World needs graphite, Ontario projects need cash

There is roughly 20 times more graphite than there is lithium in a lithium-ion battery

There is roughly 20 times more graphite than there is lithium in a lithium-ion battery — a misnomer if ever there was one.

Graphite is the anode material in lithium-ion batteries, the same ones that power our smartphones, laptops, vacuums and power tools.

From 2006 to 2016, the lithium-ion battery market grew 22% annually, and today 35% of all graphite finds its way into energy storage. Most of the rest is used in furnaces for steelmaking.

The next growth wave for graphite should come from elevated demand for electric vehicles (EVs) and electricity grid storage.

“The EV market and the grid storage market are two huge markets, and they’re still in their infancy in terms of market penetration. There’s a lot of runway left for lithium-ion battery market growth, and that means growth in the demand for graphite,” said Gregory Bowes, CEO of Northern Graphite (TSXV: NGC; US-OTC: NGPHF), in a recent Northern Miner Podcast.

Bowes noted that global governments aim to put 17.5 million electric vehicles on the road by 2020.

In Canada, there were 50,000 electric vehicles on the road last year, up from 29,000 in 2016. EVs account for 1.4% of all new Canadian car sales.

The total global market for flake graphite concentrate (of all sizes) used to produce battery anodes, among other things, is 650,000 tonnes.

Bowes says it would take 400,000 Tesla Motors (NASDAQ: TSLA) Model 3s to boost flake graphite concentrate demand by 100,000 tonnes, to say nothing of the growing market vanadium redox flow batteries used for large-scale energy storage. These “batteries” are the size of a house, and require copious quantities of graphite felt.

But where is the graphite going to come from? Perhaps China.

According to the Chinese website, China’s graphite electrode production reached 520,000 tonnes in 2017, with 208,000 tonnes exported and 312,000 tonnes consumed domestically.

By 2020, ICC estimates China could produce 720,000 tonnes of graphite electrode but export only 80,000 tonnes, while consuming 640,000 tonnes domestically as part of a larger strategy to build a graphite electrode reserve that should exceed 80% of China’s domestic capacity.

That should open the door for other players to step onto the pitch.

“We’re fortunate in our deposit at Bissett Creek in that it will produce almost entirely large and extra-large flake graphite. That is pretty unique. Most mines produce a mixture of small, medium and large, and some of them are heavily weighted toward the small end of the spectrum,” Bowes said.

Northern Graphite bills itself as a “pre-development” story. The company has been around since 2010 and rode the rush through 2013, when any publicly traded vehicle with graphite in its name virtually tripled its share price in short order.

Northern Graphite’s development-stage Bissett Creek project is situated 200 km west of Ottawa.

“Political stability is definitely a factor in our favour. There have been a number of issues or incidents over the years at operating mines in lesser-developed countries, whether they’re in South America, Africa or Asia. It’s certainly a positive that Bissett Creek is close to the American and European markets,” Bowes added.

The company is updating its 2012 feasibility study of Bissett Creek to reflect changes in graphite prices, lower energy costs and a weakened loonie. The revised study should be published before year-end.

A mining permit for Bissett Creek is in hand, but the company still needs environmental permits. Oh, and some cash — about $100 million to build a mine that would produce 20,000 tonnes of graphite flake concentrate annually at cash costs of $600 per tonne.

“Northern Graphite has been twiddling with its plans with the goal of reducing opex and capex. It has achieved one of the lowest [projected capital costs] in Canada, but it’s still not at a global scale,” says Christopher Ecclestone, mining specialist with London-based Hallgarten & Company. “The next step is getting the financing in place. The potential volume of 20,000 tonnes is not disruptive” to the overall market.

However, for graphite to be used as an anode in lithium-ion batteries, graphite must be upgraded, or “purified.”

Almost all graphite purification is done at facilities in China using an environmentally unfriendly hydrofluoric acid process that has forced shutdowns at various operations.

Northern Graphite and Hatch Engineering have filed a patent for a graphite-purification process that both companies hope will lead to the commercial processing of graphite concentrate in North America, as mining graphite at current prices lacks the value-added component needed to generate significant cash flow.

The price for +80 mesh, 94–97% carbon graphite — generally considered the industry benchmark grade — bottomed at US$750 per tonne in early 2017, and now trades in a range of US$1,600–1,800 per tonne.

Ecclestone says to look for more of the same.

“Prices have rebounded and will stay at their healthier current levels, at least as long as Chinese shutdowns persist. The hydrofluoric processing issue is an important one for Chinese output. The holes in the ozone later are starting to grow again due to a mysterious Asian source,” Ecclestone says.

Farther west in northern Ontario, near the communities of Constance Lake and Hearst, is Zenyatta Ventures’ (TSXV: ZEN; US-OTC: ZENYF) Albany hydrothermal graphite project.

A preliminary economic assessment (PEA) on the advanced-stage Albany project concluded that Zenyatta could produce 30,000 tonnes of high-purity graphite annually for 22 years — and that would only use less than half of the outlined resource.

Using a 10% discount rate, the study determined that Albany has a net present value of US$438 million and a 24% after-tax internal rate of return. Payback would occur in four years.

The cost to build the mine tallied to US$412 million — more than the market had hoped. Shares in the company have trended down since the PEA was released and currently sit at 52¢ per share.

Albany hosts 977,000 indicated tonnes of graphite from 25.1 million tonnes grading 3.9% graphitic carbon, and 441,000 inferred tonnes of graphite from 20.1 million tonnes at 2.2% graphitic carbon. The deposit is open at depth.

Zenyatta claims Albany graphite has unique particle-size morphology and crystal structure, which makes it ideal for use in graphene — microscopic graphite used in a host of applications, the biggest of which is ultra-high performance concrete used to build superstructures.

The other graphite company operating in the province is Ontario Graphite. The privately held firm operates the Kearney mine, thought to host the largest mineral resource of any North American graphite project.

At full capacity, Ontario Graphite projects annual production of 20,000 tonnes of 95–97% graphitic carbon, large-flake graphite mineral concentrate.