The word ‘fad’ doesn’t exist in the minds of true miners and prospectors. However, fads are something that people like you and I can make a lot of money investing in if we are ahead of the curve and right now I believe the graphite sector is in the early stages of the ‘fad’ and will provide a ton of profitable opportunities. [Let’s take a look at just why, where and when you should get positioned in this fast developing sector.] Words: 1535
So says Aaron Hoddinott (www.PinnacleDigest.com) in edited excerpts from his original article which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited below for length and clarity – see Editor’s Note at the bottom of the page. (This paragraph must be included in any article re-posting to avoid copyright infringement.)
Hoddinott goes on to say, in part:
The next resource investing fad has arrived. Over the coming months you are going to be hearing more and more about the shrinking supply of graphite, the lack of graphite mines operating outside of China, the control China is pursuing over the graphite market (export duty and VAT implemented) and the expected demand increase over the next decade. This rhetoric, although based on real fundamentals, is going to create another overbought and overplayed sector. Graphite stocks will be the next fad investment, just as rare earth stocks were in 2010, molybdenum stocks in 2006 and 2007 and uranium stocks in 2005.[Editor’s Note: Before we begin let’s get a better understanding of what graphite is and how it is used in manufacturing. According to Wikipedia the word ‘graphite’ comes from the Ancient Greek γράφω (graphō), “to draw/write”, for its use in pencils, where it is commonly called lead (not to be confused with the metallic element lead). Graphite and graphite powder are also valued in industrial applications for its electrical conductivity and self-lubricating and dry lubricating properties. See an extensive list of uses below.
According to the United States Geological Survey (USGS) the major exporters are primarily China (800 thousand tonnes – kt) followed by India (130 kt), Brazil (76 kt), North Korea (30 kt) and Canada (25 kt). See below for a complete list of countries. Graphite is not mined in the U.S., but US production of synthetic graphite in 2007 was 198 kt valued at $1.18 billion. US graphite consumption was 42 kt and 200 kt for natural and synthetic graphite, respectively, leaving a shortfall whose supply is becoming more and more scarce making it ripe to become the next resource fad as outlined below.]
Fads Follow Similar Pattern
Fads aren’t a bad thing for us investors to get involved in, nor do they lack fundamentals, but they often follow the same pattern:
- the sudden bombardment of scary, supply shrinking and demanding increasing rhetoric being preached by newsletter types,
- a sudden staking surge of wannabe mining companies,
- an inflow of institutional money followed by
- a parabolic rise in stock prices… for 3 to 6 months,
- the fad becomes old news and the money dries up for the pretenders.
- the tried, tested and true mining plays (within the sector) still continue on – just as they were many years before [the product sector hype] and
- the pretenders move onto the next fad.
Much like boy bands, investment fads rise quickly and are forgotten just as fast. Only the true rock stars last…in music and geology.
Why Buy Graphite Stocks Now
Building a mine or developing an exploration project is a marathon. It takes a lot of money, anywhere from 5 to 10 years (sometimes longer) to develop and exceptional management talent (i.e. those capable of shrewd analyses – proactive thinkers, not reactive pretenders). Companies who are truly serious about taking advantage of the graphite supply issues saw this impending craze coming years ago. Any company just getting involved in an early stage graphite project is going to miss out on the demand increase expected over the next two to five years.
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So here we are. Late February 2012. Graphite is starting to become the new buzz word of the resource market. Soon, graphite stock websites, blogs and mini-conferences will start popping up all over North America. This is a clear indicator we are nearing the end of the early part of the fad, which is a fantastic time to be buying into stocks within the sector. The vast majority of investors are just starting to hear about the shrinking supply and increasing demand for graphite from all sources credible or non. Remember, these reporters, writers and analysts can’t talk about gold and silver every week [Read: Gold: $3,000? $5,000? $10,000? These 151 Analysts Think So! and Unlike Gold, Bull Market in Copper to Continue for Decades – Here’s Why], sometimes the flavor of the month has to change just to sell a few copies. Next, we will see a staking rush by all the pretenders out there just trying to ride the wave of momentum. If you’re going to get involved with graphite plays, you want to be in well before the staking rush begins. This is very important because exploration news and money will start to flow into the sector during and immediately following the staking rush.
Rare Earth Stocks and Graphite Stocks: Deja Vu?
I believe we are in the same stage of the ‘graphite fad’ that we were in at the beginning of January 2010 for rare earth stocks; a very advantageous moment to position oneself – especially in some of the explorers and miners with advanced projects (proactive thinkers).
Below are examples of the stock charts for some of the major players in the rare earth space. Their charts are almost mirrors of each other – a classic fad investment with a broad based parabolic rise. This is a pattern I believe is coming for graphite stocks; with that stated, I believe the graphite fad will not be as popular as the rare earth fad.
The ‘smart money’ is getting involved in graphite plays now. ‘Genius money’ is already in, but don’t beat yourself up for not being a part of that group as it primarily consists of the good ol’ boys…
Now that I’ve explained how I believe this fad investment will play out, let’s get into the real fundamentals behind why graphite is going to become such a hot investment.
Why Graphite Matters
Graphite will be a fad investment, but there are very strong fundamentals working in its favor for heightened demand and higher prices over the next decade.[As mentioned in the Editor’s Note above] China, Brazil and India produce nearly all of the world’s graphite, with China responsible for…75% of world graphite production – a very similar situation to rare earths, although not quite as extreme. China was producing over 90% of the globe’s rare earth supply before the fad in that sector went on its parabolic rise.
Below is a graph of worldwide graphite production provided by the United States Geological Survey (USGS).
China: Supply Issues
Chinese graphite mines are becoming less economic at these prices as many require deeper digging in order to get to the economic material. Because of numerous supply issues, China is implementing a VAT and export duty on graphite. China is also importing a substantial amount of North Korea’s large flake graphite which indicates it is having issues meeting its own domestic demand.
On July 30, 2010 the European Commission released a report titled ‘Critical raw materials for the EU’. In that report it stated that graphite was one of 14 critical raw materials for the EU due to their high relative economic importance and their high relative supply risk given that it was 95% dependent on imports, mainly from China…
Jack Lifton, regarded as the authority in the rare earth space, stated in an interview with The Critical Metals Report that “Governmental bodies have shown increasing concern about graphite’s importance…going on to state:
“Graphite has traditionally been considered a boring, mundane industrial mineral, evoking thoughts of pencils, golf clubs and tennis racquets. Investors should think again. Traditional demand for graphite in the steel and automotive industries is growing 5% annually, and graphite prices have tripled. New applications such as heat sinks in computers, lithium-ion batteries, fuel cells, and nuclear and solar power are all big users of graphite. These consumers are beginning to place substantial demands on existing production-and over 70% of that production is from China, which is no longer selling this resource cheaply to the rest of the world as the country’s easy-to-mine, near-surface deposits are becoming exhausted.”
Graphite Demand and Uses
Below is a quick rundown of many key graphite uses in our modern world:
- in the steel and automotive industry due to its high resistance to heat,
- in manufacturing as a steel additive,
- in furnaces,
- in solar panels,
- in lithium-ion batteries. There is more graphite in a lithium-ion battery than lithium itself.
- in electric bikes which are widely used across China and many other developing nations as a main mode of transportation,
- in fuel cells,
- in nuclear reactors,
- in cell phones and touch screens
Canada – Filling The Supply Gap
Canada…is expected to lead the charge in new graphite discoveries. There are presently very few advanced staged deposits in the country and currently only one producing graphite mine – Northern Graphite Corp (NGC) – which is located in Quebec and operated by a Swiss company.
It is expected, however, that graphite projects in [the provinces of] Ontario and Quebec will be common place [as these two provinces become] the epicenter for the graphite investing fad…as it unfolds. [As such,] when looking to play the graphite trade, these two provinces are where you’ll want to start your hunt.
Happy hunting, Aaron
Editor’s Note: The above article has been has edited ([ ]), abridged (…) and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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