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Powering the Future: 5 Graphite Juniors Talk Demand and Tesla’s Gigafactory
Monday March 31, 2014, 4:25am PDT
By Charlotte McLeod - Exclusive to Graphite Investing News
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At the beginning of the month, Tesla Motors (NASDAQ:TSLA) sent shockwaves through the graphite, lithium and cobalt markets with the news that it plans to construct a $5-billion lithium-ion battery “gigafactory” in the Southwest United States.
For graphite market participants, the news is exciting because it could increase natural graphite demand by 37 percent. Explaining how that’s possible, Simon Moores of Industrial Minerals states that the plant “will consume at least 28,000 tonnes of spherical graphite each year if operating at capacity.” In turn, that will create a need for 93,000 tonnes of flake graphite “if produced to today’s standards which sees raw material wastage of up to 70%.” To fill that demand, six new mines will need to come online.
To find out what junior graphite companies have to say about Tesla’s announcement, Graphite Investing News (GIN) got in touch with Don Baxter, president and COO of Focus Graphite (TSXV:FMS,OTCQX:FCSMF); Greg Bowes, CEO and director of Northern Graphite (TSXV:NGC,OTCQX:NGPHF); Anthony Huston, president, CEO and director of Graphite One Resources (TSXV:GPH,OTCQX:GPHOF); Spiro Kletas, president, CEO and director of Big North Graphite (TSXV:NRT); and Paul Gill, president and CEO of Lomiko Metals (TSXV:LMR).
Below is a look at their thoughts.
GIN: What do you think about Tesla’s announcement?
FMS: I see it as a win-win for the North American graphite-mining industry and for Focus Graphite’s shareholders in particular.
GPH: This is obviously a positive for the graphite market. As we know, the lithium-ion battery market is a major emerging market. This announcement both reiterates that, adds to future demand for graphite and will likely act as a catalyst for other automobile manufacturers to follow suit with respect to the ongoing demand for hybrid electric vehicles (EVs), plug-in hybrid EVs and battery EVs.
NRT: Many experts have long predicted a potential increase in demand for graphite based on the anticipated increase in batteries, specifically in EVs. The announcement by Tesla to build a gigafactory for the production of lithium-ion batteries essentially proves that point.
Further, the potential for other such factories in other parts of the world is an indication of how much larger the graphite market can get. As no new production has come online for some time, we believe that there is a significant opportunity in this space for companies to build a successful long-term business and reward their shareholders.
LMR: Tesla’s announcement indicates that market demand for EVs is growing at a rapid and sustainable pace. This requires Tesla to plan for years into the future; the era of the electric car begins.
GIN: How did the gigafactory news impact you as a company?
FMS: If Tesla’s battery factory becomes a reality, it would most certainly put a heavy strain on global supplies. I would anticipate that a 30- to 35-percent increase in demand from Tesla would put upward pressure on market prices, so, as a company, we see a potentially large upside in terms of profitability and shareholder returns.
GPH: It helped reiterate our message of an emerging market whereby new mines will need to come online to meet demand needs in the future. It is also very positive because Tesla is an American company and we are the only advanced American graphite deposit.
NRT: Big North Graphite recently acquired the past-producing El Tejon flake graphite mine and mill in Oaxaca, Mexico. A significant increase in demand such as this proves that the graphite market is growing and it provides companies like Big North Graphite with potential consumers for our future flake graphite products.
GIN: Tesla will require a stable supply of materials for its factory. What will that mean for juniors?
FMS: It confirms to us as a graphite mining company moving towards production that our long-established strategy of creating a mine-to-technology markets business model is now the only way for junior graphite miners to succeed in the evolving graphite industry. It also sends a strong message to junior miners that building in-house, value-added processing capability is a must if they are to compete and survive in a highly competitive market.
NGC: North American producers can offer Tesla security of supply and they also have a meaningful transportation cost advantage over offshore suppliers.
NRT: I think all end users require a stable supply of materials. As such, it is imperative for all future junior graphite producers to provide stability in their product, including quality and delivery, to be successful.
LMR: A good market for EVs means a good market for batteries and thus for spherical graphite. That product may be refined from large-flake graphite for use in batteries.
GIN: Why do you think the announcement of one factory has caused such excitement in the market?
FMS: Probably because for the first time in many years, graphite’s profile has been elevated on a global scale. There is only one option available to Tesla. If the company is looking to cut costs in order to make its EVs more affordable to a broader customer base, then its only option is to substitute the very costly synthetic graphite anode with high-performing natural flake graphite materials.
NGC: Tesla is a very high-profile, successful company and therefore its announcement focused a lot of attention on the graphite industry.
Much of what is being said has been said many times before, but the Tesla announcement added a whole new level of credibility and urgency to the thesis that we need new graphite mines.
NRT: The size. As per Industrial Minerals, the Tesla plant alone represents a potential 37-percent increase in the natural graphite market. The fundamentals of the graphite market have shifted over the last several years. China has dominated the production of graphite, and as a result, there has been very little exploration and development of graphite properties in recent years. China has consolidated their graphite mines as of late. A 37-percent increase in world demand opens the door for new producers to be successful.
LMR: It indicates that the EV industry is viable and growing. It is similar to the introduction of the Apple computer in the 1970s. There will be many more EVs from other groups, but Elon Musk is the Steve Jobs of this era. He is creating a new industry.
GIN: If there is one thing that investors should take away from Tesla’s plans for a gigafactory, what is it?
FMS: I believe Tesla’s plans are only the tip of the iceberg. We need to keep in mind that there is a larger, global play with strong demand for purified graphite anticipated to come from Brazil, India and China for their electric and hybrid EVs.
NGC: Northern is the only public company with a true, large-flake deposit, and it is the only one with a bankable final feasibility study and its major environmental permit. Among the new projects, it has the best infrastructure, the lowest capital costs and the lowest unit operating costs.
GPH: That we need flake graphite deposits to come online to meet demand. Having one large reliable source like Graphite One’s Graphite Creek deposit means never having to wonder where supply is coming from.
NRT: The demand for graphite is growing. Increased demand requires supply. That supply will come from a select few producers. We at Big North Graphite believe that the companies that are able to supply graphite to market the soonest will “win the race.”
LMR: The world is going to change. We are going to see EVs take hold in the coming years. This indicates that electric minerals such as lithium, graphite, cobalt, tin and copper will see an increased demand.
Stay tuned for an update on what’s next for the interviewees.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Focus Graphite, Lomiko Metals, Graphite One Resources and Big North Graphite are clients of the Investing News Network. This article is not paid-for content.
Interviews conducted by the Investing News Network are edited for clarity. The Investing News Network does not guarantee the accuracy or thoroughness of the information reported. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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