Best stock to invest in – The Graphite Hustle | Alternative Energy Stocks



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by Debra Fiakas CFA

The Klondike Gold Rush of the 1800s has given way to the Canada
Graphite Hustle of the 21st Century.  In what may seem to many
an interminable series on graphite resources developers we have made
note of over a half dozen companies in Canada attempting to bring
new supplies of graphite ore out of the earth.  The action is
not limited to Canada.  There are at least a dozen other
aspirants with plots in Canada and the rest of North America as well
as in Australia and Africa.

Piecing together disclosures by the North America group alone there
is at least 250 million metric tons of inferred resources under
development.   Planned graphite production in North
America is estimated at as much as 214,000 metric tons per
year  –  all of it natural flake graphite 
–   that could come online over the next few years. 
Is the additional capacity needed?

North
America Graphite Resource Developers
Alabama Graphite Corp. 
(ALP:  V or ABGPF:  OTC/QB)
Canada Carbon, Inc. 
(CCB:  V or BRUZF:  OTC/QB)
Canada Strategic Metals,
Inc.  (CJC:  V or CJCFF:  OTC/QB)
Focus Graphite, Inc. 
(FMS:  TSX-V or FSCMF:  OTC/QB)
Graphite One Resources,
Inc.  (GPH:  V or GPHOF:  OTC/QB)
Great Lakes Graphite 
(GLK:  V or GLKIF:  OTC/QB)
Lomiko Metals, Inc. 
(LMR:  V)
Mason Graphite, Inc. 
(LLG: V or MGPHF:  OTC/QB)
Northern Graphite,
Inc.  (NGC.V or NGPHF:  OTC/QB)
Nouveau Monde Mining Enterprise 
(NOU:  V or NMGRF:  OTC)
Ontario Graphite  (private)
Zenyatta Ventures Ltd.  (ZEN:  V or
ZENYF:  OTC/QB)

According to the U.S. Geological Survey in 2014, natural flake
graphite production was approximately 1.2 million metric tons. 
Approximately 67% originated from producers in China with the
balance coming from a mix of resource companies in India, Brazil,
Canada, North Korea and Sri Lanka.  Planned North American
production would increase total production by 18%, bringing total
annual production to 1.4 million metric tons.  More
importantly, the successful start-up of all the currently planned
production in North America would propel the region into the number
two spot among leading producing regions.

As noted in the first
article in this series
, the widespread adoption of electric
vehicles for both commercial and personal use is driving demand for
lithium ion batteries that need graphite for make the anode
component.  According, to Avicenne Energy, a consulting firm
focused on supply chain economics, the battery sector  – 
transportation as well as storage batteries  –  is
expected to require as much as 290,000 metric tons of flake graphite
by the year 2025.  This compares 118,000 metric tons of
graphite used in 2014 for batteries.

It may appear to be a significant increase in production capacity,
but given the additional graphite supply needed to satisfy hungry
battery manufacturers, the planned North American production may be
needed.  However, when the other resource developers around the
world are considered the math could be different. 
Unfortunately, the data points are not as reliable for resources
developers with patches in Australia, South America and
Africa.  For five that have revealed details, estimated
indicated resources and planned annual production are 138.9 million
metric tons and 162,000 metric tons per year, respectively. 

Rest
of World Graphite Resource Developers
Bora Bora Resources,
Ltd.  (BBR:  ASX)
CKR Carbon  (CKR: 
TSX.V)
Elcora Advanced
Materials  (ERA:  TSX.V or ECORF: 
OTC/QB)
Energizer Resources
Ltd.  (EGZ:  TSX.V or ENZR:  OTC/QX)
Graphex Mining Ltd. 
(GPX:  ASX)
Extrativa Metal
Quimica  (private)
Hexagon Resources,
Ltd.  (HXG:  ASX)
Kibaran Resources,
Ltd.  (KNL:  ASX)
Nacional de Grafite 
(private)
Saint Jean Carbon 
(SJL:  TSX.V or TORVF:  OTC/QB)
Talga Resources, Ltd. 
(TLG:  ASX)
Valence Industries,
Inc.  (VLQCF:  OTC/QB)

Some of the existing graphite producers have had difficulty keeping
bills paid and several have shut down production due to low graphite
selling prices.  Statistica reports that flake graphite prices
declined approximately 49% from 2011 to 2014, predicted a further
decline of 10% through the current year 2016.  Bringing on new
production in the current price dynamic may sound the death knell
for companies that are not able to produce at a low price.  Any
investor looking at the graphite market should look carefully at the
business model and proposed operating structure before taking a long
position.

This may be one reason the stocks of the companies listed above are
trading more like options on management’s ability to execute on
strategic plans than on the present value of future cash flows from
the sale of graphite.  That said, some might consider the
current share prices as  modest premiums to play the sector’s
future.


Debra Fiakas is the Managing
Director of
Crystal Equity
Research
, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

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