Don’t Forget Graphite

On July 17, 2023, the U.S. Department of Defense issued a press release titled:

DOD Enters Agreement to Expand Capabilities for Domestic Graphite Mining and Processing for Large-Capacity Batteries

The report detailed how the Assistant Secretary of Defense for Industrial Base Policy signed a $37.5 million deal with Graphite One (TSX V: GPH), a junior graphite explorer. The financing will allow Graphite One to shorten their development by a full year.

This isn’t the only significant graphite deal announced recently. Giant mining company Rio Tinto (NYSE: RIO) took a 15% stake in Australian/London listed Sovereign Metals (ASX: SVM) for $27.6 million. 

Analysts see this deal as a move to broaden Rio’s exposure to battery metals. And it’s graphite’s role in batteries that thrust into the spotlight recently. The material makes up almost 50% of the battery by weight. And in lithium-ion batteries, graphite makes up the anode or negative electrode. 

Battery metals like lithium, manganese, copper, and nickel get most of the attention from investors. However, a large electric vehicle (EV) battery will contain about 154 pounds of graphite. An average hybrid vehicle has about 22 pounds of graphite.

And the process to produce anode-grade graphite is tedious. The graphite must be refined to 99.99% purity. According to Battery University, the process is expensive and wasteful. And recycling faces the same issue.

The current graphite market is roughly 55% manufactured and 45% mined. However, only 99.95% pure flake graphite can be used in EV batteries. The graphite must be milled, shaped, and purified before being used in batteries.

Visual capitalist does an excellent job of illustrating how complicated the process is to create battery grade graphite. Currently, 70% of the world’s graphite comes from China. That’s another reason why we see these investments in projects outside Canada from both industry and government.

The problem for interested investors is that there is no standard, quoted price for graphite. There’s neither a spot market nor a futures market. That makes valuing graphite producers particularly difficult.

According to Northern Graphite Corp. graphite prices fell sharply after 2012 due to a slowdown in the Chinese economy. However, graphite demand from batteries will continue to ramp up. Today EV battery demand makes up just 5% of the graphite market. 

That will change as EV demand climbs. Graphite will be another commodity swept up in the electrification bull market. 

Good Investing,

Matt Badiali

Numbers to Know

0

The amount of natural graphite produced in the United States in 2022. (USGS)

79%

China is the leading global producer of Graphite, accounting for 79% of production. (Government of Canada)

90

China may be the largest producer of Graphite but Turkey has the largest reserves at 90 million tones accounting for 27% of the worlds reserve. (Government of Canada)

What’s New in Sustainable Investing

Global Graphite Market Expected to Expand

In 2022, the global graphite market was valued at US$23.73 billion and is expected to grow to US$37.68 billion by 2028. (Yahoo Finance)

3 Reasons Sustainable Investing is Critical

There’s a cartoon for reference with a business man sitting around the campfire with three children and saying, “Yes, the planet got destroyed. But for a beautiful moment in time, we created a lot of value for shareholders.”. (Forbes)

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