via 3D printing, the real upside here, in my opinion, is through Lomiko's 40% ownership in a separate, private company: Graphene Energy Storage Devices Corp.

Graphene ESD has undertaken a research partnership with Stony Brook University on Long Island to develop new supercapacitor designs for energy storage. I'm out of space here, but I'll describe in a future column how I believe graphene's superconductive properties will change the world of energy storage.

Just one of the many great stories found by sifting through the various companies that compose the TSX-V. Out of favor among mainstream investors, perhaps, but certainly not bereft of companies with money-making ideas.


Jim Collins

 @JimCollinsOC on Twitter

Jim Collins is the Founder and Editor of The Portfolio Guru, now exclusively published by the Outsider Club. He has 22 years of stock analysis experience as an equity analyst and financial analyst with some of Wall Street's biggest and most respected firms. Now, you can get his CFA-level guidance in a newsletter delivered to your inbox. For more on Jim, check out his editor's page

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