The Time to Invest in Graphite is Right Now (Resource World, Feb 2012)

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MARKET ANALYSTS AGREE The time to invest in graphite is right now by Daina Lawrence T hough the word graphite brings to mind pencils and baseball bats, the commodity has new uses and a new role as a critical component in today’s technology. Investors should take a long, hard look at graphite as a potential investment; according to market experts, demand is increasing and the price is quickly being driven upwards, says Ryan Fletcher, director at Zimtu Capital Corp. [ZC-TSXV]. “We’re a public investment company and part of our role for our shareholders and investors is to be ahead of the curve and have foresight,” says Fletcher. “We’re looking for where there’s opportunity ahead of time before the general public or the retail or the rest of the market figures it out.” Right now that opportunity is in The flake graphite operation of Eagle Graphite near Nelson, southeast British Columbia. Photo courtesy Eagle Graphite Corp. graphite, according to Fletcher, because it remains a well-kept secret – for now. “I’ll test from time to time by asking more sought after. investment side – either acquiring proper- brokers or financiers, people that have A couple of years ago, Zimtu Capital ties or looking to invest in companies that been in the business longer than I have, I’ll looked at graphite and a project in Eastern are acquiring properties and advancing.” say ‘what do you know about graphite?’ Canada. At the time there wasn’t a lot of Right now, China holds more than 70% and ‘have you heard anything about it?’ ” knowledge in the finance and brokerage of the graphite market, but countries says Fletcher. “I’d say one out of 20 know community about the product and the around the world, including Canada, are about it.” company decided it was not the right time looking at expanding the market, into Just like diamonds, graphite is a natu- to invest. their nations, to help diminish the global rally-formed polymorph of carbon. It is an However, movement in the industry has reliance on China’s graphite exports. excellent conductor of heat and electricity really picked up within the last 12 months Experts agree the longer China holds a and has the highest natural strength and and there have been a number of large monopoly on the graphite market the higher stiffness of any material. At the same time, financings for graphite companies, which the prices may soar because many of the it is one of the lightest of all reinforcing piqued the interest of the public invest- graphite mines are located in the country’s agents and has high natural lubricity, mak- ment company, explains Fletcher, citing northern regions where poor winter condi- ing it especially valuable to the steel and large multi-million dollar fundraising deals tions often cause closures lasting several automotive industries. Graphite’s value is with Focus Metals Inc. [FMS-TSXV] and months. Power outages are also a relatively becoming ever more evident as it is used Northern Graphite Corp. [NGC-TSXV; common occurrence and these factors make in items like lithium batteries, fuel cells, NGPHF-OTCBB]. this material even harder to acquire, illus- laptops, smart phones and electric vehicles “That, in our minds, legitimized the trating why non-Chinese graphite mines are and, as the market demands more of these space with $45-million being raised and needed to keep up with global demand. products, graphite is going to become even we started to look at it more from the Since 2005, graphite prices have almost26 www.resourceworld.com FEBRUARY 2012

❝ That is, a economic importance of it are significant enough to potentially start a conflict, much like oil. tonnes per year of high carbon, natural- flake graphite with a purity level ranging from 93% to 99%. And it only shows signsresource where “It’s strategic and the Chinese under- of going up, says Jamie Deith, President stand that and they’ve already started to of Eagle Graphite. “We plan to grow ourthe supply risk make moves to try and control graphite production capacity several times over. resources for their own internal economy,” Demand for our product is very strong,and economic says Fletcher. “So you have value added and we want to use this opportunity to taxes, export licensing and so forth that establish ourselves as a leading producer,”importance the Chinese are putting onto the resource he says. “It will require a moderate amount to try and control it…” But, like most of capital to get there, but we feel that theare significant things in business, there are no guarantees market is becoming increasingly receptive and getting into graphite means having to graphite mining.”enough to to know what you’re up against. “I mean, Other Canadian companies seem to be there are certain cautions or pitfalls that catching on as well as several graphitepotentially start you should be aware of if you’re an inves- juniors are also positioning themselves to tor looking at this space,” warns Fletcher. profit from the growing demand for thea conflict, He explains that graphite is different resource. The country’s list of develop-much like oil.❞ because it’s custom-made for the industry ers includes Focus Metals, GreenLight and producers have to do a deal with an Resources Inc., Strategic Energy end-user for their product, making it a Resources, Mega Graphite, Northern more one-on-one approach from producer Graphite Corp., Ontario Graphite, andtripled as a result of continuing indus- to manufacturer. “The one thing that Strike Gold Corp. [SRK-TSXV] and itstrialization in China, India and other people have to realize is with any minor subsidiary, Strike Graphite.emerging economies thanks to solid graph- commodity is that graphite isn’t like cop- As its main focus, Northern Graphiteite demand from steel and automotive per, gold or oil. No matter where you get holds the Bissett Creek Graphite Projectmarkets. But new technologies, such as it from its relatively the same and there’s a 100 km east of North Bay, Ontario, closelithium-ion batteries, fuel cells and nuclear global market for it. And the market for it to major roads and infrastructure. An NIpower have the potential to create a more is so big that you could just dump it into 43-101 Preliminary Economic Assessmentsignificant future demand. For example, the market and you will get whatever the Report has been completed and the com-it takes 20 to 30 times more graphite than current price for it is.” pany has begun a bankable final feasibilitylithium to make lithium-ion batteries. Fletcher notes that it is these end-users study and started the environmental and Graphite prices reflect flake size and that hold much of the future of graph- mine permitting process. Northern expectspurity, with large-flake (+80 mesh), 94% ite mining in their hands because they to begin mine construction early this year,carbon varieties fetching premium pric- know they’re going to need a certain subject to a positive final feasibility studying. Prices pushed US $1,300 per tonne in amount of product, but they don’t know and the availability of financing.the late 1980s, but crashed to US $600-750 where they’re going to get it. “So I see a Strike Graphite has two graphite proj-per tonne in the 1990s as China’s graphite bright future in that respect, in terms of ects in northern Saskatchewan – themines flooded the market with product. the end-users supporting these projects Deep Bay East Project and the Simon LakeDuring this period there was essentially no and entering into transactions and really Project. Deep Bay East is less than 15 kmexploration and as a result there are very becoming involved with developers.” east of the Deep Bay West Graphite Mine.few projects in development today. These Canada’s graphite mine development Strike’s graphite property is noted for itsdays, large-flake, high carbon graphite has been picking up steam with current potential to host a near-surface graphitesells for US $2,500-$3,000 per tonne as the exploration in Ontario, Québec and parts deposit comprised of scarce, large-flake,supply for this quality is especially tight. of British Columbia. high-purity graphite. The Simon Lake The mineral is considered rare and valu- Eagle Graphite Corp. owns one of only Project is located approximately 280 kmable, which makes it appealing to investors two natural-flake, graphite mines operat- northeast of La Ronge and hosts severaland miners alike. But this market squeeze ing in North America – the Black Crystal showings of flake graphite mineralizationcan also be dangerous, explains Fletcher. deposit in southeastern British Columbia. in historic drill holes.European and American governments now The company acquired and reopened the Orocan Resource Corp. [OR-TSXV],consider graphite a strategic resource. That 100-hectare, open pit quarry back in 2006- which is changing its name to Standardis, a resource where the supply risk and 2007 and is now producing 4,000 metric Graphite Corp. [SGH-TSXV], has about aFEBRUARY 2012 www.resourceworld.com 27

dozen graphite projects in southern Ontario remaining the only producer in Western and Québec as well as eastern Québec. For North America for several years at least.” this year, the company has planned airborne But even with these changes happening geophysical surveys, ground EM geophys- in North America, Asian countries are still ics, mapping, trenching, metallurgical going to account for much of the demand testing, and diamond drilling. and China still remains at the forefront of “We are seeing plenty of exploration the market, driving prices upwards. companies emerging in Canada, but most “By and large I think the analysts have of those are for deposits in Québec,” it right,” says Deith. “Prices have increased explains Deith. “In BC, there has been dramatically over the past few years due relatively few good graphite deposits iden- to Chinese government policies, which, tified, so I expect that Eagle will account in turn, appear to be driven by Chinese for most of the graphite exploration here.” domestic consumption of graphite, espe- More exploration is also a possibility for cially for steel making.” Eagle Graphite as the company’s open-pit “I don’t see that situation changing so quarry is currently surrounded by 7,600 long as China and India are growing eco- hectares of undeveloped mineral claims, nomically. There is also very real potential boasting loads of potential. for a future surge in demand if either elec- “There is definitely room for more graph- tric or hydrogen fuel cell vehicles start ite production, and over the next two to to appear in large numbers. The leading three years I would not be surprised to see designs for both vehicle types consume a few producers coming on line in Eastern significant amounts of graphite, and sup- Canada. However, I foresee Eagle Graphite plies are already tight.” n 5 only $59.9 SAVE Subscribe today – 2 years $142.40 online at www.resourceworld.com or phone 1.877.484.3800 up to 50% NAME ADDRESS CITY PROV. POSTAL CODE PHONE E-MAIL 2 year subscription; Canada ($59.95 + tax) US subscription; 1 year (print or digital $29.95 USD) 1 year subscription; Canada ($39.95 + tax) US subscription; 2 year (print or digital $59.95 USD) Online Edition $29.95 (+ tax) International ($250.00 print $29.95 digital) Renew my subscription 709-700 W Pender St., Vancouver Bc V6c 1G8 Canada * Resource World does not sell your information to third parties28 www.resourceworld.com FEBRUARY 2012

The Time to Invest in Graphite is Right Now (Resource World, Feb 2012)

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