As the electric vehicle boom ramps up, the gap in the lithium supply is receiving the majority of attention from investors; however, the real shortage looms over the graphite industry. If readers are not aware, graphite is one of the key elements needed to power the now ubiquitous lithium-ion battery. The reason is because the material can withstand high temperatures without modifying its chemical makeup.
Tesla’s (TSLA) Elon Musk has even famously admitted: “Our cells should be called Nickel-Graphite, because primarily the cathode is nickel and the anode side is graphite with silicon oxide, [there’s] a little bit of lithium in there, but it’s like the salt on the salad.” To be specific, the average lithium battery requires 10 to 20 times the quantity of graphite than lithium. Furthermore, when people think about lithium batteries and electric vehicles, they immediately refer to Tesla and the company’s Gigafactory that is aggressively working toward massive production. But, the truth is that there are already numerous gigafactories being planned around the globe.
For example, LG is building a gigafactory in Poland and Northvolt is building a similar factory in Sweden, while GM (GM) and Renault are both planning on adding models to their electric vehicle selection. In addition, China, a country that has always dominated graphite production, has started to import the metal to keep up with its countrywide focus on electric vehicle production.
In short, the electric vehicle race is on and with electric devices also soaring, the arrow for graphite demand is pointing up. One company that is already strategically positioned in this market is Lomiko Metals (LMR:CA)(LMRMF). The company owns the La Loutre graphite property located in Quebec just northwest of Montreal. The property is a large project, consisting of one contiguous block of 42 mineral claims enveloping 2,867 hectares (~29 square kilometers) about 53 kilometers east of the Imerys Carbon and Graphite mine. Early in the year, Lomiko released the latest drill results from La Loutre showing high grade graphite intercepts as part of a 10-hole, 1,550-meter drill program completed in December 2016 in the Refractory zone at the project. Highlights of the results included Hole LL-16-06 returning values of 7.67% flake graphite (Cg) over 85 meters, including 13.09% graphite over 31.5 meters. Drilling indicates that the mineralization is 200 meters wide at a current strike length of 400 meters trending in a northwest to southeast direction. Importantly, the strike remains open in both directions.
Why Graphite Prices Are Skyrocketing
Lomiko is intending to publish a pre-economic assessment (“PEA”) for La Loutre in 2018 right at the precise moment when graphite prices are rising. Reports during October 2017 on the Industrial Minerals website indicates that European prices for flake graphite with 94% and 97% purity have risen $200/tonne. In addition, Roskill Information Services of London, a leader in international metal and mineral analysis, also noted an increase in prices for grades above 95% carbon due to plant closures in Shandong, China resulting in higher prices for larger flake graphite. Steel 360, a monthly publication covering the metal and mineral industry in Asia, concurred on market forecasts and offered a deeper insight into how China was impacting the entire industry: “Steel manufacturers have been perplexed with the sudden rise in prices as well as the unavailability of graphite electrodes which is essential in electric arc furnaces (“EAF”). With the surge in EAF capacity in China following the crackdown on obsolete induction furnaces prices of graphite electrode rods started to skyrocket exponentially. The increase in use of graphite electrodes in the battery industry only made the raw material even dearer as both industries began to compete for the limited material. The rise in production of graphite electrodes has not been able to keep pace with the rise in demand, thus resulting in extreme shortage.”
“When lithium prices tripled in 2015-2016, it brought incredible attention to the junior lithium market. Now that flake graphite prices are increasing, we anticipate it will draw the attention of quick-acting, savvy investors looking for maximum return on investment in the other battery material & graphite,” stated A. Paul Gill, Lomiko Metals Inc. CEO in a recent press release. “Lomiko provides an interesting combination of advanced development with an established resource and value, based on our small market of $4 million Cdn.”
In the meantime, Lomiko has been successfully raising funding through ongoing private placements to increase its drilling operations and complete graphite metallurgy, purity and characterization testing. Investors are excited by the La Loutre property because of the high flake graphite levels already discovered, which could hopefully lead to trading in a similar bracket as Zenyatta Resources (ZEN:CA), which is trading with a market capitalization over $45 million.
The graphite market is starting to prove out for Lomiko, but this is no surprise for Gill and his team. They have been well ahead of the curve for some time.
“We have insight into the future and have positioned ourselves accordingly,” Gill told Equities in November of last year. “The path for us is clear. Lomiko has analyzed changes in consumer trends and concluded that consumer interest in Electric Vehicles will continue to grow for the next 20 years until these vehicles make up 25% of the cars on the road. Each of these vehicles requires anywhere between 100 and 300 lbs of graphite in the lithium batteries used in EVs. One of the key insights we made was that each car will need 15 times more graphite than lithium. In order to meet graphite demands for the Tesla cars alone, 4-5 new flake graphite mines need to start producing natural flake graphite to meet this new demand.”
A Diverse Approach That Is Paying Off
But, Lomiko has their hands in more than just graphite. The company has made recent moves that demonstrate their ability to reach all the way up the value chain. Earlier this month, Lomiko along with its partners SHD Smart Home Devices (www.shddevices.com) announced the development of their Spider Charger®, an AC Wall receptacle with six USB ports with IoT connections that will allow for power consumption data.
“I think the amazing thing about this particular device is that it is seamless,” said A. Paul Gill CEO of Lomiko Metals and VP of Business Development for SHD. “It will adapt to firmware already in existence and can be programmed using open source software, so it is a very versatile product. The Spider Charger will replace a normal wall plug, it will have connectivity to wireless networks, security protocols that we can program into it, and in addition to that you can reprogram them and have them communicate with mobile devices. So, really this is a multitasking device.”
The Spider Charger was designed for the hospitality sector or for new homes and condos. In this vein, Lomiko and SHD Smart Home are in discussions with a U.S.-based distributor, Automated Building Devices, to begin selling the device to builders in the Western states.
In addition, Lomiko has a significant hand in the graphene market. The company has a 40% interest in Graphene ESD, a U.S.-based company established in partnership with Graphene Lab and Stony Book University. The lab is working with this “miracle metal” to use its 2D properties that are strong, flexible, conductive, durable and thinner than human hair to disrupt the energy storage market.
An investor in Lomiko taps into a number of booming sectors – lithium batteries, IoT and advanced materials like graphene that even Goldman Sachs is researching. Gill and his team have shown themselves to be not only great speculators of market trends, but also adept at progressing multiple projects to the finish line. With a one-of-a-kind portfolio and a PEA on the horizon in the middle of a graphite shortage, Lomiko Metals is poised for a strong run.
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