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February 27th, 2012

An Overflow Crowd Attends North America’s First Graphite Conference

By Greg Klein

Surveying the room, Zimtu Capital TSXV:ZC President Dave Hodge stated that soaring world demand for graphite presents great challenges and opportunities. The scene was Vancouver’s February 23 Graphite Express-Conference, where an SRO crowd of over 400 brokers, analysts and investors listened to presentations and met with representatives of the junior exploration sector. Hosted by publisher OnPage Media Corp, the event was the first in North America to focus on this hot commodity.

Keynote speaker Chris Berry, co-author of Morning Notes and founder of House Mountain Partners, emphasized the role of small-cap explorers in finding resources to satisfy both current and future demand. The future of graphite, he declared, is one of highly encouraging probabilities and mind-boggling possibilities.

An Overflow Crowd Attends North America's First Graphite Conference

Over 400 brokers, analysts and investors attended the Feb 23 Graphite Express-Conference in Vancouver

Graphite is already crucial to the steel industry. An extremely heat-resistant material, it’s used to line the refractories inside blast furnaces and the ladles and crucibles that hold molten steel. It’s also a key ingredient in strengthening steel. It’s used in a range of products including gaskets, brake linings, tennis rackets and golf clubs. It’s what puts the “lead” in pencils, and is essential to the burgeoning battery industry.

Lithium-ion batteries use anywhere from 10 to 30 times more graphite than lithium. Li-ion demand is expected to grow by 25% a year once the batteries become standard for phones, cameras, MP3 players and, especially, electric vehicles. Pebble-bed nuclear reactors could use as much flake graphite as the world now produces. Hydrogen fuel cells, Berry said, “could potentially require all of today’s current supply, never mind batteries, never mind nukes, never mind steelmaking.” Innovation could drive demand even further, and graphene—a truly extraordinary graphite derivative—is just the material to inspire innovation.

China currently produces about 80% of the world’s graphite supply but has restricted its exports. Resource nationalism, as Berry calls it, will play a crucial role in graphite supply and demand. Britain, the US and other countries have already designated graphite as economically critical.

He noted that emerging economies bring with them a rising quality of life, and “You can’t attain that without access to affordable, reliable and cheap electricity.

China’s current five-year plan “is the greenest in Chinese history,” Berry said, with the government committed to over $630 billion of energy research and development. “Graphite is essential to the Chinese drive to find next-generation technology in energy storage, energy generation and energy efficiency.”

According to the US Geological Survey, 2011 world graphite production totalled 1.1 million tonnes. Some 60% of that is amorphous graphite, suited to steelmaking and other traditional uses. Only 40% of current production is the flake graphite necessary for lithium-ion batteries and other new technologies. Traditional graphite use alone is expected to increase by 5% a year.

Berry explained, “These numbers ignore higher growth rates in batteries, that 25% I mentioned, and the potential for fuel cells and the potential growth in China and the US for pebble-bed nukes. Looking at the battery demand alone, compounded by 25% year on year until 2020, we’ll need 327,000 tonnes not just of graphite but of large-flake, high-purity graphite. If you add to that pebble-bed nuclear reactor demand just from China, that would require another 400,000 tonnes of large-flake graphite by 2020. Current global supply of large-flake graphite is just 400,000 tonnes. Batteries and pebble-bed nuclear reactors would require double the supply of large-flake graphite in the next eight years.”

Then there’s graphene. Thin enough to be transparent, more conductive than copper, 200 times stronger than steel, rollable, bendable, foldable, this graphite derivative has caught the imagination of R&D boffins around the world. Berry said the wonder material could replace silicon in microchips, making them smaller and faster. “That’s about a $9-billion-a-year market by my estimates.” Among graphene’s near-term commercial applications are amazingly tough bendy-screen phones and, looking further into the future, mobile displays.

Batteries and pebble bed nuclear reactors would require double the supply of large-flake graphite in the next eight years—which again I think makes the case for the junior companies going forward —Chris Berry

The graphite market’s biggest concern is security of supply, Berry stressed. This gets tricky because graphite has to be refined according to each customer’s specific needs. “If you’re an automotive manufacturer or battery manufacturer, security of supply is what keeps you up at night” Berry said. “That makes the case for additional entry into the graphite space, especially by the juniors.”

Seven such companies took part in the conference, representing the “major exploration boom” Industrial Minerals has attributed to Canada. Their properties ranged from recent acquisitions to advanced-stage projects. But given the relatively low costs for every stage from graphite resource estimate to capex, as well as the strong potential for offtake agreements, the term “fast-track” became familiar.

Solace Resources TSXV:SOR chose the day of the conference to announce a proposed name change to First Graphite Corp, following closely on its option of the Montpellier Graphite Project in Quebec. Lomiko Metals TSXV:LMR entered the graphite space in January with an option to acquire a 100% interest from Zimtu in the Quatre Milles Graphite Property, also in Quebec. That same month, Cedar Mountain Exploration TSXV:CED optioned the Graphite Creek Property in Alaska. Standard Graphite TSXV:SGH now holds 12 graphite properties in Quebec and Ontario.

Strike Graphite TSXV:SRK has options with Zimtu on two graphite properties in Saskatchewan, as well as the Wagon Graphite Property in Quebec. Northern Graphite TSXV:NGC has taken its Bissett Creek Graphite Project in Ontario into feasibility. Most senior of Canada’s graphite juniors is Focus Metals TSXV:FMS, which is pushing the world’s highest-grade graphite deposit towards 2013 production at Lac Knife, Quebec.

“If I’m only halfway right, then obviously demand will outstrip supply, and when I look over the landscape, even the companies that exist today will not be able to satisfy the demand for high-purity, large-flake graphite—which means higher prices,” said Berry.

Following the event, OnPage Media principal Robert Bick said, “The tremendous success of this conference shows the keen interest in this white-hot commodity. Events like this bring investors and explorers together, helping them realize future opportunities. So we’ve already booked Chris Berry for a second graphite conference in Toronto.”

Disclaimer: Zimtu Capital Corp, Solace Resources Corp, Lomiko Metals Inc, Cedar Mountain Exploration Inc, Standard Graphite Corp, Strike Graphite Corp, Northern Graphite Corp and Focus Metals Inc are clients of OnPage Media and the principals of OnPage Media may hold shares in those companies.

Read feature story on graphite.

View materials and videos from the conference.