SOURCE: VantageWire.com - It appears that the graphite craze of 2012 was not a one-year flash in the pan. Thanks to advancements in the graphite industry and in particular the graphene industry (lightweight durable carbon sheets similar to graphite), the demands upon the sector continue to grow. For junior graphite explorer, Lomiko Metals [LMR:CA], the timing couldn’t be better, as they continue to develop their Quatre Milles Project, which has shown high-purity graphite, while at the same time benefiting from a recently signed partnership agreement with a private graphene producer in New York.
In 2010, the Nobel Prize in Physics was awarded to two physicists out of the University of Manchester for groundbreaking experiments regarding the two-dimensional material, graphene. In turn, there has been a flood of research in the scientific community for testing of graphite and graphene, that has produced over 7000 patents in the last five years related to the material. This year, the European Union bankrolled a billion euro grant for Sweden’s Chalmer’s University to further research on graphite and graphene, while other projects around the world are also in talks for funding and initiation in the near future.
While these pushes are going forward, Lomiko recently solidified itself as a serious player in the advancement of the market for the material itself, by aligning itself with the New York based, Graphene Laboratories Inc. in an effort to establish vertically integrated business opportunities.
THE PARTNERSHIP GOING FORWARD
The idea behind the partnership is to co-develop a vertically integrated supply chain of high-quality graphite with cost-effective and scalable processing for graphene-based products for use in end-user products. Lomiko will supply the mineral samples from its Quatre Milles Project for the testing of natural high-quality flake graphite for use in graphene conversion. Graphene Labs will design a procedure for further purification of Lomiko’s supply chain, and establish the necessary relationships with end users of the materials.
Ideally, for Lomiko, it will allow the company to focus on developing its resource, while allowing Graphene Labs to foster the necessary marketing relationships that are the catalyst for success in this market that is still awakening in North America in the wake of China’s pullback on exports. Lomiko provides the graphite, Graphene Labs delivers an extensive customer database, along with expertise in developing graphene materials.
As well, the partnership throws its hat into the graphene research game, with joint Research and Development, and Public Relations efforts for end uses of graphite and graphene products. In essence, they’re not only harvesting graphite for researchers and manufacturers, they are the researchers and manufacturers.
THE GRAPHITE MARKET TODAY
Due to increased demands from within China for this material of expanding importance, fears among the world’s manufacturers that consume graphite products have provided the impetus for graphite investment abroad. Rapid growth in demand for graphite-reliant items such as lithium batteries, which power all types of products such as electric cars, mobile phones, and laptops continues to change the graphite landscape. What has resulted in the years since has been a push towards more international production, as the bulk of the global supply has come from out of China.
Thanks to a major pullback in China for graphite production (mainly through the shutting down of any small mines, coupled with the waning productivity of the larger scale mines), the window for North American opportunity in this sector gets wider. While buyers of the material secured whatever supplies they could, the price of available graphite has spiked for two to three years up until 2012. That influx of Chinese supply will continue to plummet, as graphite prices rebound from the first big run that ended last May.
The result should be the stabilization of graphite at higher levels, and in turn the demand on graphite-infused products will continue to grow. Analysts have estimated an average annual increase of 15% in demand in the foreseeable future.
What’s important to recognize right now is that the lithium ion battery market is not yet using natural graphite. At present, they are using synthetic graphite, which goes for $10,000 a ton, as the end users desire a very pure product due to its electrical conductivity.
Other North American graphite companies, such as Northern Graphite [NGC:CA] have also chipped in significant efforts for the natural graphite cause. Their work has included advancements in creating pure graphite out of natural flake graphite. Major breakthroughs in this technology not only benefit peers such as Lomiko, but also the environment as well.
Despite the benefits of reduced petroleum consumption, electric cars will continue to have a major carbon footprint until they stop relying on synthetic graphite. Synthetic materials are actually derived from the combustion of large amounts of oil-related products. The burning of these products is something that can be controlled in order to produce pure carbon. So the typical Toyota Prius customer transporting themselves on a battery derived from synthetic carbon is, ironically, lost amongst the clever marketing and self-delusion. Advancements in natural graphite will eliminate this hypocrisy and give the consumer the ethical high ground they desire, and ultimately deserve.
Prices for natural graphite are also much lower than the synthetic materials. Amorphous graphite is the lowest grade of purity, and sells for anywhere between $400-$500 a ton, while flake graphite starts at $1,500 a ton, and depending on purity can reach as high as $2,500-$3,000 per ton. Either way, this is a significant price difference from synthetic’s $10k/ton price tag.
As a result, major subsidies are being thrown at the electric car market to make it more appealing to consumers. Like it or not, the average taxpayer is paying for electric vehicle production, without a clue as to the method which synthetic graphite is produced.
Advancements in graphene production will make a major difference in years to come. Not only does the electrical conductivity of the material help for power, but also the lightweight and durable nature of the graphene helps to reduce energy consumption among much large vehicles and vessels. For example, coating the bottom of an ocean liner or oil tanker with graphene reduces resistance by 15%. By 2020, we’re going to see a lot more products reliant on this material, and a revolution of how things are made will ensue. It’s already happening now.
LOMIKO’S MINING STORY GOING FORWARD
With Phase 1 of its drilling program already completed and under its belt on Quatre Milles, Lomiko has a blueprint drawn by its comparable, Northern Graphite, which seems to be just further ahead on the timeline. Both companies are in the same geological trend, and have the same types of near surface intercepts. One thing Lomiko is able to accomplish is reduce the ultimate cost of production through its focus on close to surface, high grade mineralization.
Phase 1 drilling delivered 11 highlighted holes with possibly enough graphite at a high enough grade to warrant starting a mine. Going forward, the company is working to get its Phase 2 drilling underway. Added funds through a financing will be necessary to kick off the ongoing agenda, but once they have the drills turning excitement and gains in legitimacy await.
The company still needs to complete its metallurgy, along with getting further ahead with Phase 2 drilling, but the result of both will move them much closer to establishing a resource number. Gaining a resource will move mountains for Lomiko, especially with the new relationship with Graphene Labs.
THE BOTTOM LINE
Comparisons to Northern Graphite are warranted, as Lomiko shares a lot of the same defining factors. Same trend, similar geology, good infrastructure to move the product to market. Many consider Northern to be ahead of the game with a bankable feasibility completed, but the Lomiko gameplan actually seems to be benefiting more by tweaking Northern Graphite’s blueprints. Lomiko’s management keeps a very close eye on Northern’s newsflow, as there is a lot they can learn from their elder peer and improve Lomiko’s strategy.
But even through comparing apples to apples, the kinds of grades that Northern received at the beginning when compared to Lomiko’s first results give Lomiko a slight advantage, with better grades closer to the surface, and a better intercept.
Management is understandably excited about its new partnership, and the potential that the graphite market has in store ahead. A viable revenue model is in the works, and has others watching their every move. If carefully maneuvered, Lomiko could have all the right ingredients to build a full service vertically integrated graphene outlet that can stand to benefit from the increased demands the world is seeing in the space.
What the market wants to see is advancement in the story. The partnership gives a boost of credibility, but not the kind that will come if they can establish a respectable resource in the coming 16 months. Meanwhile, Lomiko, like Northern and other graphite players, will stand to benefit from China’s graphite slowdown, and the ever-growing global thirst for more high-grade graphite supplies, as they work their way down the road towards production.
G. Joel Chury
for the Bottom Line Report