While they have a lower profile than the mining companies who are chasing after major commodities like gold, copper and iron, junior companies associated with graphite and rare earth elements have also endured a four-year bear market for their niche commodities, even if the demand trends for both products are encouraging.
Graphite juniors are looking to tap into a US$14-billion global market for graphite. While lower-grade graphite has been used for years in the steelmaking industry, new uses for higher-grade — and higher-priced — graphite are being developed in the burgeoning high-value sector of lithium batteries, where graphite is used as a cathode, and in the more speculative realm of the wonder-material graphene, which is a layer of carbon atoms only an atom thick that displays extraordinary strength and a superb ability to conduct electricity, but hasn’t found many uses outside of creating lightweight tennis rackets so far.
It’s worth noting it takes 20 to 30 times more graphite than lithium to make lithium-ion batteries, and each hybrid electric car uses about 22 lb. of graphite, while a fully electric car uses about 110 lb.
Since 2002, the graphite market has grown at 7.5% per year and is forecast to grow at least 3.7% per year until 2020, when it will be a US$17.6-billion market. By 2020, the graphite-graphene market may well have doubled to 2.6 million tonnes per year.
This all sounds wonderful, but the metric not yet mentioned is price. Since the 2011 peak of US$3,000 per tonne for coarse-flake, 94–97% pure graphite, prices have tumbled year after year to just US$1,200 per tonne today. Lower value fine-flake graphite has lost two-thirds of its value over the same period — dropping from US$1,800 per tonne to US$600 per tonne. Depressingly, today’s prices bring graphite prices right back to where they were in 2007, almost as if that glorious boom never happened. And realistically, there’s no short-term price relief in sight.
Relatively rare battery-grade graphite, at 99.9% purity, is in a league of its own, recently commanding prices in the range of US$5,000 to US$20,000 per tonne.
What’s different now compared to 2007, however, is the bevy of high-quality graphite deposits that have been swiftly developed by dozens of intrepid juniors in Canada, Alaska, Western and South Australia, Scandinavia, Mozambique and Madagascar, which are waiting in the wings to reach the feasibility stage and production.
Unlike other subsectors of the mining industry, there has not been a rush to enter production amongst the graphite juniors until a more profitable environment is assured. Technically superb graphite deposits near excellent infrastructure such as the Lac Knife deposit near Fermont, Que., and now in the hands of Focus Graphite, have sat idle or unmined for years, despite studies showing potential for a highly profitable mine. (This could change for Lac Knife, though, with Focus lining up offtake agreements and entering mine financing discussions, on the back of a recent positive feasibility study.)
The scene in the rare earth elements subsector is equally hard, with the good work by many juniors in developing complex REE deposits around the world running smack into the wall of collapsing prices for all the various REEs, which make up an even smaller global market than graphite.
The REE subsector has already had its sinking of the Titanic, with industry leader Molycorp filing for bankruptcy in June and announcing in late August it would put its massive, state-of-the-art Mountain Pass REE mine and processing plant in California on care and maintenance in mid-October. How the mighty have fallen: In May 2011 at the peak of the REE boom, Molycorp’s market capitalization was US$6.4 billion; Today it’s US$28 million.
Bloomberg has reported that Chinese and Japanese firms are looking at buying Molycorp’s better performing REE assets in China and Estonia. Thanks to low production costs that have traditionally put foreign competitors out of business, China still produces 95% of the world’s REEs, while Japanese REE customers always look at lessening their dependence on politically sensitive Chinese supply.