Lithium Ion batteries as a power source have morphed from use in tools and smartphones to electric vehicles and with the completion of the “world’s biggest lithium ion battery” in South Australia, storage of electrical power joins the mix.
The giant battery is actually a network of linked Tesla Power Pac’s designed to store power generated from the Hornsdale Wind Farm for use in the event of power outages.
Completed in early December, within weeks the system did exactly what it is supposed to do when the state’s coal-fired Loy Yang power plant tripped and went offline. It took 140 milliseconds to shift 100 megawatts of power to the electricity grid, according to South Australia’s energy minister.
Skeptical investors watching the evolution of uses for Li-Ion batteries before investing should consider the following chart.
While consumer electronics in the form of power tools and smartphones will remain the dominant application through 2020, note the 120% increase for the automobile category between 2011 and 2020 and the 100% increase in demand for Li Ion batteries for storage between 2015 and 2020.
Many early investors in the trend focused on the metals/minerals that go into battery production, often choosing the “hot metal” of the moment, based not on demand growth, but on the price of the commodity. The following graph shows demand growth restricted to the EV category for each of the major metals used in production.
In May of 2016 Benchmark Market Intelligence predicted demand for graphite used as anode material in lithium ion batteries would increase more than 200% by 2020, fueled by the maturation of the EV market and the beginnings of a market for utility electrical storage.
Despite the evidence graphite demand appears to be outpacing, or at least keeping pace, with other metals, graphite miners have been the low stocks on the totem pole, perhaps because the price of lithium initially and in the last year cobalt have outstripped the falling price of graphite.
Each of the three components of a Li-Ion battery require different metals. The battery anode is graphite, either synthetic or natural; the electrolyte solution uses lithium, and the cathode, where experimentation to create a better battery is progressing, uses a variety of materials depending on the battery manufacturer. Nickel and cobalt are high on the list and the scarcity of a reliable global supply of cobalt sent prices skyrocketing and investors flocking to cobalt mining stocks.
Longer term, if you believe the evidence of the forthcoming battery revolution, graphite miners are certainly worth a look. Skeptics claim the rush of miners into the space, most notably in Africa, will flood the market with supply, keeping the price low.
Mining companies seem to agree, as many have refocused operations on graphite extraction at the expense of other metals in their asset portfolio. With a market cap of $1 billion, Syrah Resources (SYR) is the largest graphite miner on the ASX.
Syrah has the dubious distinction of ranking at the top of the ASX Top Ten Short List for quite some time. The company’s Balama Graphite Project, located in Mozambique on the coast of the Indian Ocean, is now in production with offtake agreements in place and sales and marketing in progress. Balama features the kind of large flake graphite needed for the processing of spherical graphite, the end product used in battery anodes. Natural graphite offers a more cost-effective option than processing from synthetic graphite, a man-made substance made from carbon materials.
Balama sports huge graphite reserves – 114 million tonnes – by some reports the largest in the world and is a low-cost producer. One explanation for the short interest in the face of this potential is the size of the project, with short sellers anticipating the increased supply from Syrah and others will drive down the price. Second, short sellers think the company is overestimating its profit potential.
On the second score, a recent announcement from Syrah cautioning investors not to expect early stage contacts to benefit from the current upward pricing trends supports the claim.
The share price got off to a hot start when the Balama project commenced in 2011, but a series of disappointments weighed on the price. The latest was the news the company’s planned graphite processing plant to be built in Louisiana in the US failed to get local approval. The company is looking for other sites. Here is a ten-year price history of Syrah.
In addition to Syrah, there multiple junior miners looking for graphite in Mozambique and the neighboring countries of Tanzania, Malawi, and Madagascar in Africa. Sovereign risk is a concern that should not be ignored, as recent news suggests. As of July of 2017, new laws passed in Tanzania pose immediate concerns for miners there, along with concerns of more changes to come. The new laws raise export royalties and allow renegotiation of existing mining contracts to reflect a new regulation requiring the country to receive a 16% nondilutable interest in the mining company.
The world bank claims the debt situation in Mozambique is “untenable” and the spectacle of the country’s long civil war reigniting hangs over the horizon.
Given the challenges facing start-up mining operations without sovereign risk, it seems common sense to look for opportunities in more stable countries.
The following table includes share price information on five prospective graphite miners with operations in Australia and Sweden, listed by market cap.
The Talga Resources (TLG) website wisely reminds investors there is ten times more graphite than lithium in a Li Ion battery, which potentially bodes well for the company’s five graphite projects in Sweden. However, the company – once called Talga Gold – has ambitious plans underway to utilise its graphite assets as feedstock for graphene, a material dubbed a supermaterial for its conductivity, strength, and light weight. Graphene is stronger than steel and a better conductor of electricity than copper. Talga has shed its gold and iron ore assets to concentrate on graphene production.
Talga has a unique mining process that essentially cuts graphite blocks from the earth, eliminating the traditional cost of crushing or grinding. The company’s mining process is patent-pending, and ideally suited for the high-grade resources found in northern Sweden. The company expects to begin shipping 46,000 tons a year of graphite and 1000 tons of graphene starting in 2018. Graphene is one of several materials poised to improve Li-Ion batteries, with Samsung Electronics already employing a “graphene ball.”
First Graphene (FGR) changed its name from First Graphite to reflect its focus on developing graphene for industrial applications. The company has five graphite prospects in Sri Lanka, a country with low sovereign risk, to provide feedstock for its graphene production. The Sri Lanka mines will extract graphite from veins, the purest form of graphite. The company has an impressive list of three Australian Universities working together on developing graphene for industrial applications. However, the graphite mining operation is still in the early exploration stage.
Renascor Resources (RNU) was a diversified miner of uranium, copper, and gold that has switched its focus to graphite with its flagship operation at the Siviour Graphite Deposit in South Australia. The company has another graphite deposit in Western Australia.
Unlike Talga’s Swedish assets with historical mining performance, Siviour was discovered in 2016. Scoping studies point to 80.6 million tonnes of high grade ore ideally situated for low-cost production. Siviour is the ninth largest graphite deposit in the world and the largest in Australia, according to the company.
Initial testing provided positive results for processing graphite from Siviour into spherical graphite. A subsequent Spherical Scoping Study suggests the company has the potential to produce 60,000 tonnes of graphite feedstock processed into 30,000 tonnes of spherical graphite. Currently, close to 100% of the world’s supply of spherical graphite comes from China.
Despite the glowing results to date, the company is a long way from commercial sales, with more feasibility studies to complete and licenses to acquire.
Lincoln Minerals Limited (LML) is another multi-mineral miner pausing other operations to focus exclusively on graphite. Lincoln has assets in South Australia’s Eyre Peninsula with the flagship at the Kookaburra Gully Graphite Project. Lincoln’s project is in the same mining region as Renascor’s Siviour Project, but Lincoln appears to be closer to commercial production. With infrastructure in place and positive feasibility studies completed, Lincoln boasts its targeted annual production of 40,000 tonnes of graphite concentrate will be Australia’s first and only graphite mine in Australia. The mining approvals are in place and the company expects to be operating by 2019.
Archer Exploration (AXE) is still pursuing a multi-metal strategy, but investors looking to cash in on the Li-Ion battery boom should know the latest red-hot metal – cobalt – is one of those metals.
Archer has assets in the Eyre Peninsula ranging from graphite to copper to magnesia to barite to gold and cobalt. Preliminary drilling found cobalt in deposits at two locations and scoping studies at the flagship Campoona Graphite Project in the Eyre indicated the project has the potential of “generating a pre-tax NPV (net present value) of $126m over an initial 17-year mine life”.
The company’s second graphite site at Sugar Loaf will add a facility to process graphite into graphene. In October of 2017 Archer acquired a de facto sales division by acquiring Carbon Allotropes, a company providing its registered customers with high-quality graphite and graphene via an online trading platform. Archer got its mining license approved at the end of 2017. The approval includes Archer’s request to produce up to 140,000 tonnes of graphite and 100 tonnes of graphene per year at Campoona and Sugar Loaf. Archer already has a graphene development and production agreement with the Graphene Hub, a federally funded research operation led by the University of Adelaide.
The company has spread its resources across multiple metal projects, with no project completion dates for the ambitious graphite/graphene projects, but when you add the cobalt assets to the mix, risk tolerant investors would gain broad exposure to the present and future of Li-Ion batteries.
For risk tolerant investors, the following table lists ASX graphite miners with graphite assets in Africa listed by market cap with share price information.
Although it is not a miner, another company bears mentioning. Hazer Group Limited (HZR) is a technology development company looking to commercialise its Hazer Process, used to produce hydrogen and graphite at low cost. The process uses inexpensive iron ore and natural gas to produce hydrogen and synthetic graphite. Synthetic graphite accounts for just 30% of battery anodes, due to its higher cost despite its greater purity. Should Hazer be able to successfully produce synthetic graphite at or near the cost of natural spherical graphite, it could make inroads into the current dominance of natural spherical graphite.