Updated: May 20, 2022
More than ever countries are scrambling to assess requirements for critical raw materials vital in transiting to a green economy and developing self-sufficiency in renewable energy.
Attention is increasingly turning to graphite and its importance in decarbonising transportation and heavy industry – two sectors with high Co2 emissions.
Lithium-ion batteries have transformed the energy and electric vehicle markets due to their unique properties. They are lighter, stay charged longer and perform better than nickel-cadmium batteries. The anode in lithium-ion batteries is almost exclusively graphite.
Lithium-ion batteries are heavy, with a typical electric vehicle EV battery coming in at around 400kgs. Graphite is, by weight, the largest component of a lithium-ion battery, comprising around 10-40 kgs of the weight. Graphite is also used in other parts of an electric vehicle, so the total graphite component may be as high as 100kgs. To achieve the output a graphite mine and processor would typically require around 3,000kgs of raw material.
Credit Suisse research analyst Phineas Glover forecasts a major graphite supply deficit as EV sales increase, with a deficit of 32% by 2025 and demand to grow by 500% by 2050. In Europe alone by 2027, it is expected 50% of all new vehicle sales will be electric.
This analysis is supported by Benchmark Mineral Intelligence which forecasts a 28% annual growth to 2030.
There are several types of graphite – natural, synthetic, vein and flake graphite. Natural graphite can be mined around the world. Synthetic graphite is produced from oil or coal-based coke.
Producers of battery anode material are increasingly moving away from using synthetic graphite production as it is expensive, energy-intensive, and generally not environmentally friendly.
Graphite is ideal as a component for rechargeable batteries due to its versatility. It has a honeycomb-like molecular structure, making it flexible and strong and a perfect conductor for electricity. The ability to carry, store and move electrical charge makes graphite ideal for the anode material in EV batteries.
China is the epicentre of the global graphite industry, with around 75% of natural graphite production and almost 100% of battery anode production.
Over 15% of all-natural graphite produced globally is used in EV batteries and about 90% of this is used in lithium-ion batteries. Graphite is used across all common battery chemistries, including lithium-iron phosphate.
Graphite is also used for Hydrogen fuel cells for transport applications and stationery and portable fuel cell/battery applications.
The expected surge in global demand for graphite has led to the mineral being characterised as a “critical raw material” or “critical mineral” in Europe, Australia, United States and Canada.
Here in Europe graphite production is limited and accounted for only 2% (34,000 t) of worldwide production in 2018. Mainland Europe’s major graphite resource is the Zavalyevskiy mine in Ukraine – 70% owned by ASX listed Volt Resources Limited (ASX: VRC)
In the United States the situation is even bleaker with no production of graphite and all processed graphite imported from Asia.
In a recent article in The Times on Sunday ("Who Owns the Earth? The scramble for minerals turns critical") a rather alarming graph was published showing just how reliant the world is on processed graphite from China.
Companies to benefit from surge in demand from Graphite
Talga Resources (ASX: TLG) announced in early 2022 production of first lithium-ion battery anode in Europe from their plant in Sweden with product sourced from their local resource. The company plans to ramp up to 19,500 tpa of coated anode production by 2024.
Syrah Resources (ASX: SYH) announced in late 2021 a binding offtake agreement with Tesla with active anode material produced at the company’s site in Louisiana and sourced from their wholly owned resource in Mozambique - one of the largest graphite projects in the world with a resource capacity of 350,000 tonne per anum and a 50 year reserve life.
Graphite resource companies are increasingly looking to enter the lucrative downstream value-added side of the business.
Volt Resources Limited (ASX: VRC) is making strategic inroads in the US EV battery sector, and recently announced a joint development agreement with Urban Electric Power (UEP) and American Energy Technologies Co. (AETC). The agreement will leverage Volt’s graphite production capacity in Europe (Ukraine) and Africa (Tanzania) to produce non-spherical graphite products including conductive graphite for the battery market. The collaboration project will further involve testing non-spherical graphite to improve alkaline battery performance.
Recently listed on the ASX in Australia is International Graphite Limited (ASX: IG6). The company is developing Western Australia’s first vertically integrated graphite facility with a world class graphite resource at Springdale and a downstream graphite processing at Collie. The plan is for the downstream processing plant to service global markets whilst delivering customer-focused products meeting world best environmental practices and international standards of quality and safety.
Also seeking to become a vertically integrated graphite producer is Ecograf Limited (ASX: EGR). The company is developing a graphite processing plant in Western Australia to manufacture spherical graphite products for export to Asia, Europe, and North America. The plant will use a hydrofluoric acid-free purification technology to create sustainable, high performance battery anode materials. The company also has a long-life graphite project located in Tanzania.
UK specialist ESG fund managers are also investing strategically in the graphite sector. ARCH SRF is a cornerstone investor in Evolution Energy Minerals Ltd (ASX: EV1) with a 25% holding from an initial A $8 million investment. ARCH SRF is advised by ARCH Emerging Markets Partners Limited, a specialist investment advisory firm with deep experience in emerging markets, private equity, asset management and ESG matters.
Evolution Energy Minerals owns a graphite resource in south-eastern Tanzania which holds a high-grade mineral resource of 20.1 million tonnes at 9.9% total graphitic carbon (TGC) for 1.991 million tonnes of contained graphite.
Recognising the importance of ESG to the investment by ARCH SF, Evolution Energy Minerals will seek to increase its ESG credentials and has already done so engaging Digbee to provide an independent and transparent assessment of their ESG performance.
Renascor Resources (ASX: RNU) is developing a major graphite resource in South Australia. The company’s Siviour project is one of the world’s largest outside Africa with over 3.8 million tonnes. The project will result in a vertically integrated battery anode materials business using an environmentally friendly hydrofluoric acid-free purification process.
Renascor recently signed an offtake agreement with Hanwa - one of Asia’s largest battery chemical trading companies and is for 10,000 tonnes per annum of purified spherical graphite over 10 years.
Some Canadian companies have also recently reported some significant achievements and are attracting global investor interest.
In 2021, Vision Blue Resources – a specialist EV battery minerals investor – announced a US $29.5 million investment in NextSource Materials (TSX: NEXT) which is developing one of the largest and highest quality flake graphite deposits in the world in southern Madagascar. The project will involve a vertically integrated graphite processing plant to produce spheronised, purified graphite.
Vision Blue Resources was formed by Mick Davis, former CEO of Xstrata PLC – and Anglo-Swiss multinational mining company. Mr Davis as a very positive view on long term graphite demand, saying in 2021 “the demand outlook for graphite is the strongest for all battery minerals with no credible substitution risk and the potential for a sixfold increase in global”.
Another Canadian company, Graphite One Limited (TSX: GPH) is developing a graphite resource in Alaska with plans to expand into a vertically integrated operation producing high grade Coated Spherical Graphite (CSG).
In a recent interview with Deutsche Welle (14 March 2022), Burkhard Straube the head of graphite solutions unit at SGL Carbon said, “we hardly have any supply in Europe to even scratch the surface for future graphite demand for the lithium-ion battery industry so far…I would be highly concerned how companies in Europe as well as North America would satisfy demand for graphite in the future”.
This insider analysis from Europe where 25 Gigafactory’s are expected to be operational by 2025 provides a sober assessment of the critical demand for this critical raw material.
Here are the graphite stocks we expect to perform strongly in 2022 and beyond.
Finally, here is an excellent video from The Hague Centre for Strategic Studies on Graphite supply chain challenges.