Graphite is the Next Big Thing for resource investors, but as in any sector, due diligence is a prerequisite for success. Enter Simon Moores, graphite market specialist with Industrial Minerals in London. In this interview with The Critical Metals Report, he explains why graphite is "the perfect mineral," why we're still going to be talking about it years from now and which companies to watch in this emerging industry.
The Critical Metals Report: You once called graphite the perfect mineral. Why?
Simon Moores: It's conductive; it's a lubricant; it's resistant to high temperatures and it's a strong mineral. This means it doesn't have just one major market; it has an abundance of markets and uses. It's key to existing technologies that have been around for 100 years as well as new technologies, like lithium-ion batteries.
But despite what many think, it's not a niche industry. Rare earths and lithium are niche industries. Each year, 1.1 million tons (Mt) of graphite is produced. It's bigger by volume than molybdenum, vanadium, cobalt, tungsten, rare earths and lithium combined.
Graphite miners operate all around the world in Canada, Brazil, Europe, India and, of course, China, which accounts for 80% of production. That's a new figure that our research at Industrial Minerals has just uncovered for the new Natural Graphite Report 2012. China's grip on graphite production is greater than people thought previously.
TCMR: What is China's next move in the graphite market? Do you think there will be more quotas and export restrictions?
SM: There are no rare-earth style quotas at the moment. China doesn't say, "We are only allowing 400,000 tons (t) of graphite to be exported every year." But the country is doing things that could restrict the raw materials supply. The government doesn't like exporting raw materials that other people make money from. It is trying to build a value chain to unlock the value in its natural resources.
For example, China exports flake graphite to Japan. Japan turns it into battery-grade graphite, which is then used to make anodes, which is then used to make batteries, which Japan then ships for a much higher cost than the raw graphite. Now China is trying to build those finished products domestically. As a result, less raw material will come out of the country. In addition, China is trying to control its sprawling mining industry by forcing consolidation. Graphite is a perfect example of a sprawling Chinese mining industry.
TCMR: China is already encouraging foreign companies who depend on rare earth elements (REEs) to set up shop in the country. Do you see the same story unfolding in the graphite industry?
SM: The difference with rare earths is that China is the only place you can get good supply. It operates the world's only mine in Inner Mongolia until Molycorp and Lynas truly get underway.
China is aware that companies can get graphite elsewhere. It is also aware that at the moment it makes good business sense to sell quality raw material at high prices for the short term. Longer term, the story is different.
TCMR: China's had environmental problems with some of its rare earth operations. You visited some graphite mines in China. Are the graphite mines environmentally problematic?
SM: No, it's basic mining that has been around for centuries – extracting from the ground, crushing and grinding. You then put it in a floatation tank with reagents. This part of the process requires chemicals, but these are well known chemicals used in many other industries. Finally, graphite processors dry it and bag it. Graphite is an inert mineral, so it's not harmful. There are no underlying environmental problems in graphite mining.
The only area that holds some controversy is processing into spherical graphite, which requires additional chemical and physical treatment. Acid treatment is quite intensive and there could be future controversy surrounding the disposal of acids used.
TCMR: Are the Chinese mines primarily producing large-flake graphite or a lower-end product?
SM: It's almost a 50-50 split. Flake graphite mining exists all the way down the country's spine. This is good-quality material suitable for both domestic and international refractory and battery markets.
The Hunan province, in the south, is home to amorphous graphite, the old-style graphite people first started mining around the world. Amorphous is more common because the graphitization is lower and closer to coal, whereas flake graphite is closer to diamonds. Amorphous graphite supplies lower-end markets that produce products like pencils and lubricants.