2023-07-24 22:57:27 ET
Summary
- The focus has shifted from graphene to graphite mining and production, with Graphite One Inc. being a potential growth stock, albeit with high risk.
- Graphite One mines graphite in the U.S. critical given the increasing demands and the current political and trade tensions with graphite's largest producing country, China.
- The stock of Graphite One Inc. is rising due to the growing demand for graphite, making it a potential investment opportunity for those with high-risk tolerance and patience.
Graphene And Graphite
Once upon a time, we were enamored with a slew of start-ups and their science-trained entrepreneurs exposing graphene as the “ miracle nanomaterial ” of the 21 st century. Scientific news outlets and mainstream media were agog. Many still envision graphene will be the basic material of the future and deserves greater attention and investment.
Our attention and that of the government and media is shifting from lab-created graphene to graphite mining and production. Graphite One Inc. (GPHOF), for example, is a small graphite mining company with a market capitalization of $151.22M that has growth potential but is ladened with risk. It might be assessed a Buy for investors with patience able to tolerate a prolonged fast of revenue and earnings. Interest in the stock is driving the share price up, so we suggest a Hold rating to those with high risk tolerance.
This stock is a casino-like gamble, in our opinion. The company's revenue generates from government grants and owner's loans in an effort to vivify a domestic graphite-producing industry. A company statement below suggests it will be years before investors realize gains.
Nature Portfolio states, “Graphene is a two-dimensional material consisting of a single layer of carbon atoms arranged in a honeycomb structure. Its properties include high strength and good conductivity of heat and electricity. The stacked form of graphene is graphite.”
Graphite is the soft, black, lustrous form of crystal carbon and a half-metal. Graphite can be one of the most stable forms of carbon. Some of its uses include
- Steelmaking, brake linings, lubricants, foundry facings, and batteries to name a few.
- Its unique features are graphite is a strong material, non-inflammable, but melts.
- Uses of the crystal include electrodes and refractories used in applications for processing materials at high temperatures.
- Graphite is a superior mineral releasing electrons from the cathode to the external circuit, being stiff and conductive.
Pure Graphene Companies
Over nearly a decade, we wrote glowing articles about the nascent promising industry targeting companies that are engaged in commercial product development of graphene for consumers and industry . We cautioned that progress to commercialize graphene is research-expensive and time-consuming. Investing in American and foreign-based graphene companies has been a risky business. The stocks of pure graphene companies have languished or collapsed.
An industry newsletter puts it this way recently:
Since the beginning of 2022, however, the share price of most of the companies we track dropped - in some cases by over 30%. The chart above shows some of the most prominent companies. The market has been highly volatile…(but) we do not believe this should be seen as a sign of the market losing faith in graphene and the potential behind these stocks. But it could mean that some of these companies reached valuation that were indeed too high.
More specifically, once graphene companies were high-flying stocks. Investors became dispirited when the mineral was not commercialized fast and furious. One can follow the trail through our articles for Seeking Alpha about G6 Materials Corp ( GPHBD ); it consolidated its issued and outstanding common shares this month in the ratio of 1 for 10 when the share price held at around 3 cents each for years. Perhaps the move was to keep from being delisted. Other pure graphene firms are also struggling:
Company Profile
Graphite One Inc mines the mineral in the United States. That is a critically important point in these times of trade and political tensions exacerbated by the burgeoning demand for lithium and graphite used in EV batteries.
Graphite One holds interest in property that consists of 176 mining claims covering an area of 9,600 hectares located on the Seward Peninsula, Alaska. The company was incorporated in 2006 and is headquartered in Vancouver, Canada. The company mines graphite and produces high-grade anode material for the lithium-ion EV battery market and Energy Storage Systems. The company sectors are mining, mineral processing, purification and manufacturing, and advanced graphite materials yield to feed industrial and tech manufacturing supply chains.
Mining The Stock
In 2019 and 2021 Graphite One secured investments sparking a jump in the share price of 161.6% over 5 years. Prior, the share price hovered at less than 50 cents per share. The price is +50% YTD and nearly tripled to a high of $1.45 in March ’23. In January ’23, the company announced it entered a joint venture whereby Graphite One will supply materials to a national testing laboratory under contract with the U.S. Department of Energy “to verify conformity to electric vehicle battery specifications.” Next came a $37.5M U. S. Department of Defense grant and a $5M unsecured loan from Taiga Mining Co., Inc. Taiga Mining became a controlling shareholder of Graphite One in September ’22.
North of 60 Mining News touts the deals. The newsletter suggests Graphite One’s operations and backing will reduce America’s dependence on China for rare earth minerals. Graphite One itself projects to “establish an all-American supply chain that begins in Alaska and ends in the lithium batteries powering electric vehicles, military hardware, and countless electronic products…”
Supply And Demand
We surmise from the Mining News that some see a potentially long-term benefit for investors from the government’s commitment; i.e., the company seems likely to gain momentum and attract other government and private equity money. That remains to be seen but in the meantime, state and local elected officials are giving broad support to Graphite One’s plans and for government grants. Mining News paints this picture:
To ensure reliable supplies of e-mobility minerals and metals, the White House sent the Pentagon a directive in 2022 to utilize Defense Production Act Title III funding to establish sustainable and responsible domestic production of strategic and critical minerals. ’The United States depends on unreliable foreign sources for many of the strategic and critical materials necessary for the clean energy transition – such as lithium, nickel, cobalt, graphite, and manganese for large-capacity batteries. Demand for such materials is projected to increase exponentially as the world transitions to a clean energy economy,’ the President penned in the memorandum.
(in 1,000 metric tons)
We expect the market for graphite to expand at a CAGR of +8% annually and perhaps more if battery demand and other relevant industries grow quicker than currently forecast. The demand for graphite for use in EV batteries is high. China’s dominance of graphite production worries the U.S. government. Recent events pushed the company’s stock higher suggesting analysts ought to take a more bullish position about Graphite One Inc. But there are three substantial risks to mining graphite investors ought to consider.
Risks
First, there are environmental endemic risks to mining that cause delays. There are constant threats to a publicly held company from social and political activists. Mining is besieged by regulations covering everything from worker safety to pollution. Accidents and disasters cause delays and inspire pushback from communities and local officials who may have once supported the mining company. Third, consider the threats to employee and nature's health and safety that are omnipresent. The company needs to produce an environmental and financial plan and publish it for shareholders to fully grasp the manners in which management expects to overcome the risks common in mining operations.
Investors will want to see a financial plan. It appears now, investors will not get a ROI for years to come. That might not hamper the share price but it is hard to predict where it will go and when. Following are company projections:
Takeaway
The company and media make a sound argument about the growing demand for graphite. The stock of Graphite One Inc is ticking up and for those with patience and a high risk tolerance this can be potential opportunity for good investment.
The company has competitors but competition for market share does not seem to us to be a factor that crowds Graphite One out of the picture. EV battery manufacturers and other industries might suffer supply issues if tensions with China heighten and leaders engage in tit-for-tat responses.
The larger U.S. energy transition plan will stumble without a plan to mine and get graphite to market, as The Washington Post’s screaming headline declared last February, FAST .
Graphite One Inc., based in Vancouver, aims to produce around 42,000 tonnes of anode-ready graphite(2) per year; not just by mining the site but then also shipping the resulting concentrate down the coast to a proposed processing facility in Washington state. Besides relative proximity, Washington also happens to host the biggest hydropower resources of any state and generates four-fifths of its electricity from zero-carbon sources. Assuming it all gets developed, this graphite chain would exemplify the interlocking demands of energy, geopolitical and climate security that now define the US critical minerals business.
To date, the company generates no revenue from operations or earnings. Operating expenses in FY ’22 totaled about $4M. We expect they will top $7M in FY ’23. The company has little cash and receivables except for the grants and loans and other money Graphite One can generate from Taiga Mining and other sources. We cannot assign a valuation or growth quality rating but SA claims its price-to-book metric is 2.70. Poet Shel Silverstein once made an observation apt in this case: “Though the house is dark and shuttered…There’s a light on in the attic. I can see it from the outside, And I know you’re on thew inside…lookin’ out.”
For further details see:
Graphite One Demands Patience