Have you ever wondered what the difference is between Amorphous and Flake graphite?
The answer to that and other fascinating graphite-related questions are contained in a new research report by Dundee Capital Markets, which also flashes buy signals in the direction of three companies in the space, Focus GraphiteInc. (TSX: V.FMS, Stock Forum), Mason Graphite (TSX: V.LLG, Stock Forum) and Energizer Resources (TSX: T.EGZ, Stock Forum).
As anyone who has been paying attention to the junior mining space will know, graphite has been in the spotlight lately, primarily because of an expected surge in demand from the electric vehicle battery sector.
The investment case for graphite is also driven by Wild card factors like demand from Tesla Motors Inc.’s (NASDAQ: TSLA, Stock Forum) proposed Gigafactory and production shutdowns in China.
Industrial applications like refractories, foundries and crucibles account for 40% of global consumption.
In its report, Dundee says at least two or three sizeable mines will be needed over the next few years to meet demand that the investment firm says will rise at a rate of 8.6% per annum over the next six years.
Investors who wish to gain exposure to the space should consider the following names:
Focus GraphiteInc. (TSX: V.FMS, Stock Forum), owner of the higher grade Lac Knife project in Quebec, where a recent feasibility study confirmed the economic paramaters, leaving the company to focus on permitting and project financing. Dundee considers Focus Graphite to be a speculative buy and has a 60 cent target for the stock, which traded Thursday at 37.5 cents, leaving a market cap of $41.6 million, based on 110.9 million shares outstanding. The 52-week range is 69 cents and 26 cents.
Mason Graphite (TSX: V.LLG, Stock Forum) owns the Lac Gueret project in Quebec, where experienced management is actively working towards the completion of its feasibility study, with expected construction in 2016 should financing be in place. Dundee has a speculative buy rating on Mason Graphite with a target of 90 cents. The stock traded at 61 cents on Thursday, leaving a market cap of $52.3 million, based on 85.8 million shares outstanding. The 52-week range is $1.08 and 45.5 cents.
Energizer Resources (TSX: T.EGZ, Stock Forum) owns the Molo project in Madagascar. Dundee says its sees the potential for an off-take deal that could expedite project financing. The investment firm has a speculative buy rating on Energizer with a target of 40 cents. Energizer traded at 12 cents on Thursday, leaving a market cap of $36.4 million, based on 303.5 million shares outstanding. The 52-week range is 30.5 cents and 10.5 cents.
In its report, Dundee notes that there are four primary types of graphite with different qualities, associated processing techniques, and uses. They are Amorphous, Flake, Vein and Synthetic.
Amorphous is the considered the lowest quality and is usually associated with coal deposits.
Flake is a high quality form of graphite and attracts premium prices. It also comes in various sizes with large and jumbo flakes being the most desired (>85% carbon). Flake graphite is currently priced at $1,750 for jumbo, $1,263 for Large, $1,000 for Medium, and $1,100 for Fine Flakes.
Vein is considered the highest quality form of graphite, but is sourced from Sri Lanka and accounts for less than 1% of graphite supply. Mainly used for refractories, vein graphite is currently priced at $2,800 per tonne for +1 mesh in a much smaller market.
Synthetic Graphite is man-made and accounts for 60% of global demand, compared to 40% for natural. The main market for synthetic graphite is electrodes (batteries), and for melting with iron and steel scrap.