Vancouver’s junior miners are rushing to stake claims around the world for a commodity that, until recently, was best known for its use in pencils.
Thanks to an increased demand for lithium batteries and new export rules in China, graphite has quickly sparked the latest West Coast resource frenzy as miners attempt to cash in on rising prices.
Just a few years ago, a tonne of large flake graphite sold for between US$500 and US$600.
Today, prices run between US$2,500 and US$3,000.
Kiril Mugerman, a research analyst at Industrial Alliance Securities in Montreal, said miners are hitting the ground in search of graphite in Canada, Europe, Africa and Australia.
In fact, so many companies have taken up the commodity in the last few months it’s hard to separate the serious businesses from those that have jumped on the bandwagon.
“Consider there’s three to five [new] projects appearing every day, it’s hard to know who to look at,” Mugerman said.
Similar to the ongoing demand for rare earth elements, graphite has become the latest commodity craze thanks to its use in laptops, smartphones and other gadgets.
Siddharth Rajeev, an analyst at Fundamental Research in Vancouver, said the highly conductive commodity’s use in lithium batteries has increased its popularity.
There’s more graphite than lithium in the average lithium battery.
“The biggest boosting is going to come from the increased demand for lithium batteries in cars,” said Rajeev. “The demand growth for graphite that can be used for these applications can be high.”
On top of that, China, which accounts for more than 60% of the world’s graphite production, has implemented new export regulations to limit the amount of graphite that’s sold to customers beyond the Middle Kingdom.
“They’re starting to hoard, and it’s the same story that’s happening with rare earth elements,” explained Paul Gill, president and CEO of Vancouver’s Lomiko Metals (TSX-V:LMR).
His company’s share price has spiked $0.15 in recent weeks as it continues to explore the Quatre Milles early-stage graphite project in Quebec.
Other companies such as Focus Metals (TSX-V:FMS) and Northern Graphite (TSX-V:NGC) have also enjoyed rising share prices and have proven there’s money to be raised for graphite projects.
Last year, Northern Graphite hit the market with a $4 million IPO, while Focus closed a $20 million private placement.
Ryan Fletcher, director of corporate development at Vancouver’s Zimtu Capital (TSX-V:ZC), said his company started snapping up graphite projects after other graphite-focused explorers raised $40 million to $50 million on the market in the space of a couple months.
“We saw an opportunity in this space, and we acted on it,” said Fletcher, whose company has announced three graphite deals in the last month.
But are the risks worth the rewards?
Rajeev said only projects that can produce large flake graphite would likely pay off for investors.
Eagle Graphite, a Courtenay, B.C.-based company that operates Western Canada’s only graphite mine in the Kootenays, anticipates being ahead of the demand curve for several years.
“With current orders exceeding our ability to produce … we feel the time is right to expand production to several times our present capacity,” said Eagle president Jamie Deith.
For Mugerman, the only properties worth focusing on are those that can be mined via open-pit and have high-grade, large flake graphite deposits.
Still, there are so many juniors rushing into graphite projects now that he said it would be some time before the true contenders emerge.
“Investors need to be careful … it’s very easy in Canada to pick up projects in graphite … doesn’t mean it’s the right purification, the right grade or the right flake distribution.”
For companies such as Zimtu, however, the possible rewards outweigh the risks for now.
Said Fletcher: “It’s always hard to be early because you’re sticking your neck out, but being early also means you get a lot of the upside.” •
