Commodity of the Future – The Carbon Renaissance

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It’s an exciting time to be in the graphite business. Graphite is a key component in the Lithium-ion batteries that are essential to the budding electric and hybrid car industry, as well as a variety of other potential future applications.

Tesla Motors (TSLA) has revealed plans to build a $5 billion “Gigafactory” for production of batteries for use in both its cars and in rooftop solar systems sold by SolarCity (SCTY) .  The Gigafactory is predicted to drive an increase of battery production by a factor of 50-fold by 2020. Altogether, the demand for flake graphite could increase by 40% in that same time period.

In China, the world’s chief producer of graphite, new government reforms will decrease the country’s production by 2020 rather than increase it as it consolidates its mines. In fact, no major mines have opened outside of China since the 1980s, creating an upside potential for North American producers that could be at an all-time high. This is part of what makes Canadian graphite miner Caribou King Resources (CKR:CA) , with its Buckingham Graphite Property, such an intriguing play.

High Levels of Purity at Buckingham Graphite Property

Tesla has expressed its intent to obtain all of its graphite supply from North American sources. They are projecting the need for five to seven new graphite mines to come on line prior to the completion of the Gigafactory. With so little current North American graphite production and such a massive spike in demand anticipated before the end of the decade, a property capable of producing flake graphite with a high level of purity will potentially become very valuable.

“We took two bulk samples from what we’re calling the ‘Uncle Zone,’” says Isabelle Robillard, Head Geologist for Caribou King. “We sent the samples to the laboratory to have them analyzed by fraction size load. What we found was that the largest flakes were of very high purity.”

High purity levels are important: graphite has to reach a purity threshold of at least 94.4-94.9% in order to be used in Tesla batteries.

“The purity is there,” says Robillard. “The lab achieved very high purities, over 99%, without having to optimize with the alkaline roast or acid leach. They utilized only a floatation circuit and the purity was already there.”

At over 99% purity, the graphite at Buckingham may even have more valuable potential applications than even Li-ion batteries. Nuclear-grade graphite, the extremely high purity graphite used in the moderators and reflectors of nuclear reactors, is much more valuable.

“Graphite of battery grade purity can sell in the range of $2,000 to $5,000 a ton,” says Robillard. “That’s the 2013 price. But, if you can achieve nuclear purity, then the price per ton could increase to $10,000.”

A Property Ready for Development

With the high purity level of these early samples, the next step should be to determine how large the resource is and how rapidly Caribou King can get the property into production. Fortunately, the company is committed to getting the property to development stage as soon as possible.

“We have a very strong management team that is aggressive in fast-tracking their property to prove up a resource,” says Robillard,  “Work on the property has already commenced and investors should keep their eye out for an initial drill program in the second quarter or in the early summer.”

There’s plenty of reason to be optimistic about a drilling program at Buckingham. The company has succeeded in establishing one integral milestone in the generation of a quality graphite play, a high level of measured purity. The company’s next milestone will be to establish a resource on the property, something Mrs. Robillard is clearly excited about.

“A summer drill program will bring lot of shareholder value because there is so much blue sky potential to Buckingham along with what we've already accomplished,” says Robillard. “The high grade results are just the tip of the iceberg.”

The Bottom Line

Graphite mining is an industry that has rapidly developed into one of the fastest growing resource plays out there. Tesla’s rapid expansion of its battery production reflects how their new energy storage devices will have applications beyond electric cars, extending into solar arrays and potentially even aircraft. With Tesla making such a large investment in this technology, graphite producers in North America need to catch up fast. For those that do, there is ample opportunity to take advantage of a growing market.

The high-purity results from the Buckingham Project show that Caribou King Resources is one company investors should keep a close eye on in the coming months.

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Symbol Name Price Change % Volume
SCTY SolarCity Corporation 19.99 -0.54 -2.63 2,783,618
TSLA Tesla Motors Inc. 200.09 0.99 0.50 2,943,402


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