Will Graphite Be The Next Commodity To Boom?

November 30, 2015


$12.2 trillion will be invested in global power generation in the next 35 years and the Tesla Gigafactory is just the beginning

According to a Bloomberg report earlier this year, $12.2 trillion will be invested in global power generation in the next 25 years, with renewables counting for 2/3s of the investment. Tesla (NYSE: TSLA), as witnessed by its multi-billion dollar gigafactory, is the first to strike.

Tesla CEO Elon Musk’s goal is to be building 500,000 electric-vehicles (EV) by 2020. With this planned production rate in the latter half of the decade, Tesla alone will require today’s entire worldwide production of lithium-ion batteries. There are two primary raw materials necessary to build lithium-ion batteries; lithium and graphite. In fact, it is estimated that 15 times more graphite than lithium is required in a lithium-ion battery.

In a clear indication that Tesla has begun sourcing the raw materials needed for its Nevada gigafactory, last week Tesla signed a 5-year lithium supply agreement with Vancouver based Pure Energy. This puts Tesla well on its way to meeting its lithium supply needs, however, the company still faces the task of securing its graphite needs for the gigafactory.

Tesla can acquire this through the supply of synthetic graphite, which is very expensive (up to $20,000 per tonne) and requires fossil fuels to manufacture. Both of which go against Tesla’s announced mandate to reduce the cost of battery production and move away from reliance on hydrocarbons.

Alternatively, they can secure off-take from a high quality, graphite deposit, much like they did with the Pure Energy lithium deposit (which would be aligned with their corporate mandate). Become vertically integrated; own your raw material; guarantee quality control and secure your future supply. Given the substantial concerns surrounding Chinese graphite mines (world’s largest graphite producer) it is quite likely that Tesla will seek a North American (possibly even American) source for its graphite.

Enter Graphite One (GPH:TSX-V, GPHOF:OTCQX) and its Graphite Creek Deposit in Alaska.

The Graphite Creek Deposit is America’s biggest ‘large flake’ graphite deposit with an indicated graphite resource totalling nearly 18 million tonnes at 6.3% Cg with a 3% cut-off in addition to an inferred resource totalling 154.36 million tonnes at 5.7% Cg. It is a high grade, high quality, potential 100-year life graphite mine in the United States with excellent infrastructure. Graphite Creek also offers direct ocean access to the western seaboard:

There have been signs of accumulation in Graphite One shares (GPH.V) in recent weeks with volume increasing substantially along with price:

GPH shares have risen above the 200-day moving average for the first time since May. A further rally above minor resistance near .120 would indicate a nascent uptrend has begun. 

With renewable energy clearly representing the largest global investment opportunity over the next few decades there stands to be a huge opportunity in profiting from the raw material suppliers to the renewable energy space. The investment opportunity in electric-vehicles is both massive and multi-faceted, and there are sure to be dozens of big winners along every step of the electric-vehicle food chain.

In fact, global leaders are meeting in Paris as we speak, and an accelerated push on clean energy will undoubtedly be at the core of their attempts to slow climate change. All of this points to a rapidly growing EV market in the years ahead, which means robust demand for batteries. Tesla is not the only company scrambling to build out battery manufacturing capacity. Companies like Panasonic Corp. (OTCMKTS: PCRFY), LG Chem (KRX: 051910), Johnson Controls (NYSE: JCI), and the joint venture AESC, backed by Nissan Motor Corp. (OTCMKTS: NSANY), currently dominate the EV battery market. They will all need steady supplies of graphite and lithium in the years ahead. Lithium and graphite suppliers will have no trouble finding customers as EVs flourish.

At its current modest C$25 million market capitalization Graphite One (GPH.V) stands a very good chance of being one of these big winners.

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