Two years ago, we told you about how a combination of factors had sparked renewed investor interest in graphite, an industrial mineral that is normally associated with steel production, lead pencils and golf clubs.
At that time, interest was driven mainly by export restrictions in China, (the producer of roughly 70% of the world’s graphite) and speculation that an already growing market would be spurred on by demand from new applications, including lithium-ion batteries, fuel cells and nuclear reactors.
Now the talk is about how would-be graphite producers in Canada and the United States are hoping to supply the raw material to
Tesla Motors Inc. (
NASDAQ: TSLA,
Stock Forum) and
Panasonic Corp. (
NYSE: PC,
Stock Forum), who are planning to build a $5 billion lithium-ion battery “Gigafactory” in Nevada.
“It’s a bit of a beauty contest in terms of who the suppliers will be,’’ said Greg Bowes, a spokesman for
Northern Graphite Corp. (
TSX: V.NGC,
Stock Forum), which controls an advanced-stage graphite project in eastern Ontario, and considers itself to among the leading candidates to supply Tesla.
Bowes said the Tesla gigafactory is creating a lot of excitement in the industrial minerals sector, because it promises to increase the demand for graphite, a form of carbon that has a layered sheet structure and is used in the anode in many lithium ion batteries.
Published reports say the Gigafactory would be 20 times as large as the biggest battery factory now in production, and is being built with the aim of reducing the cost of batteries by 30%, thereby making Tesla’s electric vehicles more affordable.
The Gigafactory is expected to consume at least 28,000 tonnes of spherical graphite every year at capacity, an amount that is the equivalent to 93,000 tonnes of flake graphite.
While Tesla has yet to say who it will source this material from, the fact that it is aiming for startup in 2017, has led graphite sector officials to infer that it will need to tie up sources of supply in the very near future.
In an interview, Bowes said Northern Graphite sees itself as a front runner in the race to supply Tesla. That’s because it already has a bankable feasibility study and environmental permit in hand for its Bissett Creek project.
Subject to obtaining $100 million in financing, Bowes said Northern Graphite can break ground and start construction in 2015, meaning it could be in production by 2017.
“Our deposit is big enough that we could potentially meet most of Tesla’s requirements,’’ Bowes said.
Focus Graphite Inc. (
TSX: V.FMS,
Stock Forum) also has an advanced stage graphite project in the Cote Nord region of Quebec. However, it already has a 10-year offtake agreement with a Chinese industrial conglomerate, which has agreed to purchase up to 40,000 tonnes per year of concentrate production at its flagship Lac Knife project.
If Tesla was to source its graphite supply outside North America, it could turn to
Flinders Resources Ltd. (
TSX: V.FDR,
Stock Forum), which brought the Woxna graphite mine in Sweden back into production in July, 2014. The Woxna project has a design production rate of 16,600 tonnes annually (graphite concentrate). Measured and indicated resource of 2.8 million tonnes, at a grade of 10.7% graphitic carbon.
Flinders surprised the market on September 2, 2014 by acquiring Mexico-focused graphite producer
Big North Graphite Corp. (
TSX: V.NRT,
Stock Forum) and its El Tejon graphite mine and mill, located 38 kilometres northwest of Oaxaca in Mexico. Flinders CEO Blair Way said the acquisition is the next step in the company’s strategy to build a leading global graphite producer.
Meanwhile, companies with projects that are in an earlier stage of development are not ruling themselves out of the race to supply Tesla.
“We will be the only U.S. supplier in production within the next three or four years,’’ said Anthony Huston, President and CEO of
Graphite One Resources Inc. (
TSX: V.GPH,
Stock Forum), which is developing the Graphite Creek project north of Nome, Alaska.
The Graphite Creek Project is known to host a NI 43-101-compliant resource of 284.7 million tonnes, at grade 4.5% graphite. “What differentiates us is the amount of high grade material near surface,’’ said Huston during an interview with Stockhouse.
Indeed, during World War 11, the family that owned the property supported the war effort by shipping graphite “lenses” from Graphite Creek to San Francisco for use in steel production.
While it has yet to release a resource estimate for Lochaber Project in Quebec,
Great Lakes Graphite Inc. (
TSX: V.GLK,
Stock Forum) believes that the existence of near-surface high grade material, could also make it a potential Gigafactory supplier. “I think we could be a contender,’’ said Paul Ferguson, a spokesman for Great Lakes, which is taking a “scalable, modular, small footprint approach” to bringing the site into production by 2017.
While Tesla itself has said little about its sourcing plans, there appears to be no doubt that it will need large amounts of graphite sooner rather than later.
In an emailed note to Stockhouse, Professor Mark Maclachlan of the University of British Columbia outlined the properties of graphite that make it appealing to end users who will pay up to US$1,400 per tonne for large flake graphite. They are as follows:
- Low cost;
- Low environmental cost (it’s not made of lead);
- It can intercalcate a large quantity of lithium, which gives it a good capacity (there are better materials, but on a big scale it’s hard to imagine anything else that would ultimately complete with graphite).
However, one U.S. analyst has warned that from an investment perspective, the evaluation of graphite projects is not a simple process.
“Key attributes (in addition to the size of the deposit and grade) are flake size distribution, purity of graphite, and the extent to which the company has signed binding sales agreements,’’ wrote Jason Chesters of Patersons Securities Ltd. in a research report that was posted on the Industrial Minerals Magazine website.
Chesters says six key factors to be considered include deposit size and quality, location, flake size, product purity, product offtake, and time frame to production.
Northern Graphite’s initial testing, using production-scale equipment, has confirmed that large-flake graphite from Bissett Creek has a spherical graphite yield of 50%. The company has said it expects that yield will increase with further optimization.
For its part, Great Lakes Graphite said it expects to start sending samples out to potential customers soon after receiving the results of preliminary metallurgical tests on sample material from the Lochaber project.
Ferguson said Great Lakes could elect to send samples to Panasonic for testing. However, he said it could take Panasonic (or any other potential customer) up to 18 months to make a decision on whether the sampled material is appropriate for its needs.
FULL DISCLOSURE: Graphite One Resources and Great Lakes Graphite are clients of Stockhouse Publishing.