NGC Commentary: The graphite opportunity within the EV boomCommentary: The graphite opportunity within the EV boom By: Gregory Bowes, Special to The Northern Miner July 30, 2018 One cannot open the paper or go online these days without seeing many articles about the rosy future for electric vehicles (EVs) and grid storage, and the resultant growth in lithium ion battery (LiB) demand. LiBs are already a $20 billion per year market thats growing at over 20% annually. This has mainly been the result of growth in the market for handheld devices we are all familiar with. But EVs and grid storage are already large markets still in their infancy, and the next generation of battery technology is not yet out of the lab. There is a lot of runway left for LiB growth. LiBs require three main minerals: lithium; cobalt; and graphite, which is the anode material in the batteries. These are small specialty markets while the EV market is huge. Even modest, conservative adoption rates for EVs would have a significant effect on demand for these three minerals. (Meanwhile, the producers of copper, nickel and various other minerals are now all on the bandwagon. However, while the LiB and EV markets will be important to them, they have much less leverage to it.) Lithium prices have already taken off, offtake agreements and strategic partnerships have been established and new mines are being built. Cobalt prices have also risen sharply although the structure of the industry is more problematic with a looming supply problem and related political complexity in the Democratic Republic of the Congo. Graphite prices, meanwhile, have not really responded to LiB demand growth for a number of reasons. First, the 750,000-tonne-per-year flake graphite industry is quite a bit bigger than cobalt and lithium, and it has taken longer for battery demand to have a meaningful impact. Second, graphite demand is dominated by the steel industry, and the slowdown in Chinese steelmaking, which began back in 2012, has to date largely offset rapidly growing battery demand. Lastly, the Chinese are increasing the production of small flake graphite (which is used to make LiB anode material) and there is excess capacity. While it will take time to work through this surplus, substantial new graphite production will be required in the future to meet even conservative EV growth projections. Benchmark Mineral Intelligence tracks new LiB manufacturing plants and estimates that over 300 Gigawatt hours of capacity will be added by 2021. This will require a doubling of flake graphite production in a relatively short period of time, and multiple new mines are required to do so. You cannot believe in the rapid rise in usage of LiBs and EVs without believing in the attendant rise in demand for graphite. Its day is coming. The current excess Chinese graphite production capacity is largely due to a big new, government-owned graphite mine in the Luobei region of Heilongjiang province. It is currently producing about 2 million tonnes of ore per year which it does in just three or four months each summer. The government restricts production based on market conditions and gives an ore quota to 11 privately owned processing plants which are currently operating at 30% capacity. They almost exclusively produce -100 mesh (small flake) concentrates which are used to make spherical graphite the anode material in LiBs. However, Chinese production of large (+80 mesh) and XL (+50 mesh) flake is declining due to the depletion of resources and stricter enforcement of environmental standards in Shandong province the main source in China. Demand for XL flake for the expandable graphite market is growing rapidly, there is a shortage of supply and prices are quite good. Also, the steel industry is recovering which is increasing demand for large flake and causing those prices to firm up. Graphite prices increased by up to 40% in the second half of last year (albeit from a very low base) due to the growth in LiBs, a recovering steel market and Chinese production problems. Most notably, the price for +50 mesh XL flake continues to rise due to growing shortages. This has been well covered by Industrial Minerals magazine and Benchmark the two main sources of pricing information. The larger supply and demand picture is a little trickier as numbers are all over the map from IM, Benchmark and Roskill. Personally, I get my data directly from the source in China and fill in the rest of the world from the other sources. The bottom line is there is an immediate opportunity for new large and XL flake production but these markets are smaller and there isnt room for everyone. But there is room for a small number of new projects that would produce mainly large or XL flake and have realistic production levels, reasonable capital costs and good economics at current prices. Ideally, these new mines would be located in a politically stable country, as many advanced projects are in Tanzania and Mozambique which are often in the news for the wrong reasons. The graphite juniors that meet all the above criteria make up a very short list. Based in Ottawa, Gregory Bowes is CEO of Northern Graphite Corp., which is developing its Bissett Creek graphite project between North Bay and Ottawa in Ontario. Northern Graphite has completed a full feasibility study for a 70-year mine at Bissett Creek, and says the study shows the project likely has the best flake size distribution, highest margin and lowest marketing risk of any new graphite project. Visit www.northerngraphite.com for more information.