Inside Australia’s graphite boom

The excitement surrounding Syrah and the graphite space has led to wave of interest in graphite, culminating in the Graphite Conference, the brainchild of Shaw’s Vincent Pisani in mid-September, at which Benchmark Mineral Intelligence was invited to give the keynote presentation.

Graphite’s use in existing industrial applications – such as steel refractories – and emerging high-tech industries like electric vehicle batteries, has ensured that it has been one of the highest profile critical minerals in the last 10 years.

The supply risk is higher with graphite than most industries, as China dominates 60% of flake production (the material used in both steel and batteries), 85% of total natural graphite (including the lower value amorphous grade), and, critically, nearly 100% of battery-grade spherical graphite, which is thought to be the most crucial of emerging markets.

The industry has not had any new mines in a generation outside of China, a factor which has resulted in a boom in global exploration, led by Canadian listed companies since 2011.

Since Canada’s surge, fundraising has been tough for commodities in North America, in 2013 and 2014 especially. But Australian investors have enjoyed their first serious exposure to graphite and, as a result, capital has been easier to access for ASX-listed explorers.

While the combined market cap of graphite companies in Canada has fallen by approximately 20% to around $520m in 2014, the value of Australian-listed juniors has boomed 120% to $1.1bn in the same period of time (October 2014 data).

This is not necessarily as a result of quality of projects, but rather a wave of excitement in Australia that has long since receded in Canada. Flake graphite’s supply restrictions in China have also resonated in Australia, where investors and companies tend to have a closer link with Asian capital.

This year, China revealed its intent to consolidate and modernise its primary graphite producing regions, a factor which is expected to lead to long-term supply restrictions. Today’s market pricesin China have exhibited slight rises on the back of this development, but no serious price spike has yet occurred.

The Graphite Conference was hosted at a time when iron ore prices were in free fall, an apt reminder of the erratic nature of bulk commodity investing and the attraction of new alternatives that critical minerals and metals like graphite offer.

Thoughts from the audience varied from the extremely bullish (generally individual and retail investors) to the cautious, the latter which tended to be the larger institutions, some of which were burned by the rare earths bubble.

But the attraction of the space has been such to pique the interest of institutional brokers such as Deutsche Bank and Credit Suisse.

While graphite’s supply structure remains high risk owing to China’s activities to consolidate and modernise its dominant industry, and the long-term prospects for batteries are bright, graphite will remain firmly on the investment radar around the world.

Graphite ASX Market Cap Breakdown

The below graphic is a breakdown of the total market cap of graphite companies on the ASX, the vast majority of which are focusing on flake graphite projects.

First published 8 October 2014 in Benchmark Mineral Intelligence Newsletter. Get it first; Sign up at www.benchmarkminerals.com

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