The rapidly expanding list of junior mining companies chasing graphite projects will produce only a few successes but currently high graphite prices and the boom in the sector should continue – unlike other bubbles.
“I think this one has legs,” Michael S. “Mickey” Fulp, the Mercenary Geologist, told an audience at the New York Hard Assets Investment Conference last week. “The junior graphite bubble as with all bubbles is being built,” Fulp said. “It is being blown up right now. There will be very few contenders in this space and very many pretenders.”
When Fulp started studying the graphite sector a year ago he said only two graphite companies were listed on the Toronto Stock Exchange that had a flagship property of graphite. “A year later there are 50 or more,” he said, noting a new announcement by a copper company of the acquisition of three new graphite projects in northern Canada and another company that had moved from oil and gas to rare earth elements before in April becoming a graphite company.
Fulp calls graphite “the newest next big thing” following earlier junior mining moves into uranium and then rare earths. Graphite, he said, “is an up-and-coming semi-metal that I think has very strong upside in not only the short-term but the long-term.”
Graphite, he noted, has three market sectors that include synthetic graphite selling for around $10,000 to $20,000 per tonne and mainly used in for carbon electrodes for the steel industry; carbon fiber that has replaced fiberglass; and natural graphite, a $1 billion market, with 1.1 million tonnes of mine supply in 2011.
“Natural graphite, which is what we’re going to talk about mainly today, constitutes about 8% of the world market,” Fulp said. “If you know commodities, that's a lot of material.” He noted that the rare earths sector is only about 12% of natural graphite’s size and said nickel is also smaller in mined tonnes. “Once again China controls a majority of the world's production at 75%” but much of that is low grade amorphous graphite. Brazil, North Korea, Canada and India are also important producers, he said.
Graphite as a whole and especially flake graphite market is priced according to size of flakes and according to carbon content. “Generally you want your carbon content to be higher and so all these flake graphite criteria are based on 94% to 97% CG, which means carbon as graphite,” Fulp said. “You have to produce a very pure product.”
Natural graphite can be divided into five different products. “We have a very specialty market for vein or lump graphite and that is very coarse-grained graphite,” Fulp said. “It is very high priced, selling for something on the order of $8,000-$10,000 per tonne” This is produced by small, hand-cobbed mines in Sri Lanka, he noted.
Other natural graphite products are large flake graphite produced with +80 mesh or 150 micron size; medium flake graphite of 80 to 100 mesh; fine flake graphite of 100 to 300 mesh and amorphous graphite, which is essentially powder at -300 mesh, Fulp said. “Generally as the flake size decreases the price decreases,” he added.
“It's of interest to note that that this business has been driven lately by demand for lithium ion batteries and that market is increasing 20% to 40% per year,” Fulp said, noting that medium to fine flake graphite is mainly used for these batteries. “And what we're seeing is a concomitant increase in graphite prices.”
Over the last five years prices of amorphous graphite have increased from about $250 a tonne to current prices around $550 a tonne, while some flake graphite prices have climbed from under $1,000 a tonne to, in some cases for large flake graphite, more than $2,500 a tonne.