Opaque Graphite market; KNL’s absolute emersion and understanding.

Opaque Graphite market; KNL’s absolute emersion and understanding.

It seems to me there’s still so much confusion around the graphite market and the opaque nature of it. I thought I’d start with a case study of an operational graphite company to add some perspective.

I’d like to point you to Graphit Kropfmühl which is where Christoph Frey comes from (their most recent report is attached below). Graphit Kropfmühl is a producing graphite company who also refine the product and obviously sell. Up until a few months ago they were a wholly owned subsidiary of AMG Mining, a public German company.

Part of the problem is it’s almost impossible to find any information on how much graphite Graphit Kropfmühl produce, and absolutely nothing on their contracts or customers. And there’s a reason for this, it’s China. Graphite is defined as a “critical resource” by all of the developed world (minus Australia, for some reason) and given China controls 66%-75% of the market you can see why these terms and customers would want to be kept out of the public’s eye. Everyone fears being drawn into an economic stoush with China. And they should! Their ongoing aggression in the East and South China Sea, and their annual reduction of export quotes for graphite highlight what’s at stake. Their very business!

Not only that but there was a recent transaction by AMG Mining to sell 40% of Graphit Kropfmühl for $38m, but in their AGM there’s no mention of who the new buyer is, only that they took up a 10% in the unnamed customer/new part-owner (see below).

Information from within the graphite industry is sketchy at best. Non-existent in most cases. And this is my point, graphite is cloak and dagger type stuff, governments, secret deals and a nod is as good as a wink to a blind bat. The fact Sojitz was willing to put their name to a sales agreement/JV with KNL should give everyone all the confidence they need to make an investment in KNL given current producers don’t once mention their customers. Ever.

Graphite is a quiet business. A secret business. And having 3 customers, 2 willing to put their name to KNL proves just how strong KNL’s position is. Especially when you consider the fact that the current miners are hush-hush, about everything.

If you want to invest in graphite, my advice to you; Understand the market is opaque. Understand the risks (China, African sovereign risk), and above all, understand without a buyer for your graphite, you might as well leave it where it lies.

(Graphit Kropfmühl ; http://www.gk-graphite.com/fileadmin/user_upload/PDF/Imagebroschuere_GK_2015_GB_web_Ansicht_ES.pdf)

(AMG Mining; http://s1.q4cdn.com/411066846/files/doc_downloads/2016/March/2015-Annual-Report.pdf)