Graphite: Behind the Chinese Wall
Battery metals enthusiasts love to talk about lithium and nickel and cobalt, they rarely talk about graphite despite the fact graphite constitutes about 50% of a Li-ion battery by weight. They don’t talk about graphite because the dirty secret of EVs is that 90% of the world’s graphite, natural and synthetic comes from China. The Chinese lock on the graphite market has discouraged many potential non-Chinese graphite mines from going beyond a 43-101 Mineral Resource estimate.
It came as a shock to global supply chains when China announced export restrictions on graphite, “In a move that has sent shockwaves through the global market, China has announced stringent export controls on specific graphite products, effective from December 1, 2023. The Chinese government, citing “national security concerns,” stated that exporters will now be required to obtain permits to ship high-purity, high-hardness, and high-intensity synthetic graphite material, along with natural flake graphite and its derivatives.” gizmochina.com
All of a sudden graphite is in the news.
I have been following graphite and the juniors who are looking for graphite outside China since I helped organize the first Graphite Investors conference in Vancouver back in 2011. We had about twenty companies presenting and around three hundred investors and brokers attended. Everyone was very excited by the then “coming” EV revolution. No one was paying much attention to China.
For the most part, the juniors who rushed into the graphite space had projects which, charitably, were miles away from any sort of economic plan for the extraction of their graphite. And the fact is that graphite, per se, is not a particularly rare mineral. There are dozens of potential graphite mines in Canada and the United States. The key word being “potential”.
I hold two graphite companies. I used to hold Ceylon Graphite (CYL.V) as well, but sold my position for a small loss when Don Baxter left the CEO position and when Sri Lanka, the site of Ceylon’s production, went into an economic death spiral from which it is still trying to recover. More risk than I wanted.
I still hold Canada Carbon (CCB.V). I bought a small number of shares before the very untimely death of my friend, Bruce Duncan, CCB’s founding CEO. Losing Bruce clobbered the company but new CEO, Ellerton Castor, appears to be bringing CCB back into the game. There are still permitting issues surrounding the company’s Quebec graphite projects, however there is a lot of political push in Quebec for battery metal projects to come online. CCB.V is somewhat unique in that, if it can get its permitting in order, it can mine one of its deposits with an excavator and a truck. A CAPEX I like a lot. Very high-purity graphite with minimal processing required. Certainly worth a look at $0.035.
My other graphite holding is Gratomic Inc. (GRAT.V). While the shares at $0.245 are a bit below my average price, GRAT is one of the few potential non-Chinese graphite companies close to production. I wrote about Gratomic on this Substack back in September 2022 and that article gives you the background.
At its flagship Aukum graphite project in Namibia, GRAT began “commercial commissioning …to prepare the first 100 tonnes of product to send customers for final inclusion into value-added applications.” in June 2023.
GRAT also has very prospective properties in Brazil where, in August 2023, the company issued “NI 43-101 Technical Report And Mineral Resource Estimate on The Capim Grosso Graphite Project, Brazil".
Since the China announcement, GRAT’s share price has gone from $0.17 to $0.245.
At this point, the details of the Chinese restrictions on graphite exports are not at all clear. Apparently, there are to be exemptions where certain regulations are met, which could mean anything. However, what is clear is that China is prepared to flex its control over what turns out to be an exceptionally strategic mineral.
There is a substantial commitment, in many Western countries, to an EV future. For EVs you need batteries and for batteries, you need a secure supply of graphite.
I don’t think it is too far out of the question for a large battery manufacturer or even an EV company to take a look at GRAT’s current sub-50 million dollar market cap and pull the trigger on a buyout. If you are building a 5 billion dollar battery factory you need to know you have a stable supply of graphite.
[Disclaimer: This is not investment advice. I am not an investment professional. I am down about 30% at the moment on my overall portfolio. I will write about companies that I hold. I will disclose any holdings. Do your own due diligence. Do it hard. Call the CEO.
I currently own shares in $GRAT.V which I intend to hold but which I may sell at any time.
I currently own shares in $CCB.V which I intend to hold but which I may sell at any time.
Gratomic is a client as well as a holding.]