Graphite to
follow in lithium's footsteps
October 20, 2021 -- InvestorsHub
NewsWire -- via aheadoftheherd.com -- A
lithium-ion (Li-ion) battery is a type of rechargeable battery
technology common to portable electronics, electric vehicles and
large grid-scale storage systems for renewable
energy.
These batteries consist of an
anode, cathode, separator, electrolyte and two current collectors
(positive and negative). The cathode contains lithium, either in
the form of lithium carbonate or lithium hydroxide, while the anode
is made up of graphite. There are no substitutes for either in a
Li-ion battery.
Schematic of a
lithium-ion battery
Favorable supply-demand dynamics,
in play mainly due to the growing electrification and
decarbonization trend, have sent lithium prices on a tear.
According to Asian Metal Inc. data, China lithium carbonate has
almost doubled in just two months, and lithium hydroxide is up more
than 70% over the same period. Remember, both lithium products are
used in the lithium-ion battery cathode.
Source:
Benchmark Minerals Intelligence
The rally comes amid a global
push for less polluting energy sources, which has automakers and
battery manufacturers racing to secure supplies of so-called
"future-facing commodities" such as lithium, obviously a key
battery ingredient.
Curiously, a metal that often
gets left out of the hype over lithium-ion batteries is
graphite.
There is no substitute for
graphite in an EV battery and lithium-ion batteries are expected to
be the technology that runs electric vehicles for the foreseeable
future, making graphite indispensable to the global shift towards
clean energy.
Before going deep into the
graphite market, a bit more on lithium and lithium batteries will
illustrate the fundamental shift that is going on, away from fossil
fuels and towards electrification, that will carry both lithium and
graphite along for what is almost certain to be a multi-year
ride.
Lithium has a
hot hand
The global lithium-ion battery
industry is expected to grow at a CAGR
of 16.4% from 2020 to 2025, reaching USD$94.4 billion by 2025 from
$44.2 billion in 2020. Growth will be driven not only by the need
for plug-in electric vehicles and hybrids, but grid storage
applications for which the dominant technology is
lithium-ion.
Demand for lithium carbonate is
expected to rise at a compound annual growth rate (CAGR) of 10-14%
until 2027, while lithium hydroxide demand is seen climbing at a
25-29% CAGR.
A recent study by BloombergNEF
shows that 5.3 times more lithium will be demanded by 2030 compared
to current levels.
Other reputable sources are
equally bullish on EVs and grid-scale electricity
storage.
Fitch Solutions predicts EV sales
to reach over 4.6 million units in 2021. That is 50% more than 2020
which in turn was 36.8% higher than 2019. (despite total passenger
vehicle sales falling last year by 20% due to the
pandemic)
Australian
bank Macquarie forecasts a global EV penetration rate of 16% by 2025
(battery electric vehicles and plug-in hybrids combined), and by
2030, 30% globally and 41% in China — a scenario that would push
spodumene (hard rock) prices above $720 a tonne, lithium carbonate
above $13,000/t, and lithium hydroxide over $16,000/t.
Much of lithium demand is being
pulled by the second-largest electric car market in the world
behind China, the United States.
President Biden has set an
ambitious target to make half of new vehicles sold in 2030
zero-emissions vehicles.
His $1.2 trillion infrastructure
package, passed by the Senate but not yet by the House of
Representatives, includes transitioning the US transportation
system to battery-powered vehicles and supporting renewable wind
and solar energies over carbon-based sources like coal and natural
gas.
An even larger $3.5 trillion
spending package is also under consideration by the House.
It includes:
-
$198 billion in direct payments
to utilities for hitting clean energy goals, providing consumers
with rebates to make homes more energy-efficient, and financing for
domestic manufacturing of clean energy and auto supply chain
technologies;
-
$67 billion to fund
climate-friendly technologies and impose fees on emitters of
methane, to reduce carbon emissions;
-
$37B to electrify the federal
vehicle fleet.
North America relies heavily on
foreign supplies of critical minerals — the raw materials it needs
to become a leader in high technology, transportation, energy, and
defense. Materials like lithium and graphite.
The United is thus scheming to
expand its domestic lithium sources, having listed the battery
metal as a critical mineral back in 2018, to lessen its reliance on
foreign production.
China produces roughly two-thirds
of the world's lithium-ion batteries and controls most of its
processing facilities.
One way to meet the threat of
foreign countries restricting, or embargoing, critical minerals, is
to encourage the domestic exploration and mining of these
metals.
Here at AOTH we have been
advocating for the creation of a "mine to battery" electric vehicle
supply chain in North America for years, something that is finally
appearing on the radar screens of governments, large mining
companies, automakers and battery manufacturers.
There are a number of battery
plants in the works to join Tesla, whose first gigafactory in
Nevada started production of battery cells in 2017. The company has
a plant in Buffalo, New York, and plans to open a third (US plant)
in Texas by the end of this year. Tesla also has a "pilot line" at
its facility in Fremont, California, for R&D
technologies.
In 2020 General
Motors announced
plans to install its first battery cell factory in
Ohio, a project called Ultium Cells launched with its Korean
partner LG Chem. The latter opened a plant in Holland, Michigan in
2013.
Another South Korean company, SK
Innovation, is planning on opening the first of two battery plants
in Georgia early next year; the company is a supplier to Volkswagen
and Ford.
The latter along with American
auto icon GM have big plans to electrify their fleets. Ford
announced plans to boost spending on electrification by more than a
third, and aims
to have 40% of its global volume electric by
2030, which translates to
more than 1.5 million EVs based on last year's sales.
GM reportedly aspires to halt all
sales of gas-powered vehicles by 2035, with plans to invest $27
billion in electric and autonomous vehicles over the next five
years.
The latest automaker to commit to
the US electric car market is Toyota, which said
this week it will invest about $3.4 billion on American battery development and
production through 2030.
North American
battery cell manufacturing landscape. Source: BloombergNEF, company
announcements
There are
currently 11
EV start-ups racing to catch up with market leader
Tesla, fueled by money
from Wall Street. They include Rivian out of Irvine, California,
Lucid Motors based in Newark, CA, Lordstown Motors from Ohio,
Nikola Corp (Phoenix), Fisker (Los Angeles), Faraday & Future
(Los Angeles), Canoo (Torrance), NIO, Li Auto and XPing from China,
and Arrival, based in London.
This gives you a sense of the
extent to which the EV lithium battery market in the US is
growing.
Graphite
poised for a breakout
A Tesla Model S with a 70kWh
battery uses 63 kilograms of lithium carbonate equivalent (LCE) —
the standard industry measure of lithium production. The Chevy Bolt
has a 60kWh battery so the weights are comparable.
The average plug-in EV has 70 kg
of graphite.
Every million EVs requires in the
order of 75,000 tonnes of natural graphite. This represents a 10%
increase in flake graphite demand.
In the last section we outlined
the criticality of lithium, however for the US graphite is more
difficult to come by.
Graphite is included on
a list
of 23 critical metals the US Geological Survey has deemed critical
to the national economy and national security.
North America produces just 4% of
the world's graphite supply, from mines in Canada and
Mexico. No US natural graphite production was
reported to the USGS in 2019 or 2020.
China, Brazil and Mozambique are
responsible for most graphite mining, with China producing about
two-thirds. More importantly China controls 100% of the market for
spherical graphite, the kind needed for the anode part of a
lithium-ion battery.
Source:
USGS
According
to the USGS, in 2020 the
US imported 42,000 tons, of which 71% was high-purity flake
graphite, 28% was amorphous, and 1% was lump and chip graphite. The
top importers were China (33%), Mexico (23%), Canada (17%) and
India (9%). But remember, the US is not 33% dependent on China for
its battery-grade graphite, but 100%, since China controls all
spherical graphite processing.
It's thought that the increased
use of lithium-ion batteries could gobble up well over 1.6 million
tonnes of flake graphite per year (out of a total 2020 market, all
uses, of 1.1Mt) — only flake graphite, upgraded to 99.9%
purity, and synthetic graphite (made from petroleum coke, a very
expensive process) can be used in lithium-ion batteries.
The USGS believes that
large-scale fuel cell applications are being developed that could
consume as much graphite as all other uses combined. Tesla's Nevada
gigafactory alone consumes around 35,000 tons of spherical graphite
per year. We have clearly come to an inflection point much more
graphite needs to be discovered and mined.
Global graphite consumption has
been increasing steadily every year since 2013, although in 2019
there was a reduction of 14%. Roskill expects total graphite demand
over the next 10 years to grow around 5 to 6% per year.
A White House report on critical
supply chains showed that graphite demand for clean energy
applications will require 25 times more graphite by 2040 than was
produced worldwide in 2020.
Remember there is no substitute
for graphite in an EV battery and lithium-ion batteries are
expected to be the technology that runs electric vehicles for the
foreseeable future, making graphite indispensable to the global
shift towards clean energy.
The question is, can the mining
industry crank out 5-6% more graphite every year to match this
demand? There is reason to be skeptical. Between 2018 and 2019,
world mine production actually declined by 20,000 tonnes, or
1.8%. Global production in 2019 and 2020 was
exactly the same, 1.1 million tonnes.
Currently there are no producing
graphite mines in the United States, and only 10,000 tonnes a year
is being mined from two facilities in Canada. The fact is, for the United States to develop
a "mine to battery" supply chain at home, it currently has no
choice but to import its raw materials from foreign
countries.
For battery-grade graphite, that
means China, which is growing increasingly adversarial, in terms of
trade, foreign policy and militarily.
For many years the United States
didn't mind being dependent on out-of-country suppliers for
critical mineral like lithium and graphite. Mining can be messy and
the political will just wasn't there. This is changing, thanks to
politicians like Alaska Senator Lisa Murkowski, who is trying to
reverse this dependency. They like the idea of developing domestic
critical metal mines and are working with the mining industry to
achieve results.
Murkowski helped draft the
bipartisan infrastructure bill currently making its way through the
House of Representatives. The $1.2 trillion proposal includes money
for research and demonstration projects and other efforts aimed at
lessening the reliance on China for the supply of critical minerals
like lithium and graphite.
Another provision calls for
streamlining the permitting process for mining and extracting
critical minerals. It can take 12 years now to line up the federal
permits needed to open a mine, making businesses hesitant to deploy
investment capital.
Graphite
One
Lately Murkowski has been getting
behind efforts to develop what would be America's largest graphite
mine, Graphite Creek owned by Graphite One (TSXV:GPH, OTCQB:GPHOF). The deposit is the highest-grade and
largest known flake graphite deposit in the US, spanning 18
km.
The Project is envisioned as a
vertically integrated enterprise to mine, process and manufacture
Coated Spherical Graphite ("CSG") for the lithium-ion electric
vehicle battery market. Graphite One aims to become the first US
vertically integrated domestic producer to serve the US EV battery
market.
Located on the Seward Peninsula
in Alaska, Graphite Creek earlier this year was given High-Priority
Infrastructure Project (HPIP) status by the Federal Permitting
Improvement Steering Committee (FPISC). The HPIP designation allows
Graphite One to list on the US government's Federal Permitting
Dashboard, which ensures that the various federal permitting
agencies coordinate their reviews of projects as a means of
streamlining the approval process.
The Graphite
Creek property is located 55 km north of Nome, Alaska.
The latest resource estimate
(March 2019) for Graphite Creek showed 10.95 million tonnes of
measured and indicated resources at a graphite grade of 7.8% Cg,
for some 850,000 tonnes of contained graphite. Another 91.9 million
tonnes were tagged as inferred resources, with an average grade of
8.0% Cg containing 7.3 million tonnes.
A preliminary
economic assessment (PEA) for the project envisions a 40-year
operation with a mineral processing plant capable of producing
60,000 tonnes of graphite concentrate (at 95% purity) per
year.
Graphite One is continuing with
exploratory drilling and an environmental baseline study program to
gather more data for an upcoming prefeasibility study (PFS),
scheduled to be released in the fourth quarter.
A 3,000-meter drill program at
Graphite Creek this year was designed to infill and expand the
project's resource of graphitic carbon for a feasibility study, the
next step after the PFS.
Once in full production, Graphite
One's proposed graphite products manufacturing plant — the second
link in its proposed supply chain strategy — is expected to turn
graphite concentrates into 41,850 tonnes of battery-grade coated
spherical graphite and 13,500 tonnes of graphite powders per
year.
Material produced from Graphite
Creek would be almost sufficient to supply the entire nation's
graphite demand given current import totals.
But these production figures were
based on resource estimates prior to the 2019 update, leaving room
for potentially higher production.
Conclusion
The lithium market is one of the
brightest spots in the natural resource sector of late, with the
price of lithium carbonate almost doubling in two months, and
lithium hydroxide up more than 70% during the same
period.
All of this is being driven by an
acceleration of the transition from fossil-fueled transportation
and power generation to low-carbon sources like electric vehicles
and renewable electricity.
The trend is global, long term
and inexorable.
While there has been a general
understanding of the critical nature of lithium and the need to
develop more mines, tie up existing and future lithium deposits
through offtake agreements (hence the lithium "m&a"), and build
more battery plants to satisfy the ever-climbing demand for EVs,
the same cannot be said of graphite.
The grayish-black mineral is used
is in dozens of applications, from pencils to lubricants to
electric vehicle battery anodes, yet its utility so far has only
been appreciated by a few ahead of the herd investors.
Many do not realize do not
realize that without graphite, lithium-ion batteries cannot be
made, there is no substitution for graphite in a lithium batteries
anode, making graphite as crucial, as critical, to the green energy
transition as lithium itself.
That's a fact which should sound
the alarm for those following graphite demand and
supply.
A situation where US/ Canadian
graphite end users are 100% dependent on Chinese chemical companies
is both frightening, given how much power it gives them, and
unsustainable. The solution is to reduce America's dependence by
finding local sources of graphite and lithium and develop them,
ideally creating a closed-loop supply chain where all the mining,
processing and manufacturing, from mine to EV battery, to showroom,
is done by North American firms and workers.
US critical minerals have been
ignored for decades but they are finally getting the attention they
deserve. Graphite One is a company on the move with the largest and
highest-grade flake graphite deposit in the United
States.
At AOTH we like to use the
analogy of an area play. Area plays are the very foundation of
junior resource markets, where a first-mover comes into a nascent
mining district and makes a discovery. The company's stock price
goes bonkers and other juniors rush in to stake claims, establish
operations and conduct exploration in the hopes of making the next
big discovery.
Lithium is like the first mover
in an area play, and graphite is similar to the next company on
trend, the one you would want to invest in because that is the
direction the money flows. This isn't to suggest there is no longer
money to be made in lithium exploration & mining. We love what
we see happening in the lithium space and we are pleased to see the
stocks of our favorite lithium juniors rising.
But investing is all about
getting in early, and we see the graphite market as the next sector
to grab the market's attention.
If we can't find the materials to
put into lithium-ion batteries, we must knock on China's door — a
door that could be slammed shut anytime, certainly not a source we
want to be reliant on, given current economic, political and
military tensions.
Lithium and graphite are the
cornerstones of electrification and decarbonization. Without them,
positive change does not occur. Companies like Graphite One that
offer solutions to the need for more domestically mined supply will
in our opinion do very well. In fact to win the fight against
climate change and to reduce our reliance on fossil fuels, while
helping to build a brand-new electric vehicle industry
in the United
States, we see GPH as an
important piece of the Nation's supply chain, and for us at AOTH,
one that we have to own, and do.
Graphite One
Inc.
TSXV:GPH, OTCQB:GPHOF
Cdn$1.61, 2021.10.19
Shares Outstanding
81.5m
Market cap Cdn$134.1m
GPH website
Richard (Rick)
Mills
aheadoftheherd.com
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