The Graphite Squeeze Is Flying Under Wall Street’s Radar

March 23, 2022 - OilPrice.com


The White House is now more desperate than ever to secure America’s supply chain of critical minerals.

That includes rare earth elements and battery materials, such as lithium, cobalt, and graphite–all of which are key not only to electric vehicles and energy storage, but to computer components, household appliances, and clean energy technology in general.

China controls most of this market …

And the only truly effective supply chain security move is to bring it all home.

While sparse announcements by junior miners exploring North American venues for new sources of these battery materials offer some hope, they are risky opportunities for investors.

The first company looking to bring one of the most important battery materials back home is Graphex Group Ltd (GRFXY), which has just announced plans to list on the New York Stock Exchange (NYSE).

Graphex has operations at home …

But it is also among the top producers in Asia, with key graphite processing facilities parked right next to one of the world’s biggest graphite mines.

It’s been producing for nearly a decade already, and now it’s aiming to quadruple production and build a bridge between its Asian and North American operations.

It’s our pick for a unique opportunity to get positioned in a major expansion that targets the heart of America’s supply chain insecurity–precious battery materials that can make or break the clean energy revolution. And it’s an opportunity with less of the kind of risk that comes with betting on junior miners hedging on a discovery of a commercial nature, and then being able to develop it.

Graphite isn’t a game for new entrants, and Graphex Group is led by veterans with proven production.

Demand for Minerals Like Lithium and Graphite Is Expected To Increase By 4,000%

Over the next few decades, the White House says that global demand for these critical minerals will grow by up to 600%.

But more specifically for minerals such as lithium and graphite used in EV batteries, demand will increase by as much as 4,000%.

The problem, says the White House, is that “The U.S. is increasingly dependent on foreign sources for many of the processed versions of these minerals. Globally, China controls most of the market for processing and refining for cobalt, lithium, rare earths and other critical minerals.”

Now, with the Russian-Ukraine war and the backlash of sanctions feeding a commodity supercycle that was already underway, securing the supply chain for these minerals is even more urgent.

EV sales are expected to double this year, auto giants are motivated to avoid battery supply chain disruptions and rising costs of raw materials.

And while lithium tends to get a lot of the attention when it comes to the supply squeeze, graphite is another overlooked critical element here, and analysts project that by 2030, graphite demand will be three times higher than supply.

That’s a concerning situation, especially for battery manufacturers who are looking at a multi-trillion-dollar industry that is marching forward at breakneck speed …

An energy storage market that is heading toward $426 billion

And a huge lineup of European battery gigafactories, as well as more than a dozen new ones planned in the United States.

All of this indicates a global graphite market marching towards $50 billion by the end of this decade.

That’s because graphite makes up between 20%-30% of the material of every EV or energy storage battery. It’s the anode materials that make a lithium-ion battery possible in the first place.

The Graphite Bridge from Asia to North America

The United States currently doesn’t produce any graphite at all, and it can’t process it, either.

All of the processed graphite in the world comes from Asia, and of that 70% of the mined graphite comes from China. China, in turn, is responsible for processing nearly all of the graphite used by any battery manufacturer in the world.

That’s a major national security issue and one that Graphex Group is working to help fix.

With its status as one of the Top 5 spherical graphite producers in China and one of the top in the world, Graphex (GRFXY) is looking to become the group that builds the first bridge over the gap between all that Asian production and a lack of U.S. production.

Since 2013, Graphex Group has been operating right next to one of the biggest graphite mines in the world, in China’s Heilongjiang Province. Right now, it’s producing 10,000 metric tons of spherical graphite–that’s battery grade. But plans are in motion to ramp that up to 40,000 metric tons over the next three years.

That’s the kind of scaling up that North America desperately needs.

And that’s exactly what Graphex Group is doing–it’s bringing its patented technology home so that North America has a processing facility for battery-grade spherical graphite.

A graphite processing plant is being planned for Michigan, with a final location decision expected by the end of this month, and with operations expected to go online within a year.

The initial targeted capacity for Graphex Group’s “made-in-America” plant would be 10,000 metric tons per annum (TPA), with plans to be able to double that to meet growing demand.

Localizing the final processing of graphite for EV battery manufacturers–including the 13 American gigafactories in the works–may be vital to supply chain security.

Localizing the final processing of graphite may also accomplish one other big selling point: It could make it exponentially more reliable for American battery manufacturers. The problem for North American graphite miners now coming on the scene is that they don’t have any proven processing capabilities that would take their mined flake graphite and turn it into what the battery manufacturers need: uncoated or coated spherical graphite.

That means that even if companies launch more graphite mining operations in the United States, the final end product would still need to be processed in China and our supply chain would likely remain extremely fragile.

Graphex Group is aiming to bridge exactly that gap, by bringing graphite processing technology home.

We think that’s a huge deal when battery metals prices are soaring and sending ripples through the EV industry.

For Graphex and its investors, the potential opportunity could be significant.

Michigan processing facilities may just be the beginning …

Graphex (GRFXY) has announced longer-term plans to partner with auto supply chain companies for the production of coated spherical graphite, with downstream expansion into anode and battery production as well as partner with other global raw graphite miners.

Graphite: The Critical Game for Veterans Only

Once graphite comes out of the ground, it takes high-tech processing to produce battery-grade anode material. It’s a complicated process, particularly when it comes to scaling up operations.

It’s not a game for new entrants.

Graphex (GRFXY) isn’t a new entrant. It’s one of the world’s top processing companies with long-term contracts with state-owned mines and offtake agreements with major battery manufacturers.

This isn’t a high-risk exploration play–it’s an expansion play that already has strong margins (28% in 2021) and is now crossing oceans in what could be one of the most important things to happen to U.S. national interest on the critical minerals scene.

It’s not just about mining …

This is about the end-product that North America hasn’t had the capability for before.

And it’s all being done by what looks to be an extremely well-structured vertical powerhouse along the graphite supply chain.

Again, this is a company that has battery-grade processing capability in China with its own facilities, an export license for its battery-grade spherical graphite, and plans to build it all up back in North America. And the company’s technology is protected by 23 patents.

This isn’t about discovery anymore … it’s about discovery plus processing. It’s a high-tech game of scaling up, and Graphex Group looks to be one of the best situated to do that with veterans who are gearing up to provide the United States with its first real supply chain bridge.

Electric Vehicle Producers Are Set To Grow In The Coming Years

Li Auto (NASDAQ:LI) is also gaining traction in the exploding Chinese market. And while it may not be a veteran in the market like Tesla or even NIO, it’s quickly making waves on Wall Street as the Chinese government vows to support its internationally listed companies. Backed by tech giants Meituan and Bytedance, Li has taken a different approach to the electric vehicle market. Instead of opting for pure-electric cars, it is giving consumers a choice with its innovative crossover hybrid SUV. This popular vehicle can be powered with gasoline or electricity, helping ease one of the biggest worries associated with electric vehicle adoption: a lack of charging infrastructure.

Li Auto, along with a number of other Chinese companies, has taken a beating this year, falling by 28% since January. But investors would be wise to not shrug off Chinese companies just yet. Just this week, Chinese companies saw a massive rally following news that Bejing was taking much-needed steps to support domestic companies, stabilize Chinese markets, and bolster economic growth for the country.

Canada Is Set To Win Big in The EV Boom, As Well

GreenPower Motor (TSX:GPV) is an exciting company that produces larger-scale electric transportation. Right now, it is primarily focused on the North American market, but the sky is the limit as the pressure to go green grows. GreenPower has been on the frontlines of the electric movement, manufacturing affordable battery-electric busses and trucks for over ten years. From school busses to long-distance public transit, GreenPower’s impact on the sector can’t be ignored.

NFI Group (TSX:NFI) is another one of Canada’s most exciting electric mass-transit makers. Though it has not yet rebounded from January highs, NFI still offers investors a promising opportunity to capitalize on the electric vehicle boom at a discount. In addition to its increasingly positive financial reports, it is also one of the few in the business that actually pay dividends out to its investors. This is huge because it gives investors an opportunity to gain exposure to this booming industry while the stock is cheap and hold steady until the market finally discovers this gem.

Another way to gain exposure to the electric vehicle industry is through AutoCanada (TSX:ACQ), a company that operates auto-dealerships through Canada. The company carries a wide variety of new and used vehicles and has all types of financial options available to fit the needs of any consumer. While sales have slumped this year due to the COVID-19 pandemic, AutoCanada will likely see a rebound as both buying power and the demand for electric vehicles increases. As more new exciting EVs hit the market, AutoCanada will surely be able to ride the wave.

Don’t Forget To Keep An Eye On Miners Are Supply Shortages Loom

Lithium Americas Corp. (TSX:LAC) is one of North America’s most important and successful pure-play lithium companies, making it a key frontrunner in the commodity price boom. With two world-class lithium projects in Argentina and Nevada, Lithium Americas is well-positioned to ride the wave of growing lithium demand in the years to come. It’s already raised nearly a billion dollars in equity and debt, showing that investors have a ton of interest in the company’s ambitious plans, and it will likely continue its promising growth and expansion for years to come. Especially if lithium prices continue to soar.

It’s not ignoring the growing demand from investors for responsible and sustainable mining, either. In fact, one of its primary goals is to create a positive impact on society and the environment through its projects.

Turquoise Hill Resources Ltd. (TSX:TRQ) is another major player in Canada’s resource and mineral industry. It is a major producer of coal and zinc, two resources with distinctly different futures. While headlines are already touting the end of coal, zinc is a mineral that will play a key role in the future of energy for years and years to come. And due in part to the ongoing conflict in Ukraine, zinc has seen its price soar on fears of a looming supply squeeze.

In addition to its zinc operations, Turquoise Hill is also a significant producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium term, which could be a boon to Turquoise Hill, especially as commodity prices explode.

By. Michael Kern

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Forward-Looking Statements

This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that the global energy transition will continue as anticipated and that electric vehicles will continue to grow in market share and acceptance; that demand for electric vehicle batteries and the component materials and minerals used to produce electric vehicle batteries will continue to grow significantly; that the market for graphite and related products will continue to expand and achieve double digit growth in the next several years ;that there will be shortages in China, U.S. and globally of the graphite necessary to produce electric vehicle batteries; that Graphex Group Limited (the “Company”) can leverage its existing operations and reputation in China to capture market share of global graphite demand; that the Company can expand its business operations to the U.S. and European markets and gain significant market share for the supply of graphite for electric vehicle batteries; that the Company can leverage its proximity to graphite mines to expand its operations and capture market share for global graphite demand; that the Company can achieve its business plans and objectives as anticipated. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the global energy transition may not continue as anticipated and that other types of alternative energy vehicles may be developed and gain market share over current types of electric vehicles; that demand for electric vehicle batteries as currently produced and the component materials and minerals used to currently produce electric vehicle batteries may be less than expected for various reasons including the development of alternative materials and technologies; that the market for graphite and related products may not expand and achieve growth as anticipated; that for various reasons, including production of graphite or alternative technologies by other competitors of the Company, there may not be shortages of or increases in demand for graphite in China, U.S. and/or globally as expected or at all; that the Company may be unable to leverage its existing operations and reputation in China to capture substantial market share of global graphite demand; that the Company may be unsuccessful in the expansion of its business operations to the U.S. and European markets and fail to gain significant market share for the supply of graphite for electric vehicle batteries in China and/or globally; that the Company may be unable to leverage its proximity to graphite mines to expand its operations and capture market share for domestic and global graphite demand; that the business of the Company may be unsuccessful for various reasons. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.

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