Pent-Up Potential for Precious Metals in 2013TGR: You also follow the graphite space. What is the latest news there?
JH: Overall, graphite is attractive due to strong supply/demand fundamentals. Prices have come back down from lofty levels last year, but have stabilized recently and remain elevated. This means that a number of graphite projects that might not have been economic in the past are economic today.
Given that graphite is a key ingredient in so many established industries, from aviation to automotive, steel and plastic, I see prices holding up well. However, future demand growth is likely to come from the high-purity, large-flake graphite that is used in lithium-ion batteries for electric cars and such.
People talk about the big run-up in lithium a while ago, but 10 times more graphite is used inside a lithium-ion battery than lithium. There will be significant demand as we move toward electric vehicles and electric-based power.
https://www.trefis.com/stock/hui/articles/157223/pent-up-potential-for-precious-metals-in-2013-jason-hamlin/2012-12-07
The other exciting driver in investment demand for graphite is the potential of graphene, which is reportedly the thinnest and strongest material ever developed. Graphene is 200 times stronger than steel, several times tougher than a diamond and it conducts electricity and heat better than copper. It could even replace silicone in semiconductors. Also, graphene is nearly impossible to break. You could throw a graphene mobile phone display on the ground and it will not shatter like the glass on current phones. Researchers claim graphene is the most important substance to be created since plastic.
Samsung Electronics Co. Ltd. (005930:KSE) plans to launch a cell phone in mid-2013 that will have a bendable display made from graphene. Future versions could be a phone that rolls up on your wrist or that could be folded to fit into your pocket. There is a lot of potential for graphene in the expanding cell phone and green energy markets. The military has an interest as well.
TGR: To date, graphene has been made only in labs using synthetic graphite to control for purity. Is there a graphite deposit in the world that will meet the need for very high-purity, large-flake graphite to manufacture graphene?
JH: Yes, there are a few deposits, and companies are making progress in addressing the technical challenges to reach the purity needed to produce graphene.
Focus Graphite Inc. (FMS:TSX.V) has a high-purity deposit. It just released its PEA in October at 32% pre-tax internal rate of return. It has a 2.8-year payback and is fairly easy to finance with capital costs of just $154 million. Its very low $435/ton cost is driven by the high grades in the deposit. Management believes the company will be one of the highest-grade, lowest-cost producers in the world once it is up and running. This stock has a lot of potential, despite having been beaten down a little bit in the last six months.
TGR: Does that make Focus a good entry point for investors looking for graphite exposure in their portfolios?
JH: Yes, as long as they take a longer-term view and are not looking to trade in and out quickly. It will take Focus time to get closer to production and to prove up the resource. Long-term investors who can buy and hold will find a lot of potential there.