Cao,Great article. Thanks for sharing.I came across another...

Cao,

Great article. Thanks for sharing.

I came across another article on the weekend which is also a good read. It was a report written on another graphite company which I have no interest in. I have posted this simply because it highlights the importance of graphite, suggesting the graphite market could be worth 21.6 billion by 2027.

With many of the bigger Motor Vehicles companies recently outlining their plans for the future, I believe the graphite market will be worth considerably more than 20 billion dollars in the next 10 to 15 years. The recent articles I have read have only reinforced the reasons why I wanted to have a considerable investment in a graphite company and why I bought shares in Volt all those years ago.

The Investment conclusion is compelling.



Countries around the world are moving to target 100% sales of zero-emission vehicles in the coming years. How this will be accomplished may be uncertain, but one thing is for sure, government bodies will need a lot of help to make sure the world has enough graphite to meet projected demand from the lithium-ion battery / electric vehicle (EV), fuel cell and vanadium redox battery industries. All are large users of graphite.

Thanks to EVs alone, the graphite market could be worth $21.6 Billion by 2027.

Graphite is the anode material in a lithium-ion battery and there are no substitutes. Volkswagen (ETR: VOW3) will require 300 giga watt hours (gWh) of battery production to meet its sales targets by 2025. That German auto manufacturer is not alone, Tesla Inc. (NASDAQ: TSLA) will need 350 gWh, and Daimler / Mercedes (ETR: DAI) wants 200 gWh, all well before the end of the decade. This only represents a fraction of the demand as other car manufacturers have big plans and China, which is the world's biggest EV market, is targeting 25% of new car sales to be EV's in four years' time. This alone will require almost a 50% increase in world graphite production.Li-ion battery sales are already a $30 billion industry growing at 20% a year. To feed this hunger, many industry analysts forecast that many new graphite mines will be essential and will require billions in investment to ensure that the EV market can meet its demand. Graphite needs the largest production increase of all the battery minerals and no substitutions will suffice.

The importance of L / XL / XXL flake:

Many who track graphite (and graphene) do so because of the EV market, but there are a host of industrial applications for graphite from lubricants to pencils. The flake graphite that is unearthed by the Northern Graphite team can be pressed into sheets destined to be used as purified and micronized products for thermal management in consumer electronics, fire retardants, insulation products, conductive paint and wall coverings, fuel cells and flow batteries. Other applications include powder metallurgy, ceramics, military and nuclear applications, specialty engineered products and drilling fluids. Few other operations in this space can check so many applicable boxes which is due to the XL/XXL flake size and purity of Northern's concentrates. Significantly, both fuel cells and vanadium redox batteries require large amounts of graphite, mainly the large flake sizes and these technologies are expected to be a big part of the green revolution.

The market needs more XL / XXL flake as production in China, specifically for flakes of this size, is declining and that industry juggernaut has been turning to imports.

World flake graphite production is approximately 850,000 tonnes. China produces and consumes 70 to 80% and produces nearly all battery anode material (BAM). Because of this dependence on China, the United States and European Union have declared graphite a critical mineral.

China produces BAM from small flake graphite because it is plentiful and cheap. It has large resources of small flake and excess production capacity but is forecasting a large supply deficit due to EV growth. In the past few years, the flake graphite price index of Benchmark Mineral Intelligence has declined by more than a quarter due to excess production capacity in China and new supply from Africa. Prices for large flake graphite (+80 mesh) are currently in the order of $1,000 / tonne (USD) compared to the 2012 peak of over $2,500 / tonne (USD).

Growing demand will overtake supply in the near future and new western sources are needed, but in the interim it remains a very competitive market. Circling back to Northern Graphite's resource, its large / XL flake deposit will mean that it can initially focus on high value, high margin markets (specifically in the US and Europe), which have higher prices/margins and less competition. As the chart below indicates, battery demand is not yet affecting graphite prices (or share prices for the most part). But multiple new mines are required for the promise of EVs to be realized and higher prices are the only way that can happen.

(Graphite price chart via Benchmark Mineral Intelligence. Click to enlarge.)

Investment conclusion:

Benchmark Mineral Intelligence estimates that major automobile makers have committed more than $300 billion (USD) to the development of EVs and that there are over 100 Li-ion battery mega-factories in the pipeline. To meet this demand, multiples of current annual world graphite production are needed.