Heightened focus on what could be game-changing battery technology for the solar and car industries has seen a boom in graphite stocks.Source: Supplied
Share charts.Source: TheAustralian
THE promise of mass production from new battery plants is prompting an unprecedented rush for stocks linked to mining of graphite — a key component in small, dense batteries able to store more power for electric cars and houses.
Heightened focus on what could be game-changing battery technology for the solar and car industries — inspired by Tesla electric car founder Elon Musk’s planned $US5 billion ($5.3bn) “giga-battery” factory in the US — has seen a new boom in graphite stocks.
The excited state of the sector was in full effect yesterday, when graphite market leader Syrah Resources’ shares surged on a report that Swiss trader and miner Glencore had made an “informal approach” to the company. The online report of what would be a potential 200 per cent premium offer was neither confirmed nor denied by Syrah nor Glencore.
But despite industry scepticism, the speculation lifted almost all the growing number of graphite stocks on the Australian Securities Exchange, already the mining sector’s best performers for the year. Syrah, whose Balama deposit in Mozambique is regarded as the world’s biggest, finished 28 per cent higher, giving it a market value of $892 million.
The growing sense that improved technology in the lithium-ion batteries that use graphite will spur increased electric car and stationary battery demand has sent investors looking for the next Syrah. Gresham advisory says that of the four Australian resources stocks that have shown the most market value growth in the first half of the year, three are graphite-focused.
These are Lamboo Resources, the first local stock to lock in a supply contract with a Chinese firm, with its stock up 367 per cent; Talga Resources, up 512 per cent; and Triton Resources (which has a deposit near Syrah’s), up a whopping 796 per cent. This year, Syrah stock has jumped 77 per cent — but it is more than 37 times the value it was at the start of 2012.
Credit Suisse analyst Adnan Kucukalic said potential growth in battery use would be enormous as technology increased.
“The application for energy storage extends well beyond the car industry and the consequences are far-reaching,” said Mr Kucukalic, who recently went to China to investigate electric car battery making. “Battery technology, in our view, is on the cusp of commercial use in electric vehicles and general mass energy storage.”
Investment advisers pushing the battery growth potential of graphite stocks are focused chiefly on demand from the electric car industry, where Canaccord Genuity analysts say the industry has plans to increase the number of cars, each with a 300kg lithium-ion battery, from about 700,000 this year to 20 million by 2020.
But the solar industry also sees the lithium-ion batteries that use graphite as game changers.
“The change for the electric vehicle industry has been compact, efficient, dense and very safe battery storage, which is perfect for integration with solar photovoltaic systems,” said John Grimes, chief executive of the Australian Solar Council.
“There has been a massive spin-off from this in that we’re seeing the price of these lithium-ion batteries come down, with most consultants predicting a halving of costs between now and 2020.”
The council’s view was that that would probably happen by 2018, Mr Grimes added.
Current battery prices of about $600 per kilowatt hour mean the cost for a battery that can power the average Australian household is about $9000.
Growing battery use is not the only source of the excitement around graphite.
China, the world’s biggest supplier of lower-quality graphite used for refractories in metal production and ceramics, is closing down mines as a move to control pollution.
PAC Partners analyst Andrew Shearer said investors needed to be careful.
“There is an underlying demand for graphite sources outside of China and there is potential growth emergence of the battery market,” Mr Shearer said.
“But graphite is a common mineral and there are a lot of junior companies looking for it and there is, without the emergence of more battery use, only finite demand.”
Graphite quality is also hard to gauge just by reading the grade of a deposit. Buyers place a high premium on the ability to easily remove impurities from the graphite, meaning those with a committed buyer should probably be treated as a premium stock.
The other chief ingredients in the manufacture of lithium-ion batteries are nickel and cobalt.
To this end, Mr Kucukalic says West Australian nickel and cobalt miner Western Areas, whose shares closed yesterday at a two-year high, are a good way to play the market.
Increased electric car use would also see increased demand for aluminium, which makes the cars lighter than steel. That could be good news for the likes of Alumina and Rio Tinto.
MNS Price at posting:
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